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,
2007.
 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 registeredCommon
      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:
  46,702,092
common shares, $0.01 par value, outstanding as of April 30, 2008.
  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
I
  ITEM
      1.
              IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
              2ITEM
      2.
              OFFER
      STATISTICS AND EXPECTED TIMETABLE
              2ITEM
      3.
              KEY
      INFORMATION
              3ITEM
      4.
              INFORMATION
      ON THE COMPANY
              19ITEM
      4A.
              UNRESOLVED
      STAFF COMMENTS
              33ITEM
      5.
              OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
              33ITEM
      6.
              DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
              51ITEM
      7.
              MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              59ITEM
      8.
              FINANCIAL
      INFORMATION
              61ITEM
      9.
              THE
      OFFER AND LISTING
              98ITEM
      10.
              ADDITIONAL
      INFORMATION
              98ITEM
      11.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              109ITEM
      12.
              DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
              110
  PART
II
  ITEM
      13.
              DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES
              110ITEM
      14.
              MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
              110ITEM
      15.
              CONTROLS
      AND PROCEDURES
              110ITEM
      15T.
              CONTROLS
      AND PROCEDURES
              113ITEM
      16A.
              AUDIT
      COMMITTEE FINANCIAL EXPERT
              113ITEM
      16B.
              CODE
      OF ETHICS
              113ITEM
      16C.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
              113ITEM
      16D.
              EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
              114ITEM
      16E.
              PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS
              114
  PART
III
  ITEM
      17.
              FINANCIAL
      STATEMENTS
              114ITEM
      18.
              FINANCIAL
      STATEMENTS
              114ITEM
      19.
              EXHIBITS
              114
 
  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)
   2
  
  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, 2005, 2006 and 2007 and selected
consolidated balance sheet data as of December 31, 2006 and 2007 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, 2003 and 2004 and
selected consolidated balance sheet data as of December 31, 2003, 2004 and
2005 are derived from our audited financial statements not included in this
document.
  Year
      Ended December 31,2003
              
              
              2004
              
              
              2005
              
              
              2006
              
              
              2007(In
      U.S. Dollars Thousands, Except Per Share Data)Income
      Statement Data:Revenue:Online
      and other media
      services
              
              $
              87,685
              
              
              $
              92,325
              
              
              $
              97,062
              
              
              $
              113,097
              
              
              $
              125,818Exhibitions
              
              
              3,327
              
              
              
              13,010
              
              
              
              14,300
              
              
              
              42,122
              
              
              
              51,608Miscellaneous
              
              
              657
              
              
              
              511
              
              
              
              832
              
              
              
              1,262
              
              
              
              4,633Total
      revenue
              
              
              91,669
              
              
              
              105,846
              
              
              
              112,194
              
              
              
              156,481
              
              
              
              182,059Operating
      expenses:Sales
      (Note
      1)
              
              
              30,436
              
              
              
              30,582
              
              
              
              34,415
              
              
              
              50,380
              
              
              
              61,773Event
      production
              
              
              930
              
              
              
              3,774
              
              
              
              3,920
              
              
              
              18,414
              
              
              
              20,155Community
      (Note
      1)
              
              
              13,251
              
              
              
              17,983
              
              
              
              20,726
              
              
              
              24,885
              
              
              
              27,086General
      and administrative (Note
      1)
              
              
              28,549
              
              
              
              31,395
              
              
              
              34,666
              
              
              
              38,945
              
              
              
              44,167Online
      services development
      (Note1)
              
              
              5,269
              
              
              
              4,564
              
              
              
              4,235
              
              
              
              4,499
              
              
              
              5,703Amortization
      of software costs and intangibles
              
              
              4,453
              
              
              
              1,480
              
              
              
              1,335
              
              
              
              1,250
              
              
              
              193Total
      operating
      expenses
              
              
              82,888
              
              
              
              89,778
              
              
              
              99,297
              
              
              
              138,373
              
              
              
              159,077Income
      from
      operations
              
              $
              8,781
              
              
              $
              16,068
              
              
              $
              12,897
              
              
              $
              18,108
              
              
              $
              22,982Interest
      and dividend
      income
              
              
              122
              
              
              
              219
              
              
              
              1,624
              
              
              
              5,571
              
              
              
              6,595Gain
      (loss) on sale of available-for-sale
                securities
              
              
              (40
              )
              
              
              1,120
              
              
              
              977
              
              
              
              309
              
              
              
              2,937Gain
      on sale of shares to minority shareholder and interest income
      thereon
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              7,906
              
              
              
              —Loss
      on investment,
      net
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (743
              )
              
              
              (1,846
              )Impairment
      of goodwill and intangible assets
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (3,101
              )Foreign
      exchange gains (losses), net
              
              
              —
              
              
              
              240
              
              
              
              (80
              )
              
              
              (714
              )
              
              
              (1,213
              )Income
      before income
      taxes
              
              
              8,863
              
              
              
              17,647
              
              
              
              15,418
              
              
              
              30,437
              
              
              
              26,354Income
      tax
      expense
              
              
              (668
              )
              
              
              (651
              )
              
              
              (759
              )
              
              
              (899
              )
              
              
              (328
              )Net
      income before minority
      interest
              
              $
              8,195
              
              
              $
              16,996
              
              
              $
              14,659
              
              
              $
              29,538
              
              
              $
              26,026Minority
      interest
              
              
              (861
              )
              
              
              (1,227
              )
              
              
              (1,281
              )
              
              
              (1,909
              )
              
              
              (2,027
              )Net
      income before cumulative effect of change in accounting
      principle
              
              $
              7,334
              
              
              $
              15,769
              
              
              $
              13,378
              
              
              $
              27,629
              
              
              $
              23,999Cumulative
      effect of change in accounting principle
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              251
              
              
              
              —Net
      income
              
              $
              7,334
              
              
              $
              15,769
              
              
              $
              13,378
              
              
              $
              27,880
              
              
              $
              23,999Basic
      net income per common share before cumulative effect of change in
      accounting principle
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.52Cumulative
      effect of change in accounting principle
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              0.01
              
              
              
              —Basic
      net income per common
      share
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.52Diluted
      net income per common share before cumulative effect of change in
      accounting principle
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.51
  3
  
 Year
      Ended December 31,2003
              
              
              2004
              
              
              2005
              
              
              2006
              
              
              2007(In
      U.S. Dollars Thousands, Except Per Share Data)Cumulative
      effect of change in accounting principle
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              0.01
              
              
              
              —Diluted
      net income per common
      share
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.51Cash
      dividends declared per
      share
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Shares
      used in basic net income per common share
                calculations(Note2)
              
              
              41,148
              
              
              
              40,759
              
              
              
              43,711
              
              
              
              44,692
              
              
              
              45,001Shares
      used in diluted net income per common share
                calculations(Note2)
              
              
              41,155
              
              
              
              40,813
              
              
              
              43,766
              
              
              
              44,748
              
              
              
              45,163Basic
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.52Cumulative
      effect of change in accounting principle
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              0.01
              
              
              
              —Basic
      net income per non-vested restricted share
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.52Diluted
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.51Cumulative
      effect of change in accounting principle
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              0.01
              
              
              
              —Diluted
      net income per non-vested restricted share
              
              $
              0.17
              
              
              $
              0.37
              
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.51Cash
      dividends declared per
      share
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Shares
      used in basic net income per non vested restricted share calculations(Note2)
              
              
              1,235
              
              
              
              1,633
              
              
              
              1,783
              
              
              
              1,790
              
              
              
              1,560Shares
      used in diluted net income per non-vested restricted share calculations
      (Note2)
              
              
              1,235
              
              
              
              1,633
              
              
              
              1,783
              
              
              
              1,790
              
              
              
              1,823
 
 December
      31,2003
              
              
              2004
              
              
              2005
              
              
              2006
              
              
              2007(In
      U.S. Dollars Thousands)Balance
      Sheet Data:Cash
      and cash
      equivalents
              
              $
              26,227
              
              
              $
              41,195
              
              
              $
              112,153
              
              
              $
              135,093
              
              
              $
              197,825Available-for-sales
      securities
              
              
              35,140
              
              
              
              10,172
              
              
              
              6,150
              
              
              
              20,702
              
              
              
              —Total
      assets
              
              
              82,541
              
              
              
              92,525
              
              
              
              171,680
              
              
              
              220,889
              
              
              
              271,808Net
      assets
              
              
              31,664
              
              
              
              50,433
              
              
              
              105,432
              
              
              
              136,564
              
              
              
              169,633Long-term
      debt, less current portion
              
              
              12,384
              
              
              
              2,214
              
              
              
              1,091
              
              
              
              2,307
              
              
              
              5,217Total
      shareholders’
      equity
              
              
              27,980
              
              
              
              45,523
              
              
              
              99,241
              
              
              
              133,651
              
              
              
              164,693
 __________________
 
  (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: $4,286 (2006:
      $1,790, 2005:  $505, 2004:  $626, 2003: $323),
      community: $269 (2006: $145, 2005:  $103, 2004:  $93,
      2003: $96), general and administrative: $2,874 (2006: $1,950,
      2005:  $1,025, 2004:  $1,066, 2003: $691), and online
      services development expenses: $347 (2006: $181, 2005:  $315,
      2004:  $332, 2003: $309)
  (Note
      2)
              On
      March 5, 2007, 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 424 common shares upon
      distribution of the bonus shares on April 16, 2007. On December 20, 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 31 of our consolidated financial statements
      appearing elsewhere in this annual report. Fractional shares were rounded
      up resulting in an additional 767 common shares upon distribution of the
      bonus shares on February 1, 2008.
  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.
  Exports
from mainland China are key to our current and future revenue growth and
uncompetitive cost conditions in this market, or a potential backlash against
mainland Chinese-made products arising from consumer standard concerns, could
reduce our revenue and seriously harm our business.
  Mainland
China is the largest supplier of consumer products to the world. Our actual and
potential customers are mainly suppliers who are based in mainland China. Should
mainland China manufacturers’ production costs go up substantially (for example,
due to the further appreciation of the Chinese Renminbi (“RMB”), wage and
product input price inflation, reduced export rebates and new environment or
labor regulations),
   4
  products
from mainland China may become less competitive on price. If products from
mainland China become less competitive on price, it would likely have a negative
impact on the demand in mainland China for our various export-focused media and
marketing services.
  During
2007, there were several highly publicized incidents involving products made in
mainland China not meeting consumer standards in overseas markets. If this
continues or worsens, there may be a strong backlash against products made in
mainland China and our business may consequently suffer.
  The
mainland China market is key to our current and future revenue growth and
political instability in this market could reduce our revenue and seriously harm
our business.
  Our
customers in mainland China provided approximately 53% of our total revenues in
fiscal 2006, and approximately 60% of our total revenues in fiscal 2007, and we
believe our operations in mainland China will continue to grow for the next
several years. Our dependence on the mainland China market and its revenues is
significant, and adverse political, legal or economic changes in mainland China
may harm our business and cause our revenues to decline.
  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, mainland 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 mainland China. While Hong Kong has had a long
history of promoting foreign investment, its incorporation into China means that
the uncertainty related to mainland China and its policies may now also affect
Hong Kong.
  The
international markets, and in particular the Greater China region (which
includes mainland China, Hong Kong and Taiwan), 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
   5
  
  ·
              fluctuations
      in currency exchange rates.
  In 2007,
we derived approximately 91% 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.
  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.
  Recently,
the RMB has been appreciating versus the U.S. Dollar and other currencies and is
expected to continue appreciating. Although we bill in RMB and have expenses in
RMB in mainland 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, where
for example consumer spending has declined in the United States and Western
Europe, and may decline further. 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 show, could be significantly
      curtailed or otherwise adversely
affected.
  Our
inability to sustain and/or increase our average revenue per customer could
adversely affect our operating results.
  The
market for print, online and trade show services has fluctuated over the past
few years. We sell our products separately and in various combinations. If we
are unable to maintain or increase average revenue
   6
  per
customer and/or make up for any decline in average revenue per customer by
increasing our total number of customers, our business could suffer. Similarly,
if we are unable to maintain and/or increase 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, Baidu 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 suppliers that currently pay to use our services are under any long-term
contractual obligation to continue using our services. Generally, their
advertising contracts with us for our online and print media are for 6 to 12
months in duration, while their booth contracts with us for our China Sourcing
Fairs are for 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.
  Our
industry is intensely competitive, evolving and subject to rapid change, where
if we are unable to compete effectively we will lose current customers and fail
to attract new customers.
  Our
industry is intensely competitive. 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
   7
  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 achievethe covenanted
performance or results. In addition, the related increases in expenses could
adversely affect our results of operations.
  Various
factors outlined below could adversely affect our ability to operate our China
Sourcing Fair trade show business successfully and we can give no assurances
that this business will be instrumental to our success.
  In 2007,
our China Sourcing Fairs accounted for approximately 88% of our total
exhibitions revenue and have contributed substantially to our growth and
success. The 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 was launched in June
2007, a new series of China Sourcing Fairs in mainland China focusing on serving
mainland China’s domestic market was launched in December 2007, and a new series
of China Sourcing Fairs in Mumbai is scheduled for launch in November 2008. Our
China Sourcing Fairs in Dubai, the domestic China Sourcing Fairs in mainland
China and the China Sourcing Fairs in Mumbai are new business initiatives and we
are uncertain as to our ability to attract the quality and quantity of
exhibitors and buyers that would enable these trade shows to be
successful.
  In
addition, there are substantial and long-established trade shows in Hong Kong
and southern mainland China, which compete with our China Sourcing Fairs in Hong
Kong, and which are expected to have access
   8
  to
expanded venue space from 2008 and 2009. Because of these expanded venues, we
may not be able to attract the desired quantity and quality of exhibitors and
buyers.
  Also,
because of the uncertainty of launching new trade shows 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. 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 mainland 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;
  ·
              our
      sales representative companies’ inability to effectively
      expand  their staff and
  infrastructure;
  ·
              inability
      to renew our venue contracts on favorable terms or at desired times;
      and
  ·
              a
      possible slowdown in product demand from outlet
  markets.
  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.
  Even
though we may increase our revenues, our margins and profits may not
increase.
  Even if
we are able to grow our revenue, this does not necessarily translate to a growth
of our margins and profits, which may or may not increase at all.
  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
facilitat-
    9
  ing 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.
  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, or if the
sales representative company cannot expand its number of employees as
anticipated, it  would harm our business and revenues.
  We have
agreements with various sales representative companies that employ sales
representatives. Seven sales representative companies in mainland China are
responsible for approximately 60% of our total revenues for the year ended
December 31, 2007. Generally, either we or the sales representative companies
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
China Global Sources Online website, which we recently launched to facilitate
trade in mainland China’s domestic market, has yet to generate revenue and may
not ever be profitable.
  We have
launched our China Global Sources Online website in November of 2007 to
facilitate trade in mainland China’s domestic market. We have not generated any
revenues since our launch and may not ever achieve revenue. We may not have
sufficient access to capital to develop and market the China Global Sources
Online website and we give no assurances that our operation of this business
will be incremental to our growth. We cannot be sure that the China Global
Sources Online website will generate any operating revenues or ever achieve
profitable operations and its failure could have a materially adverse effect on
our financial condition.
  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.
   10
   Other
factors that could adversely impair the success of our direct online sales
business include the following:
  ·
                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
      transactions, 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.
 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.
  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 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 growth opportunities. In such circumstances, our growth potential 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.
  Our sales
representatives in mainland China plan to increase substantially the number of
sales representative team members in mainland China in order to help us in
pursuing our business objectives. Our success will depend in part upon the
ability of this growth to be implemented and managed effectively. To do this,
additional new sales representative team members must be recruited and trained.
If new sales representative team members perform poorly, or if their training
and management is unsuccessful, or if our relationships with 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.
   11
  
  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.
  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.
  We
may be subject to legal liability for the verification services that we offer to
buyers and suppliers.
  We offer
verification services (by ourselves and/or through third parties whom we engage)
to buyers in respect of certain of our supplier customers, and to suppliers in
respect of their buyers. The verification services which we offer to buyers in
respect of suppliers include: verification of a supplier’s company and business
details; supplier credit profiles and credit reports; and supplier capability
assessment and product inspection reports. The verification services which we
offer to suppliers in respect of buyers include: buyer trade profile reports and
company background and contact information. We may be subject to legal claims
and actions for any inaccurate, erroneous, incomplete or misleading information
provided in connection with such verification services. While we may have
liability disclaimers associated with such verification services, such liability
disclaimers may nevertheless be insufficient to deter a complainant from
attempting to raise a claim or to institute legal action against us, or may be
held by a court to be invalid or unenforceable. As for those verification
services which are not provided directly by us but by third parties engaged by
us, a complainant may nevertheless attempt to hold us responsible for such third
parties. Regardless of the merit of any 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.
  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
trademarks, 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
   12
  may not
be adequate. Although we have filed (and continue to file) applications for and
have obtained registration of many of our key trademarks 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.
  Evolving
regulation of the Internet and commercial e-mail may affect us
adversely.
  As
Internet commerce continues to evolve, increasing legislation and regulation by
governments and agencies become 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.
   13
  
  In
addition to legal restrictions on the use of e-mail, Internet service providers,
various operators of Internet mailbox services, anti-spam organizations and
others typically attempt to block the transmission of unsolicited e-mail and are
increasing the number and volume of unsolicited e-mails they are blocking. With
this increasing vigilance also comes an increased rate of “false positives”,
i.e. legitimate e-mails being wrongly identified as “spam”. 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 or
our e-mails could be routed to bulk folders and ignored. If we are unable to
communicate by e-mail with our actual or potential customers or users as a
result of legislation, blockage of our e-mails, routing of our e-mails to bulk
folders, 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, mainland 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
impairme 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.
  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.
   14
  
  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
typically experience seasonal quarter-to-quarter fluctuations in our revenue.
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. Currently, most 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 2007, 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 2007 and the third quarter
accounted for approximately 19% of revenue in 2007. 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 (“Nasdaq”). As of April 30, 2008 we had approximately 953 shareholders,
and approximately 13,154,160 shares that were tradable on the
Nasdaq.
  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
man-
   15
  agement.
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, 2008, we had
46,702,092 common shares outstanding, out of which at least 29,318,520 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 Nasdaq) 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.
  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, 2008, Merle A. Hinrichs beneficially owned 61.2% 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 sharehold-
   16
  ers.  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 marketplace
revenues from the Asia-Pacific region. The quality of some of the
telecommunications and Internet infrastructure and telephone line availability
in mainland 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 have their
own disaster recovery capabilities and/or be able to provide us with 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.
  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 providing application licenses, 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.
   17
  
  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 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.
  Because
we are governed by Bermuda law rather than the laws of the United States and our
assets are outside of the United States, 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 Services
(Bermuda) Ltd., 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.
   18
  
  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 using online media,
print 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 Chinafor 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, 2007, 2006 and 2005
amounted to $11.3 million, $4.9 million and $7.3 million respectively. For 2007,
such expenditure was incurred mainly for purchase of office premises in China,
computers, software, leasehold improvements, office furniture and software
development. For 2006, such expenditure was incurred mainly on computers,
software, leasehold improvements, office furniture and software development. For
2005, such expenditure was incurred mainly on office premises, 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,
2007, 2006 and 2005 amounted to $0.3 million, $0.002 million and $0.9 million
respectively.
  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
referenceinto 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 37 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).
  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
   19
  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.
  We serve
an independently certified community of over 657,000 active members (as of the
end of 2007) in more than 200 countries and territories. This buyer community
has more than tripled in size from 209,000 at the end of 2000. During 2007,
buyers sent more than 27 million sales leads, or requests for information (RFIs)
to the 170,000 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 31,2005
              
              
              2006
              
              
              2007(In
      U.S. Dollars Thousands)Revenue:Online
      and other media
      services
              
              $
              97,062
              
              
              $
              113,097
              
              
              $
              125,818Exhibitions
      - trade shows and seminars
              
              
              14,300
              
              
              
              42,122
              
              
              
              51,608Miscellaneous
              
              
              832
              
              
              
              1,262
              
              
              
              4,633$
              112,194
              
              
              $
              156,481
              
              
              $
              182,059
 
 The
following table represents our revenue by geographical area for the last three
fiscal years:
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007(In
      U.S. Dollars Thousands)Revenue:Asia
              
              $
              104,746
              
              
              $
              146,315
              
              
              $
              171,621United
      States
              
              
              6,175
              
              
              
              7,610
              
              
              
              8,596Europe
              
              
              679
              
              
              
              1,571
              
              
              
              242Others
              
              
              594
              
              
              
              985
              
              
              
              1,600Consolidated
              
              $
              112,194
              
              
              $
              156,481
              
              
              $
              182,059
 
 We
currently generate the majority of our revenue from suppliers in Asia, with
China being our largest market at 63% of total revenue during fourth Quarter of
2007. Our revenue is derived from three primary sources:
  ·
              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.
   20
  
  ·
              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.
  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, particu-
   21
  larly 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
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 booths. In international trade, this is something that cannot be
accomplished by online or print media.
  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.
  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), and we
have recently launched online and trade show media for the domestic
business-to-business (“B2B”) market in China.
  We
provide a broad set of 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.
  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
   22
  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 170,000 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
Shows
  We have
ten China Sourcing
Fairs scheduled for 2008 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 of Electronics & Components,
Fashion Accessories and Gifts & Home Products,
which were each held twice – once in the spring and once in the fall. Since 2006
we have added to and modified these product categories and in 2008 we also have
shows scheduled to be held in Dubai and in Mumbai.
  Trade
Publications
  We
publish thirteen 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.
  Direct
Online Sales
  In
2006,welaunched Global Sources Direct. This
new initiative enables suppliers to sell their products online – globally
through multiple online channels, including 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.
  China
Sourcing Reports
  We
currently have more than 100 different China Sourcing Reports for
sale and published more than 40 of these reports in 2007. 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.
   23
  
  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
29 online and 11 print media, the International IC show and several other
conferences and events.
  Media
for Buyers in China
  In the
fourth quarter of 2007 we launched an online marketplace and two trade shows for
this market. China Global
Sources Online was launched at the end of November and is currently
offering its services free of charge. Two shows were launched in December in
Shanghai: Baby &
Children’s Products and Fashion Accessories. In 2008,
the shows are scheduled to be held, in Shanghai in December.
  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.
 
 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
 
 Our
existing markets offer significant opportunities for further growth. For our
export-focused online business, we anticipate continued strong performance,
especially from our new Global
Sources Online 2.0, which we believe offers the premier search experience
in our industry. In January 2008, we added the Six Star ranking system that
provides buyers with third-party credit check information on all verified
suppliers, plus we introduced an end-to-end repackaging and repricing of our
supplier marketing programs. As evidence of market acceptance online revenue
from China increased by 30% in the fourth quarter 2007.
 
 For our
China Sourcing Fairs,
our objective is to further penetrate the market by increasing the amount of
space we rent and the average revenue per booth. We also plan to focus on
cross-selling to clients not using our online, print and trade shows – and
achieving continued strong growth in China.
 
 2.
              New
      Product Development
 
 Our plans
include increasingly specialized online marketplaces, trade shows and magazines.
We continue to build on the outstanding success of our China Sourcing Fairsand have
6 new shows scheduled in 2008 in
  24
  mainland
China, Dubai, Hong Kong and India. Regarding specialization, we have established
unique market positions for Fashion Accessories, Baby & Children’s
Products, and Underwear
& Swimwear.
 
 3.
              Expansion
      into China’s Domestic B2B Market
 
 We intend
to launch new online, trade show and/or print products for China’s domestic
market. This is a significant medium-term business opportunity where we intend
to leverage our brands, content, sales representatives, expertise and
community.
 
 We intend
to further extend existing English-language verticals into the China market. For
example, we successfully launched trade shows in Shanghai in December 2007 for
Fashion Accessoriesand
Baby & Children’s
Products. Also, we soft-launched China Global Sources Onlineat www.globalsources.com.cn on November 30, 2007 initially as a free
service, and we’re rapidly building content and traffic to gain leadership
traction.
 
 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 our goals. We plan to seek
complementary businesses, technologies or products that will help us maintain or
achieve market leading positions in particular niche markets.
 
 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.
 
 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
              Gifts
      & PremiumsBaby
      & Children’s Products
              Hardware
      & DIYComputer
      Products
              Home
      ProductsElectronic
      Components
              MachineryElectronics
              Security
      ProductsFashion
      Accessories
              Sports
      & LeisureGarments
      & Textiles
              Telecom
      Products
 
  Trade
Publications
  We
publish the following industry-specific trade magazines monthly:
  Global
      Sources Auto Parts & Accessories
              Global
      Sources Gifts & PremiumsGlobal
      Sources Baby & Children’s Products
              Global
      Sources Hardware & DIYGlobal
      Sources Computer Products
              Global
      Sources Home ProductsGlobal
      Sources Electronic Components
              Global
      Sources Security ProductsGlobal
      Sources Electronics
              Global
      Sources Sports & LeisureGlobal
      Sources Fashion Accessories
              Global
      Sources Telecom ProductsGlobal
      Sources Garments & Textiles
 
   25
  Trade
Shows & Exhibitions
  Hong
Kong
  Trade Show /
      Exhibition
              DescriptionChina Sourcing Fair: Gifts
      & Home Products
              ·Primary
      product categories include: gifts & premium;, kitchen & household
      products; home décor & home textiles; glassware & table ware; arts
      & crafts; basketware; garden & outdoor; stationery & paper
      products; sports & leisure.
                ·Spring and
      fall 2008 events in Hong Kong.China
      Sourcing Fair: Electronics & Components
              ·Primary
      product categories include: consumer electronics; digital entertainment;
      digital video broadcast; in-car electronics; computer & networking;
      telecom & accessories; WiFi & VoIP products; GPS products; health
      & personal care electronics; security products; electronics
      components; interconnection technology; optoelectronics and power
      supplies.
                ·Spring and
      fall 2008 events in Hong Kong.China
      Sourcing Fair: Fashion Accessories
              ·Primary
      product categories include:  handbags, special purpose bags,
      leather bags, fashion jewelry, hair accessories, footwear, hats and caps,
      umbrellas, belts, sunglasses, gloves, ties, socks, watches, luggage and
      legwear.
                ·Spring and
      fall 2008 events in Hong Kong.
  China
      sourcing Fair: Underwear and Swimwear
              ·Primary
      product categories include: underwear, swimwear and related accessories,
      sleepwear and fabrics, lace and trimmings, beachwear & assessoires and
      hosiery.
                ·Spring
      and fall 2008 events in Hong Kong.
  China
      Sourcing Fair: Baby & Children’s Products
              ·Hong Kong’s
      First China Sourcing Fair: Baby & Children’s Products
                ·Primary
      product categories include: clothing and footwear; sleepwear and
      undergarments; fashion accessories; baby bedding; children’s furniture;
      baby and children’s safety products; baby care and bath products; baby
      feeding products; toys, games and puzzles; children’s stationery;
      children’s masks and costumer; and outdoor play equipment.
                ·Spring and
      fall 2008 events in Hong Kong.
 Media
for Asian Engineers and Executives
  Online
Services
  Website
              DescriptionEE
      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 7
      application specific websites for Chinese engineers.
  26
  
 Website
              DescriptionElectronic
      Design – China Online
              ·Provides
      China’s design engineers with access to detailed solutions, methodologies
      and white papers.Webinar
              ·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.Elegant
      Living Online
              ·Offers
      wealthy China readers information on how to strike a balance between work
      and daily life.
 
  Trade
Shows
  Trade
      Shows
              DescriptionThe
      13th
      Annual International IC-China Conference & Exhibition
      (IIC-China)
              ·China’s
      largest system design event showcasing new IC technologies and the latest
      application methodology.
                ·Spring
      2008 events in China’s key technology hubs Shenzhen, Beijing, Shanghai and
      Chengdu attracted 36,046 visitors.The
      1st
      International IC-Taiwan Conference & Exhibition
      (IIC-Taiwan)
              ·IIC-Taiwan
      is the most established technology event in the region building on EDA
      & Test-Taiwan Conference and Exhibition’s (EDA&T-Taiwan) 15-year
      track record in the design automation and test space, plus Embedded
      Systems Conference-Taiwan’s (ESC-Taiwan) seven years of embedded systems
      coverage.
                ·Co-locates
      with SEMI Taiwan’s SEMICON Taiwan in September 2008 at Taipei, covering
      all products and technologies covering electronics development – from
      design to manufacturing.
 
  Magazines
  Magazine
              DescriptionEE
      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.
  27
  
 Magazine
              DescriptionElectronics
      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.Global
      Sources Elegant Living
              ·Launched in
      September 2007, Elegant Living magazine offers wealthy China readers
      information on how to strike a balance between work and daily
      life.
 
 Media
for Buyers in China
 
 Online
Services
 
 China Global Sources Online,
(www.globalsources.com.cn) is designed to facilitate China domestic trade and
assist overseas firms intent on selling into China. It includes the following
vertical marketplaces:
 
 Auto
      Parts & Accessories
              Gifts
      & PremiumsBaby
      & Children’s Products
              Hardware
      & DIYComputer
      Products
              Home
      ProductsElectronic
      Components
              MachineryElectronics
              Security
      ProductsFashion
      Accessories
              Sports
      & LeisureGarments
      & Textiles
              Telecom
      Products
 
 
 Trade
Shows and Exhibitions
 
 Mainland
China
 
 Trade Shows /
      Exhibitions
              DescriptionChina
      Sourcing Fair: Baby & Children’s Products
              ·Highly
      targeted exhibitions, offering international & mainland China buyers
      the widest selection of quality products from international and Greater
      China suppliers.
                ·December
      2008 in ShanghaiChina
      Sourcing Fair: Fashion Accessories
              ·Highly
      targeted exhibitions, offering international & mainland China buyers
      the widest selection of quality products from international and Greater
      China suppliers.
                ·December
      2008 in Shanghai.
 
 
 Customers
  We
provide services to a broad range of international buyers and suppliers in
various industry sectors.
  Suppliers
  During
2007, 12,941 suppliers paid us for marketing or advertising services and there
were 13,829 suppliers who paid us for marketing or advertising services for the
period from April 1, 2007 to March 31, 2008. Ap-
  28
  proximately
90% of these suppliers were located in Greater China. No individual supplier
customer represented more than 1% of our revenue during 2007.
 
 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 657,000
active members in more than 200 countries and territories. This figure is based
on procedures to ensure that only buyers who have received a magazine or
attended a China Sourcing Fair tradeshow organized by us or who have made an
inquiry through the Global
Sources Online website within the 12 month period ended December 31, 2007
or registered and double opted-in to receive product alert e-mails as of
December 31, 2007 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.
  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 60% of our total revenue in 2007.
  Our
marketing strategy leverages our database of approximately 170,000 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 514 team members as of December 31,
2007, 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
   29
  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.
  Technology
and Systems
  We use a
combination of commercial software and internally developed systems to operate
our websites and services.
  We have
invested $10.2 million for years 2006 and 2007 combined in online services
development.
  As of
December 31, 2007, we had 160 team members engaged in technology development,
maintenance, software customization and data center operations.
  As of
December 31, 2007, our online marketplace services are run on the Oracle DBMS
release 9i and 10g. The catalog application that supports Global Sources Online’s core
functions uses a Java platform.
  Our
servers are hosted by AT&T iDC in Hong Kong. We have dual redundant 100Mbps
link connection directly to AT&T’s IX backbone, while AT&T’s IX
maintains a 2,697 Mbps link to the United States and direct links to most
countries in Asia. We use Overland 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, 2007 our external network had 100% 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.
   30
  
  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.
  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 brands, software,
content and services.
  We have
registrations for either or both of our “Global Sources” and “China Sourcing
Fairs” trademarks in Australia, the European Union, Hong Kong, India, Indonesia,
Israel, Mexico, mainland China, Singapore, South Africa, South Korea,
Switzerland, Taiwan, Turkey and the United States, and we have applications for
either or both these trademarks pending registration in various countries or
regions, including India, Indonesia, mainland China, the Philippines, Taiwan,
Thailand, the United Arab Emirates and the United States.
  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
   31
  for
information retrieved from or transmitted over the Internet, regulation of
online content (or the provision of internet content), 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 has been due to the relative lack of
government intervention in the marketplace in respect of, or due to the relative
inadequate development or uncertainty of laws and regulations governing,
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 or may petition the relevant authorities 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.
 
  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 101,169 square feet of executive
and administrative offices in China, Hong Kong, the Philippines, Singapore,
Dubai and Taiwan. Our aggregate base rental and building management fee payments
for the year ended December 31, 2007 were approximately
$1.3 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 was made in the first quarter of
2007, 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.
  On May
15, 2008, we entered into a letter of intent to purchase approximately 6,364.50
square meters (gross) of office space in a commercial building known as Shenzhen
International Chamber of Commerce Tower in Shenzhen at a price of approximately
$34.0 million, and paid a deposit of approximately $0.2 million. Should we
decide to proceed with the purchase, the final purchase agreement will be signed
by July 2008. If we decide not to proceed with the purchase of the said
property, the deposit will be forfeited and we have to pay an additional penalty
of approximately $0.9 million.
  On June
18, 2008, we entered into a formal sale and purchase agreement to purchase
approximately 22,874 square feet (gross) of office space, together with 6 car
parking spaces, in a commercial building known as Southmark in Hong Kong, for a
total purchase price of approximately $11.9 million, and have paid a total
deposit of approximately $1.8 million. Completion of the property purchase and
payment of the balance of the purchase price, in an amount of approximately
$10.1 million, is scheduled to occur on or before August 4, 2008.
   32
  
  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 36 years we have been in the same basic business of helping buyers
worldwide find products and suppliers in Asia.
  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 Onlineto 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 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 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.
  33
  
 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. Subsequently, we held
several China Sourcing Fairs events in the second and fourth quarters of 2004,
2005 and 2006. During the current year, we held two series of four China
Sourcing Fairs each in April 2007 and October 2007. In addition, we launched new
China Sourcing Fairs events in Dubai in June 2007 and in Shanghai in December
2007. Future China Sourcing Fairs are scheduled to be held mainly in the second
quarter and fourth quarter of each financial year. International IC China
Conferences and Exhibitions were held in March 2007 in the current year and
these same exhibitions were held in March 2006 last year. We derive revenue
primarily from exhibit space rentals, 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:
  Revenue
Recognition
  We derive
our revenue primarily from advertising fees in our published trade magazines and
websites, sale of trade magazines and reports, fees from licensing our trade and
service marks, organizing exhibitions and business seminars, commission income
from consignment sales and from direct sale of products.
  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 is 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
income from its direct product sales. Under the direct product sales business
model, the revenue is recorded when the right of return has expired after the
delivery of the goods to the buyer and the corresponding cost of products
purchased is recorded under sales costs. The net amount of shipping costs
invoiced to the buyers less the shipping costs paid is reported under
revenue.
  We derive
commission income on the re-sale of products on 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 sales commissions for exhibitions, circulation
expenses, and direct event production costs.
   34
  
  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.
  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.
   35
  
  Results
of Operations
  The
following table sets forth our results of operations as a percentage of total
revenue:
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Income
      statement data:Revenue:Online
      and other media
      services
              
              
              86
              %
              
              
              72
              %
              
              
              69
              %Exhibitions
              
              
              13
              
              
              
              27
              
              
              
              28Miscellaneous
              
              
              1
              
              
              
              1
              
              
              
              3Total
      revenue
              
              
              100
              
              
              
              100
              
              
              
              100Operating
      expenses:Sales
              
              
              31
              
              
              
              32
              
              
              
              34Event
      production
              
              
              3
              
              
              
              11
              
              
              
              11Community
              
              
              18
              
              
              
              16
              
              
              
              15General
      and
      administrative
              
              
              31
              
              
              
              25
              
              
              
              24Online
      services
      development
              
              
              4
              
              
              
              3
              
              
              
              3Amortization
      of software
      costs
              
              
              1
              
              
              
              1
              
              
              
              -Total
      operating
      expenses
              
              
              88
              %
              
              
              88
              %
              
              
              87
              %Income
      from
      operations
              
              
              12
              %
              
              
              12
              %
              
              
              13
              %Net
      income
              
              
              12
              %
              
              
              18
              %
              
              
              13
              %
 
  The
following table represents our revenue by geographical areas as a percentage of
total revenue:
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Asia
              
              
              93
              %
              
              
              93
              %
              
              
              94
              %United
      States
              
              
              6
              
              
              
              5
              
              
              
              5Europe
              
              
              1
              
              
              
              1
              
              
              
              0Others
              
              
              0
              
              
              
              1
              
              
              
              1Total
      revenue
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
 
 Fiscal
Year 2007 Compared to Fiscal Year 2006
 
 Revenue
 
 Total
revenue grew to $182.1 million during the year ended December 31, 2007 from
$156.5 million during the year ended December 31, 2006, a growth of 16% driven
primarily by the growth in our China Sourcing Fairs exhibitions revenue and our
online and other media services revenue. Our Online and Other Media Services
revenue grew by $12.7 million or 11% to $125.8 million during the year ended
December 31, 2007, as compared with $113.1 million during the year ended
December 31, 2006 due to a 23% growth in our China market and the growth in our
Hong Kong, Korea, Thailand and U.S. markets, off-set by a decline in some of our
other markets during the year ended December 31, 2007. China represented 59% of
Online and Other Media Services revenue during the year ended December 31, 2007
compared to 53% during the year ended December 31, 2006. Our Exhibitions revenue
grew from $42.1 million during the year ended December 31, 2006 to $51.6 million
during the year ended December 31, 2007, a growth of 23%, due mainly to growth
in revenue of our China Sourcing Fairs during the year 2007 held in Hong Kong,
Dubai and Shanghai. Our exhibitions revenue from China grew by 46% during the
year ended December 31, 2007 compared to year ended December 31, 2006. China
represented 65% of Exhibitions revenue during the year ended December 31, 2007
compared to 55% during the year ended December 31, 2006.
  36
  
 We have
made substantial progress in developing our customer base in China, our largest
market. Total revenue from China grew by 31% during the year ended December 31,
2007 compared to year ended December 31, 2006 due to growth in our China
Sourcing Fairs exhibitions, International IC China Conferences and Exhibitions
and Online and Other Media Services revenue. We expect revenue from China as a
percentage of total revenue to continue to grow and overall revenue from China
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. For online
and other media services, commission expense is recognized when the associated
revenue is recognized or when the associated accounts receivable are paid,
whichever is earlier. For exhibitions, the commission expense is recognized when
the associated revenue is recognized, upon conclusion of the event.
 
 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 $50.4 million during the year ended December 31, 2006 to
$61.8 million during the year ended December 31, 2007, an increase of 23% due
mainly to increase in sales commission resulting from an increase in revenue,
increase in sales marketing fees for new initiatives and increase in non-cash
compensation expense relating to share awards to sales team members under our
equity compensation plans.
 
 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 by 10% from $18.4 million during the year ended
December 31, 2006 to $20.2 million during the year ended December 31, 2007,
primarily due to increase in number of exhibitions held and booths sold in
2007.
 
 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 $24.9 million during the year ended December 31, 2006 to
$27.1 million during the year ended December 31, 2007, an increase of 9%. This
increase was due mainly to increase in bulk circulation costs, paper costs,
printing charges, magazine subscription promotion costs, travel costs, fees paid
to third parties, increase in our participation in third party trade shows to
promote our products and services to buyer community, and an increase in
promotion costs for our exhibition events.
  37
  
 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 from $38.9 million during the year ended
December 31, 2006 to $44.2 million during the year ended December 31, 2007, an
increase of 14%, due mainly to the increases in fees paid to third parties,
content management services costs, information technology services costs,
payroll costs, travel costs, depreciation costs and increase in non-cash
compensation expense relating to share awards to team members under our equity
compensation plans.
 
 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 by 27% from $4.5 million during the year ended December 31,
2006 to $5.7 million during the year ended December 31, 2007 due mainly to
increases in depreciation costs and internet communications costs, and fees paid
to third parties.
 
 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 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).
  38
  
 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 under the respective categories of expenses
during the year ended December 31, 2007 was $7.8 million compared to $4.1
million recorded during the year ended December 31, 2006. The increase is due
mainly to re-measurement of equity compensation expense based on our prevailing
share price and new share awards during the year 2007, off-set partially by
completed vesting of some of the past share awards.
 
 The
corresponding amounts for the non-cash compensation expenses are credited to
shareholders’ equity.
 
 As of
December 31, 2007 there was $11,731 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 Costs and intangibles
 
 Amortization
of software cost and intangibles was $0.2 million during the year ended December
31, 2007 compared to $1.3 million during year ended December 31,
2006.
 
 Income
from Operations
 
 The total
income from operations during the year ended December 31, 2007 was $23.0 million
as compared to $18.1 million during the year ended December 31, 2006. The growth
in total income from operations resulted mainly from growth 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 and online services development costs. Income from operations for online
and other media services grew from $21.9 million during the year ended December
31, 2006 to $22.3 million during the year ended December 31, 2007, a growth of
2%. The growth resulted mainly from growth in online and other media services
revenue and decline in amortization of software costs and intangibles, 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 interest income of $6.6 million arising mainly from U.S. Treasury
securities and a gain of $2.9 million arising from the sale of available for
sale securities including $2.4 million gain from sale of HC International shares
during the year ended December 31, 2007 compared to a gain of $0.3 million and
an interest and dividend income of $5.6 million during the year ended December
31, 2006.
  39
  
 Loss
on Investment, Net
 
 During
2007, we recorded an impairment charge of approximately $2.3 million on our
investment in HC International, Inc and received $0.5 million pursuant to the
indemnification obligations of the vendor under the purchase agreement for the
HC International investment. The $1.8 million represents the impairment loss,
net of the $0.5 million received. Please see “Liquidity and Capital Resources”
section.
 
 Impairment
of Goodwill and Intangible Assets
 
 During
2007, we recorded an impairment charge of approximately $3.1 million on the
goodwill and intangible assets acquired by us in our business acquisition of
Blue Bamboo China Ventures. Please see “Liquidity and Capital Resources”
section.
 
 Income
Taxes
 
 We and
certain other 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 SAR, Singapore, China and certain other jurisdictions and
are subject to income taxes in their respective jurisdictions.
 
 We
reported a tax provision of $0.3 million during the year ended December 31, 2007
compared to a tax provision of $0.9 million during the year ended December 31,
2006. The reduction in tax expense resulted primarily from the recognition of
deferred tax asset for the expected future tax benefit of expenses incurred by
one of our subsidiaries, which are not yet deductible for tax purposes and a
reduction in tax expense for two of our subsidiaries due to reduction in their
income, as we outsourced most of operations previously carried out by these
subsidiaries.
 
 Cumulative
Effect of Change in Accounting Principle
 
 During
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), which went effective on January 1, 2006. There was no such credit to
expenses during the year 2007.
 
 Net
Income
 
 Net
income was $24.0 million during the year ended December 31, 2007, compared to
$27.9 million during the year ended December 31, 2006. The decline in net income
resulted from increases in sales costs, event production costs, community costs,
general and administrative costs, online services development costs, net loss on
investment, impairment of goodwill and intangible assets, foreign exchange
losses and share of profits attributable to a minority shareholder during the
year 2007 due to profitable performance of a subsidiary off-set partially by
growth in revenue, decline in amortization of software costs, increase in
interest and dividend income, increase in gain on sale of available for sale
securities and a reduction in tax provision.
 
 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 U.S. 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.
   40
  
  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
 
 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.
 
 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,
  41
  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 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).
 
 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
  42
  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 Costs and Intangibles
 
 Amortization
of software cost was $1.3 million during the year ended December 31, 2006 and
during the year ended December 31, 2005.
 
 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
U.S. Treasury 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.
 
 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, China and certain other
jurisdictions and are subject to income taxes in their respective
jurisdictions.
  43
  
 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) to 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.
 
 Liquidity
and Capital Resources
 
 We
financed our activities for the year ended December 31, 2007 using cash
generated from our operations.
 
 Net cash
generated from operating activities was $60.6 million during the year ended
December 31, 2007, compared to $36.7 million cash generated from operating
activities during the year ended December 31, 2006. 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 $83.1 million as of December 31, 2007,
compared to $63.8 million as of December 31, 2006, 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 declined from $13.2 million as of December 31, 2006
to $12.3 million as of December 31, 2007, improving our liquidity. Though the
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. All the authorized
signatories to the collection depository bank accounts maintained by our sales
representatives in China are our senior management staff.
 
 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
provided by investing activities was $1.6 million during the year ended December
31, 2007, resulting from the net sale of available-for-sale securities for $15.8
million, $0.2 million proceeds from matured bonds off-set partially by $11.3
million cash used for capital expenditures mainly for purchase of office
premises in China, computers, software, office furniture, leasehold improvements
and software development and $3.1 million cash used for acquiring the business
of Blue Bamboo. Net cash used in investing activities during the year ended
December 31, 2006 was $14.1 million, resulting from net purchase of
available-for-sale securities for $12.1 million, $4.9 million cash used for
capital expenditures mainly on office furniture, computers, software, leasehold
improvements and software development off-set partially by $0.2 million proceeds
from matured bonds and $2.7 million in net proceeds from sale of shares to
minority shareholder, interest income thereon and repurchase of share dividends
from minority shareholder.
  44
  
 
 Capital
expenditures during the three months period ended March 31, 2008 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 (excluding intangibles and goodwill) disposed during the year ended
December 31, 2007 and the three months ended March 31, 2008 amounted to $0.3
million and a negligible amount, respectively.
 
 We invest
our excess cash in U.S. Treasury securities and 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 nine months.
 
 As of
December 31, 2007, securities with an original maturity of three months or less
are presented under cash and cash equivalents. We reclassified such securities
as of December 31, 2006 of $109.9 million from available-for-sale securities to
cash and cash equivalents to conform to current year presentation.
 
 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. During the year ended December 31, 2007, we sold
available-for-sale securities of $15.8 million. We reinvested the sale proceeds
in U.S. Treasury securities.
 
 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, 2007, 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 $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.
 
 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, 2007, 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, 2007, such guarantee amounted to
$0.003 million.
 
 We
recorded a valuation allowance for the deferred tax assets of $6.1 million as of
December 31, 2007 as it was more likely than not that they would not be
realized. These deferred tax assets resulted 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, 2007, we paid $23.5 million under these agreements. Subsequently,
during the first quarter of 2007, we entered into a number of venue license
agreements for our 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. The amounts paid will be expensed when the related events are held. As of
December 31, 2007, we paid approximately $1.1 million under these
agreements.
 
 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, 2007, we paid $3.2 million under these agreements.
 
 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, 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 or about April 16, 2007. In addition, we have
reclassified $0.038 million and $0.038 million from additional paid in capital
to common share
  45
  capital
as of December 31, 2007, and December 31, 2006, respectively, in connection with
the bonus share issue.
 
 On
December 20, 2007, we once again announced a one for ten bonus share issue on
our outstanding common shares. Shareholders of record on January 1, 2008,
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 or about February
1, 2008. In addition, we have reclassified $0.042 million and $0.042 million
from additional paid in capital to common share capital as of December 31, 2007,
and December 31, 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. In the year 2006,
our wholly-owned subsidiary, Trade Media Holdings Limited (“TMHL”), entered into
an agreement (“Sale and Purchase Agreement”) with IDG Technology Venture
Investment, Inc. (“IDGVC”) for, and completed, the purchase from IDGVC of
47,858,000 HC International shares (representing an approximate 9.77% equity
interest in HC International as of September 30, 2007), at a consideration of
approximately $9.9 million, which was subject to an adjustment (“Price
Adjustment”) if and when HC International achieved a certain benchmark with
reference to the HC International group’s performance (“Performance Benchmark”)
or upon completion of the sale and purchase of the Option HC Shares (as defined
below).
 
 We
announced, via a press release dated March 19, 2007, that the Performance
Benchmark referred to above has not been met, and that accordingly, TMHL would
not be required to make the Price Adjustment referred to above under the
condition relating to the Performance Benchmark.
 
 TMHL also
entered into a call options deed with IDGVC, Guo Fansheng (“Guo”) and others
(which include certain members of the senior management of HC International)
(“Option Grantors”), under which the Option Grantors granted to TMHL (i) a
right, exercisable within 12 months from June 21, 2006 (the date of completion
of the Sale and Purchase Agreement) (“Option Period”), to purchase all (but not
in part only) of the 167,722,814 HC International shares owned by the respective
Option Grantors and any HC International 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 HC International shares) are exercised, which together
represent a maximum of approximately 35.11% of the total issued share capital of
HC International as of September 30, 2007 (“Option HC Shares”), 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 of not less than
approximately $0.2896 per Option HC Share, during the Option
Period.
 
 In
addition, TMHL also entered into a call option deed with Huicong Construction
Co., Ltd. (“Huicong Construction”), in which Guo has an 80% equity interest,
under which Huicong Construction granted to TMHL a right, exercisable within the
Option Period, to purchase (or to nominate a subsidiary of TMHL to purchase)
Huicong Construction’s entire 18% equity interest in Beijing Huicong
International Information Co., Ltd. (“Beijing Huicong”), an 82% indirect
subsidiary of HC International (“Beijing Huicong Option”), at an aggregate
exercise price of approximately $31.9 million.
 
 We
announced, via a press release dated June 17, 2007, that TMHL would not be
exercising the HC Options and the Beijing Huicong Option (collectively, the
“Options”). Both Options subsequently lapsed and expired at the end of the
Option Period, without being exercised by TMHL.
 
 In the
last quarter of 2007, we announced, via a press release dated December 10, 2007,
that we and TMHL had entered into an agreement with IDG Technology Venture
Investment III, L.P. (“IDGTVI III”) to sell all our and TMHL’s equity interests
in HC International (amounting to 62,652,000 HC International shares) to IDGTVI
III, at a sale consideration of approximately $0.1968 per HC International
share. The sale was subsequently completed on December 18, 2007, as announced in
our press release dated December 18, 2007.
 
 On August
1, 2006, HC International appointed our Chief Operating Officer, John Craig
Pepples (“Mr. Pepples”), as a non-executive director on the board of directors
of HC International. However upon completion of the afore-mentioned sale of all
of our and TMHL’s equity interests in HC International, Mr. Pepples
re-
  46
  signed
from the board of directors of HC International, as announced in our press
release dated December 18, 2007.
 
 As the
fair value of this investment as of June 30, 2007, is less than the cost, our
management evaluated the investment in HC International as of June 30, 2007, for
impairment and concluded that the impairment was other-than-temporary
impairment. As per the Company’s accounting policy, declines in value judged to
be other-than-temporary on available-for-sale securities are included in the
statement of income. Accordingly the unrealized loss of approximately $2.3
million on the HC International investment was recorded in the income statement
for the second quarter ended June 30, 2007.
 
 Pursuant
to IDGVC’s indemnification obligations under the Sale and Purchase Agreement,
TMHL received approximately $0.5 million from IDGVC during the second quarter
ended June 30, 2007. This amount was recorded in the income statement for the
second quarter ended June 30, 2007.
 
 The
approximate amount of $1.8 million, being the net amount of the approximately
$2.3 million impairment loss and the approximately $0.5 million receipt
mentioned above, is reflected under the item “Loss on Investment, net” in the
income statement for the year ended December 31, 2007.
 
 In
connection with the afore-mentioned sale of all of the 62,652,000 HC
International shares held by us and TMHL to IDGTVI III, we recorded a gain of
approximately $2.4 million, which is included under “Gain on sale of
available-for-sale securities” in the income statement for both the fourth
quarter and the year ended December 31, 2007.
 
 During
the first quarter of 2007, we entered into a letter of intent, followed by a
purchase agreement, to purchase 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 in the first quarter of 2007 and the
balance of approximately $6.91 million was paid in April 2007. Delivery of the
office space to the Company was completed in second quarter of
2007.
  On August
16, 2007, TMHL, our wholly owned subsidiary and Blue Bamboo China Ventures
(“BBCV”) an exempted company incorporated in Cayman Islands entered into a Sales
and Purchase Agreement (“S&P Agreement”),in which TMHL will purchase certain
intellectual property rights and other related intangible assets (the “Acquired
Assets”) of BBCV. The S&P Agreement was consummated on September 12, 2007.
BBCV is an online media company that built a network of four websites that
provide information about home renovation, overseas study, weddings and
parenting to urban Chinese consumers. This acquisition was made in line with our
strategy to expand our domestic China initiatives.
 
 We
recorded this transaction as a business acquisition in accordance with SFAS
No.141. The total purchase consideration was $3.1 million, of which
approximately $1.4 million was paid to BBCV on the consummation date,
approximately $1.6 million was placed in an escrow account with an appointed
escrow agent and the balance $0.1 million was the direct transaction costs. The
escrow amount will be released to BBCV within one year of the consummation date,
subject to terms and conditions stipulated in the S&P
Agreement.
 
 The
allocation of purchase consideration to the assets acquired based on their fair
values was as follows:
 
 US$
      millionsWebsite
      intangibles
              $0.6Goodwill
              $2.5Total
              $3.1
 
 The
intangible assets have useful life of five years. We have recorded $0.03 million
amortization costs on the website intangible assets in our financials
statements.
 
 Subsequent
to the acquisition, we realigned our business strategy to focus on the
development of our other Global Sources domestic B2B China initiatives such as
Elegant Living Online and Electronic Supply & Manufacturing – China Online
and have terminated our plans to launch Blue Bamboo websites.
  47
  
 Due to
this change in business strategy, we no longer have any plans to launch the
newly acquired business. Hence, we performed an impairment assessment of the
Blue Bamboo website intangibles and goodwill and determined that the carrying
values of website intangibles of $0.6 million and goodwill of $2.5 million were
fully impaired and recorded an impairment charge of $3.1 million in our
financial statements for the year ended December 31, 2007.
 
 We have
no bank debt as of December 31, 2007.
 
 The
following table summarizes our contractual obligations as of December 31,
2007:
  Payments due by period (in U.S.
      Dollars Thousands)Total
              
              
              Less
      than
                  1
      year
              
              
              1-3
                  years
              
              
              3-5
      years
              
              
              More
      than
                  5
      yearsContractual
      ObligationsOperating
      leases
              
              $
              645
              
              
              $
              645
              
              
              
              -
              
              
              
              -
              
              
              
              -Liabilities
      for incentive and bonus plans
              
              
              102
              
              
              
              102
              
              
              
              -
              
              
              
              -
              
              
              
              -Purchase
      obligations
              
              
              2,740
              
              
              
              2,638
              
              
              
              102
              
              
              
              -
              
              
              
              -Total
              
              $
              3,487
              
              
              $
              3,385
              
              
              $
              102
              
              
              
              -
              
              
              
              -
 
 
 On
February 4, 2008, our board of directors authorized a program to buy back up to
$50 million of common shares. We intend, from time to time, as business
conditions warrant, to purchase shares in the open market or through private
transactions. The buyback program does not obligate us to buyback any specific
number of shares and may be suspended or terminated at any time at management’s
discretion. The timing and amount of any buyback of shares will be determined by
management based on its evaluation of market conditions and other factors. As of
June 25, 2008, we have not bought back any of our shares.
 
 On May
15, 2008, we entered into a letter of intent to purchase approximately 6,364.50
square meters (gross) of office space in a commercial building known as Shenzhen
International Chamber of Commerce Tower in Shenzhen at a price of approximately
$34.0 million, and paid a deposit of approximately $0.2 million. Should we
decide to proceed with the purchase, the final purchase agreement will be signed
by July 2008. If we decide not to proceed with the purchase of the said
property, the deposit will be forfeited and we have to pay an additional penalty
of approximately $0.9 million.
 
 On June
18, 2008, we entered into a formal sale and purchase agreement to purchase
approximately 22,874 square feet (gross) of office space, together with 6 car
parking spaces, in a commercial building known as Southmark in Hong Kong, for a
total purchase price of approximately $11.9 million, and have paid a total
deposit of approximately $1.8 million. Completion of the property purchase and
payment of the balance of the purchase price, in an amount of approximately
$10.1 million, is scheduled to occur on or before August 4, 2008.
 
 In June
2008, 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. plans to complete the issuance of 1,000 shares to its
shareholders as share dividends, the subsequent purchase of those 1,000 shares
(at a price of $5,000 per share), the distribution of the total amount of $5.0
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, before the end of June 2008 or else shortly thereafter.
 
 Upon the
completion of the aforesaid capital reduction, we will be recording the $1.995
million paid to the minority shareholder pursuant to the above transaction as a
reduction of the minority interest liability.
  48
  
 
 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.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements that have a material effect or are
reasonably likely to have a material future effect on our financial condition,
changes in financial condition, revenues and expenses, results of operations,
liquidity, capital expenditures, or capital resources.
 
 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 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 of this interpretation does not have any material impact on our
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). However in February 2008, the FASB issued FSP FAS
157-2, which delays the effective date of SFAS No. 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair values in the financial statements on a recurring basis. This
FSP partially defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008. We will adopt SFAS No. 157 from January 1,
2008 except as it applies to those nonfinancial assets and nonfinancial
liabilities as noted in FSP FAS 157-2. We are currently evaluating whether the
partial adoption of SFAS No. 157 has any impact on its consolidated financial
statements.
 
 In
February 2007, 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.
  49
  
 In
December 2007, FASB issued SFAS No. 160, “Accounting and Reporting of
Noncontrolling Interest in Consolidated Financial Statements - an amendment of
ARB No.51”. SFAS No. 160 establishes accounting and reporting requirements for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating whether the adoption of
SFAS No. 160 has any impact on our consolidated financial statements.
 
 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, 2007 (in U.S. Dollars Thousands)
              
              As
      of December 31, 2006 (in U.S. Dollars Thousands)Expected
      maturity dates
              
              
              
              Expected
      maturity datesCurrency
              2007
              Thereafter
              Total
              Fair value
              
              2006
              Thereafter
              Total
              Fair valueHKD
              1,549
              -
              1,549
              1,549
              
              1,741
              -
              1,741
              1,741CNY
              2,918
              -
              2,918
              2,918
              
              2,447
              -
              2,447
              2,447TWD
              774
              -
              774
              774
              
              1,034
              -
              1,034
              1,034JPY
              160
              -
              160
              160
              
              167
              -
              167
              1675,401
              -
              5,401
              5,401
              
              5,389
              -
              5,389
              5,389
 
 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 Dollar which is currently pegged to the U.S. Dollar, the Chinese
Renminbi, which historically remained relatively stable but 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 will fluctuate and
our profits will be affected. However, we manage this risk by monitoring the
currency rate trends and appropriately changing the currency in which we invoice
and collect from our customers.
 
 During
the year ended December 31, 2007 and the year ended December 31, 2006, we have
not engaged in foreign currency hedging activities.
 
 In the
year ended December 31, 2007 and the year ended December 31, 2006, 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.
  Non-GAAP
Measures
  In our
press releases on our quarterly financials, we provide non-GAAP financial
measures and GAAP to non-GAAP reconciliation tables to supplement our financial
information presented in accordance with U.S. GAAP.
  50
  
 The
non−GAAP financial measures that we use in our press releases on our quarterly
financials are the following:
 
 “Non-GAAP Net Income”
is defined as GAAP net income excluding non-cash stock based compensation
expense or credit, gains or losses on acquisitions and investments, and/or
impairment charges.
 
 “Non-GAAP diluted net income
per share” is defined as non-GAAP net income divided by the weighted
average of diluted common shares outstanding.
 
 We
believe that non-GAAP metrics are useful measures of operations.
 
 Readers
should not place undue reliance on non−GAAP financial measures or regard them as
a substitute for the nearest U.S. GAAP measures. Further, these non−GAAP
financial measures may not be comparable to similarly titled measures used by
other companies.
 
  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
              PositionMerle
      A.
      Hinrichs
              66
              Director,
      Chairman and Chief Executive OfficerEddie
      Heng Teng
      Hua
              57
              Director
      and Chief Financial OfficerJ.
      Craig
      Pepples
              47
              Chief
      Operating OfficerBill
      Georgiou
              63
              Chief
      Information OfficerSarah
      Benecke
              51
              DirectorRoderick
      Chalmers
              60
              DirectorDavid
      F.
      Jones
              43
              DirectorJeffrey
      J.
      Steiner
              71
              DirectorJames
      Watkins
              62
              DirectorRobert
      Lees
              59
              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 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. Henghas 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 2010.
  Mr. Peppleshas been our
Chief Operating Officer since June 1999 and is responsible for our worldwide
operations, including interactive media, corporate marketing, community
development, client services and human resources. Mr. Pepples joined Trade Media
in October 1986 in an editorial capacity, managed Trade
   51
  Media’s
sales in mainland China from 1989 to 1992, and served as country manager for
mainland China from 1992 to June 1999. Mr. Pepples graduated with a B.A. in
Linguistics from Yale University.
  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. Beneckehas 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. 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 2010.
  Mr. Chalmershas 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.
Joneshas
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 2011.
 
 Mr. Steinerhas 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.
   52
  
  Mr. Watkins was appointed as
a casual director (see “Election and Removal of Directors” under Item 10 for a
description of a “casual director”) on February 28, 2005, and was 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., Jardine Cycle
& Carriage Ltd and MCL Land Ltd. Mr. Watkins has a law degree from the
University of Leeds (First Class Hons.). His term as director expires in
2011.
  Mr. Leeswas appointed as a
casual director on July 30, 2007, and was elected as a director at the Annual
General Meeting on June 11, 2008. Mr. Lees is a senior executive and global
expertise and has nearly 30 years of experience working with decision-makers in
business and government at the most senior levels across the Asia-Pacific
region. He is a senior advisor to the University of Cincinnati and The Triple
Helix Institute in Honolulu, Hawaii. Mr. Lees served for many years as secretary
general and then president and chief executive officer of the Pacific Basin
Economic Council, the Asia-Pacific region’s oldest business organization. Mr.
Lees holds a bachelor’s degree from the University of Cincinnati and an MBA from
The Thunderbird School of Management. He also completed studies at the Institute
of International Studies and Training in Japan. His term as director expires in
2011.
  Compensation
  For the
year ended December 31, 2007, we and our subsidiaries provided our ten
directors and executive officers as a group aggregate remuneration, pension
contributions, allowances and other benefits of approximately $4,097,710
including the non-cash compensation of $1,305,336 associated with the share
award and ECP plans. Of that amount, $110,000 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 2007,
we and our subsidiaries incurred $28,812 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, 2007, we recorded
non-cash compensation expenses of $22,608 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.
   53
  
  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 employee 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.
  Board
Practices
  Our board
of directors consists of eight 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, 20 years of service
with us. One executive director and five non-executive directors receive a cash
fee of $15,000 per year, plus an additional $4,000 for each board meeting
attended. Non-executive directors who are members of the audit committee also
receive a cash fee of $5,000 per year.
  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,
2007.
  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, 2007.
  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 (as well as all other employees). 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
Nasdaq.
  Employees
  As of
December 31, 2007, we had 439 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.
   54
  
  The
following summarizes the approximate number of employees and independent
contractors by function:
  Function
              
              Employees
              
              
              Independent
                Contractors
              
              
              TotalContent
      Development
              
              
              58
              
              
              
              456
              
              
              
              514Corporate
      Human Resources & Administration
              
              
              46
              
              
              
              40
              
              
              
              86Corporate
      Marketing
              
              
              6
              
              
              
              33
              
              
              
              39Community
      Development
              
              
              70
              
              
              
              102
              
              
              
              172Sales
              
              
              31
              
              
              
              1,752
              
              
              
              1,783Information
      System
      Department
              
              
              84
              
              
              
              76
              
              
              
              160Corporate
      Accounts
              
              
              83
              
              
              
              58
              
              
              
              141Office
      of the CEO, COO,
      CIO
              
              
              11
              
              
              
              0
              
              
              
              11Legal
      and Group
      Secretarial
              
              
              5
              
              
              
              4
              
              
              
              9Conference
      & Trade Show
      Services
              
              
              45
              
              
              
              65
              
              
              
              110Total
              
              
              439
              
              
              
              2,586
              
              
              
              3,025
 
 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, 2008, the Trust holds 1,820,787 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, 2008, 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
   55
  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.
  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 $2,567,000 and $2,148,000, 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.
   56
  
  Entitlement
of the employees, directors, consultants, advisors and independent contractors
to these common shares is subject to employment or continued services 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 (as revoked and cancelled on May 30, 2007), on May 2,
2007 and on September 12, 2007.
  The
non-cash compensation expenses associated with the above awards under ECP IV and
ECP V of approximately $2,981,000 and $3,758,000, respectively, are recognized
over the five year vesting term of the respective awards.
  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 above awards under ECP VI of
approximately $1,688,000 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
$17,707,000 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 subsidiaries’
independent contractors’ 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.
   57
  
  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, on April 16, 2007, on May 30, 2007, on
July 2, 2007, on January 31, 2008 and on March 10, 2008. The non-cash
compensation expenses as of December 31, 2007, associated with the above awards
under the plan of approximately $6,431,000 are recognized over the six year
vesting term of the award.
  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. The ECP 2007 Plan
Committee approved awards of common shares under the plan on August 6, 2007, on
October 29, 2007, on October 30, 2007 and on January 14, 2008. The non-cash
compensation expenses as of December 31, 2007, associated with the above awards
under the plan of approximately $222,000 are recognized over the five year
vesting term of the award.
  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.
  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 the exercise date and
that the resignation of a director following his or her exercise of the grant of
options and payment of the option price would no longer result in a forfeiture
of the subscribed shares. The exercise price is the average closing price of the
shares for the last five trading days of the previous calendar year. The balance
of 85% must be paid on or before the end of the holding period, which is four
years. The ownership of the awards will transfer after four years.
  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
balance of 90% must be paid on or before the end of the holding
period.
   58
  
  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 the 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 the previous
calendar year, on or before 28th day of
February of the relevant year, with the balance of 90% payable by the end of the
four year period from that day 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
purchased shares, however, failure 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.
  At the
Board of Directors’ meeting on 4 and 5 November 2005, the Board of Directors
adopted the “Directors Purchase Plan (as of 5 November 2005)”, which
consolidated earlier forms of the Directors Purchase Plan and previous
shareholders’ and Board of Directors’ approvals and resolutions pertaining
thereto.
  On
November 7, 2006, the Company 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).
  All the
monies received under the Director Purchase Plan are credited to additional paid
in capital upon receipt. Upon issuance of shares under the plan, the par value
of the issued shares is transferred from additional paid in capital to common
share capital.
  
  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, 2008.
  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, as of March 16, 2007 and as of
January 1, 2008, representing 42.8% of the outstanding common shares, from Hung
Lay Si Co. Ltd. As a result, Mr. Hinrichs owns approximately 61.2% of our
outstanding common shares as of April 30, 2008. 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
   59
  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 OwnedName
      of Beneficial Owner
              
              Shares
              
              
              PercentageMerle
      A.
      Hinrichs
              
              
              28,576,844
              
              
              
              61.2
              %Hung
      Lay Si Co.
      Ltd
              
              
              3,390,329
              
              
              
              7.3
              %Appleby
      Trust (Bermuda) Ltd. (previously know as “Harrington Trust
      Limited”)
              
              
              1,820,787
              
              
              
              3.9
              %Jeffrey
      J. Steiner
      (1)
              
              
              741,676
              
              
              
              1.6
              %Eddie
      Heng Teng
      Hua
              
              
              *
              
              
              
              *J.
      Craig
      Pepples
              
              
              *
              
              
              
              *Bill
      Georgiou
              
              
              *
              
              
              
              *Sarah
      Benecke
              
              
              *
              
              
              
              *David
      F.
      Jones
              
              
              *
              
              
              
              *Roderick
      Chalmers
              
              
              *
              
              
              
              *James
      Watkins
              
              
              *
              
              
              
              *Robert
      Lees
              
              
              *
              
              
              
              *All
      officers and directors as a group (10 persons)
              
              
              29,763,744
              
              
              
              63.7
              %
 ________________________
  *           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 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.
  As at
April 30, 2008, we believe that 14,722,252 of our shares or 31.5% were
beneficially owned by U.S. holders and there were 734 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 61.2% 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% per
annum, 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 of December
31, 2005, 2006 and 2007. 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.
   60
  
  We lease
approximately 82,193 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
$1,008,875 during the year ended December 31, 2007. 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, 2007 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, 2007
  Page
 
 Report
      of Independent Registered Public Accountants
              
              62Consolidated
      Balance Sheets
              
              63Consolidated
      Statements of Income
              
              64Consolidated
      Statements of Cash Flows
              
              66Consolidated
      Statements of Shareholders’ Equity
              
              67Notes
      to Consolidated Financial Statements
              
              68
      - 97
 
   61
  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) (the “Company”) and its
subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of income, shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2007. 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. 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, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for our opinion.
 
 In our
opinion, the 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, 2007 and 2006, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
  As
discussed in Notes 2(z) and 14 to the consolidated financial statements, on
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As
described in Notes 2(v) and 2(x), effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R) (revised 2004),
Share-Based Payment, which requires the Company to recognize expense related to
the fair value of share-based compensation awards. Also, as described in Note
2(y), effective September 30, 2006, 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. 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.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Global Sources Ltd.’s internal control over
financial reporting as of December 31, 2007, based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated April 17, 2008, expressed an
unqualified opinion thereon.
  /s/  ERNST
& YOUNG
  Singapore
 April 17,
2008
 
 
 
 
 
 
 
 
 
  62
  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 312006
              
              
              2007ASSETSCurrent
      Assets:Cash and cash
      equivalents
              
              $
              135,093
              
              
              $
              197,825Available-for-sale
      securities
              
              
              20,702
              
              
              
              -Accounts receivable,
      net
              
              
              6,468
              
              
              
              6,665Receivables from sales
      representatives
              
              
              13,238
              
              
              
              12,303Inventory
              
              
              889
              
              
              
              1,108Prepaid
      expenses and other current assets
              
              
              14,174
              
              
              
              15,333Deferred
      tax assets
              
              
              -
              
              
              
              46Total Current
      Assets
              
              
              190,564
              
              
              
              233,280Property
      and equipment,
      net
              
              
              28,374
              
              
              
              35,352Long
      term
      investments
              
              
              100
              
              
              
              100Bonds
      held to maturity, at amortized cost
              
              
              289
              
              
              
              99Deferred
      tax assets – long term
              
              
              -
              
              
              
              196Other
      assets
              
              
              1,562
              
              
              
              2,781Total
      Assets
              
              $
              220,889
              
              
              $
              271,808LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      Liabilities:Accounts
      payable
              
              $
              6,804
              
              
              $
              5,577Deferred income and customers’
      prepayments
              
              
              62,036
              
              
              
              78,141Accrued
      liabilities
              
              
              12,427
              
              
              
              12,546Income taxes
      payable
              
              
              751
              
              
              
              694Total Current
      Liabilities
              
              
              82,018
              
              
              
              96,958Liabilities
      for incentive and bonus
      plans
              
              
              102
              
              
              
              -Deferred
      income and customers’ prepayments – long term
              
              
              1,802
              
              
              
              4,934Deferred
      tax
      liability
              
              
              403
              
              
              
              283Total
      Liabilities
              
              
              84,325
              
              
              
              102,175Minority
      interest
              
              
              2,913
              
              
              
              4,940Shareholders’
      Equity:Common shares, US$0.01 par value;
      75,000,000 shares authorized;
                46,572,092 (2006: 46,499,492)
      shares issued and outstanding
              
              
              465
              
              
              
              466Additional paid in
      capital
              
              
              125,790
              
              
              
              133,987Retained
      earnings
              
              
              4,830
              
              
              
              28,829Accumulated other comprehensive
      income
              
              
              2,566
              
              
              
              1,411Total Shareholders’
      Equity
              
              
              133,651
              
              
              
              164,693Total Liabilities and
      Shareholders’
      Equity
              
              $
              220,889
              
              
              $
              271,808
 
 The
accompanying notes are an integral part of these financial
statements.
   63
  
 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 31,2005
                
                
                2006
                
                
                2007Revenue:Online and other media
      services
                
                $
                97,062
                
                
                $
                113,097
                
                
                $
                125,818Exhibitions
                
                
                14,300
                
                
                
                42,122
                
                
                
                51,608Miscellaneous
                
                
                832
                
                
                
                1,262
                
                
                
                4,633112,194
                
                
                
                156,481
                
                
                
                182,059Operating
      Expenses:Sales
                
                
                34,415
                
                
                
                50,380
                
                
                
                61,773Event production
                
                
                3,920
                
                
                
                18,414
                
                
                
                20,155Community
                
                
                20,726
                
                
                
                24,885
                
                
                
                27,086General and
      administrative
                
                
                34,666
                
                
                
                38,945
                
                
                
                44,167Online services
      development
                
                
                4,235
                
                
                
                4,499
                
                
                
                5,703Amortization of software costs
      and intangibles
                
                
                1,335
                
                
                
                1,250
                
                
                
                193Total
      Operating Expenses
                
                
                99,297
                
                
                
                138,373
                
                
                
                159,077Income
      from Operations
                
                
                12,897
                
                
                
                18,108
                
                
                
                22,982Interest and dividend income
                
                
                1,624
                
                
                
                5,571
                
                
                
                6,595Gain on sale of available-for-sale securities
                
                
                977
                
                
                
                309
                
                
                
                2,937Gain on sale of shares to minority shareholder and interest income
      thereon
                
                
                -
                
                
                
                7,906
                
                
                
                -Loss on investment, net
                
                
                -
                
                
                
                (743
                )
                
                
                (1,846
                )Impairment of goodwill and intangible assets
                
                
                -
                
                
                
                -
                
                
                
                (3,101
                )Foreign exchange gains (losses), net
                
                
                (80
                )
                
                
                (714
                )
                
                
                (1,213
                )Income
      before Income Taxes
                
                
                15,418
                
                
                
                30,437
                
                
                
                26,354Income
      Tax Expense
                
                
                (759
                )
                
                
                (899
                )
                
                
                (328
                )Net
      Income before Minority Interest
                
                $
                14,659
                
                
                $
                29,538
                
                
                $
                26,026Minority
      interest
                
                
                (1,281
                )
                
                
                (1,909
                )
                
                
                (2,027
                )Net
      Income before cumulative effect of change in
                  accounting
      principle
                
                $
                13,378
                
                
                $
                27,629
                
                
                $
                23,999Cumulative effect of change in
      accounting principle
                
                
                -
                
                
                
                251
                
                
                
                -Net
      Income
                
                $
                13,378
                
                
                $
                27,880
                
                
                $
                23,999Basic
      net income per common share before cumulative effect of change in
      accounting principle
                
                $
                0.29
                
                
                $
                0.59
                
                
                $
                0.52Cumulative
      effect of change in accounting principle
                
                $
                -
                
                
                $
                0.01
                
                
                $
                -Basic
      net income per common share.
                
                $
                0.29
                
                
                $
                0.60
                
                
                $
                0.52Diluted
      net income per common share before cumulative effect of change in
      accounting principle
                
                $
                0.29
                
                
                $
                0.59
                
                
                $
                0.51Cumulative
      effect of change in accounting principle
                
                $
                -
                
                
                $
                0.01
                
                
                $
                -Diluted
      net income per common share
                
                $
                0.29
                
                
                $
                0.60
                
                
                $
                0.51Common
      shares used in basic net income per common share calculations (Note
      2(u))
                
                
                43,710,673
                
                
                
                44,692,422
                
                
                
                45,000,808Common
      shares used in diluted net income per common share calculations (Note
      2(u))
                
                
                43,765,542
                
                
                
                44,748,162
                
                
                
                45,163,495Basic
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
                
                $
                0.29
                
                
                $
                0.59
                
                
                $
                0.52Cumulative
      effect of change in accounting principle
                
                $
                -
                
                
                $
                0.01
                
                
                $
                -
  64
  
 Basic
      net income per non-vested restricted share
                
                $
                0.29
                
                
                $
                0.60
                
                
                $
                0.52Diluted
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
                
                $
                0.29
                
                
                $
                0.59
                
                
                $
                0.51Cumulative
      effect of change in accounting principle
                
                $
                -
                
                
                $
                0.01
                
                
                $
                -Diluted
      net income per non-vested restricted share
                
                $
                0.29
                
                
                $
                0.60
                
                
                $
                0.51Non-vested
      restricted shares used in basic net income per non-vested restricted share
      calculations (Note 2(u))
                
                
                1,783,351
                
                
                
                1,790,150
                
                
                
                1,559,748Non-vested
      restricted shares used in diluted net income per non-vested restricted
      share calculations (Note 2(u))
                
                
                1,783,351
                
                
                
                1,790,150
                
                
                
                1,823,366
 
 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: $4,286
      (2006:  $1,790, 2005:  $505), community: $269
      (2006:  $145, 2005:  $103), general and
      administrative:, $2,874 (2006:  $1,950,
      2005:  $1,025), and online services development expenses: $347
      (2006:  $181,
2005:  $315).
 
 The
accompanying notes are an integral part of these financial
statements.
 
  65
    GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  (In
U.S. Dollars Thousands)
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              13,378
              
              
              $
              27,880
              
              
              $
              23,999Adjustments
      to reconcile net income to net cash provided by
                operating
      activities:Depreciation and
      amortization
              
              
              3,975
              
              
              
              4,678
              
              
              
              4,710Profit on sale of
      equipment
              
              
              (12
              )
              
              
              (30
              )
              
              
              (3
              )Accretion of U.S. Treasury
      strips zero %
      coupon
              
              
              (37
              )
              
              
              (26
              )
              
              
              (15
              )Impairment
      of investment, goodwill and intangible assets
              
              
              -
              
              
              
              -
              
              
              
              5,402Unrealized
      dividend income on available-for-sale securities
              
              
              (134
              )
              
              
              -
              
              
              
              -Provision for doubtful
      debts
              
              
              18
              
              
              
              216
              
              
              
              444Non-cash compensation
      expense
              
              
              1,948
              
              
              
              4,066
              
              
              
              7,776Gain 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
              
              
              1,281
              
              
              
              1,909
              
              
              
              2,027Equipment
      written off
              
              
              86
              
              
              
              2
              
              
              
              266Exchange
      rate realignment
              
              
              -
              
              
              
              -
              
              
              
              73020,503
              
              
              
              30,538
              
              
              
              45,336Changes
      in assets and liabilities:Accounts
      receivables
              
              
              (416
              )
              
              
              (1,139
              )
              
              
              (641
              )Receivables from sales
      representatives
              
              
              (2,252
              )
              
              
              (7,579
              )
              
              
              935Inventory
              
              
              (116
              )
              
              
              (23
              )
              
              
              (219
              )Prepaid expenses and other
      current
      assets
              
              
              (7,525
              )
              
              
              (3,589
              )
              
              
              (1,158
              )Long term
      assets
              
              
              1,279
              
              
              
              419
              
              
              
              (1,219
              )Accounts
      payable
              
              
              686
              
              
              
              1,320
              
              
              
              (1,236
              )Accrued liabilities and
      liabilities for incentive and bonus plans
              
              
              563
              
              
              
              5,578
              
              
              
              17Deferred income and customer
      prepayments
              
              
              22,777
              
              
              
              10,866
              
              
              
              19,237Tax
      liability
              
              
              130
              
              
              
              313
              
              
              
              (419
              )Net cash provided by operating
      activities
              
              
              35,629
              
              
              
              36,704
              
              
              
              60,633Cash
      flows from investing activities:Purchase of property and
      equipment
              
              
              (7,338
              )
              
              
              (4,876
              )
              
              
              (11,291
              )Proceeds from sales of
      equipment
              
              
              13
              
              
              
              30
              
              
              
              3Proceeds from matured
      bonds
              
              
              240
              
              
              
              200
              
              
              
              205Purchase
      of intangible
      assets
              
              
              -
              
              
              
              -
              
              
              
              (3,136
              )Purchase
      of available-for-sale
      securities
              
              
              (219,518
              )
              
              
              (263,463
              )
              
              
              -Proceeds from sale of
      available-for-sale
      securities
              
              
              223,511
              
              
              
              251,267
              
              
              
              15,834Net 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
              
              
              (3,092
              )
              
              
              (14,123
              )
              
              
              1,615Cash
      flows from financing activities:Proceeds
      from issue of common shares, net of share issue expenses
              
              
              38,303
              
              
              
              -
              
              
              
              -Amount received towards
      directors purchase
      plan
              
              
              118
              
              
              
              359
              
              
              
              422Net cash generated from
      financing
      activities
              
              
              38,421
              
              
              
              359
              
              
              
              422Effect
      of exchange rate changes on cash and cash equivalents
              
              
              -
              
              
              
              -
              
              
              
              62Net
      increase in cash and cash
      equivalents
              
              
              70,958
              
              
              
              22,940
              
              
              
              62,670Cash
      and cash equivalents, beginning of the
      year
              
              
              41,195
              
              
              
              112,153
              
              
              
              135,093Cash
      and cash equivalents, end of the
      year
              
              $
              112,153
              
              
              $
              135,093
              
              
              $
              197,825Supplemental
      cash flow disclosures:Income tax
      paid
              
              $
              629
              
              
              $
              586
              
              
              $
              747
 
 The
accompanying notes are an integral part of these financial
statements.
  66
  GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
  (In
U.S. Dollars Thousands, Except Number of Shares)
  Common
      sharesNumber
      of shares
              
              
              Amounts
              
              
              Additional
                  paid
      in
                  capital
              
              
              Retained
      earnings
                  (deficit)
              
              
              Unearned
                  compensa-tion
              
              
              Accumu-lated
      other comprehen-sive income
              
              
              Total
                  shareholders’
      equityBalance
      at December 31, 2004
              
              
              42,392,691
              
              
              $
              424
              
              
              $
              86,268
              
              
              $
              (34,577
              )
              
              $
              (6,831
              )
              
              $
              239
              
              
              $
              45,523Net
      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
              
              
              7,321
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Issuance
      of common shares, net of share issue expenses
              
              
              3,993,000
              
              
              
              40
              
              
              
              38,263
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              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
              
              
              $
              948Balance
      at December 31, 2005
              
              
              46,393,012
              
              
              $
              464
              
              
              $
              127,666
              
              
              $
              (21,199
              )
              
              $
              (7,900
              )
              
              $
              210
              
              
              $
              99,241Transition
      adjustment on adoption of SAB108 (Note 2 (y))
              
              
              —
              
              
              
              —
              
              
              
              1,851
              
              
              
              (1,851
              )
              
              
              —
              
              
              
              —
              
              
              
              —Balance
      at January 1, 2006     (adjusted)
              
              
              46,393,012
              
              
              $
              464
              
              
              $
              129,517
              
              
              $
              (23,050
              )
              
              $
              (7,900
              )
              
              $
              210
              
              
              $
              99,241Net
      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
              
              
              106,480
              
              
              
              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
              
              
              $
              2,665Balance
      at December 31, 2006
              
              
              46,499,492
              
              
              $
              465
              
              
              $
              125,790
              
              
              $
              4,830
              
              
              $
              —
              
              
              $
              2,566
              
              
              $
              133,651Net
      income
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              23,999
              
              
              
              —
              
              
              
              —
              
              
              $
              23,999Non-cash
      compensation expense
              
              
              —
              
              
              
              —
              
              
              
              7,776
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              7,776Cumulative
      translation differences............
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,411
              
              
              $
              1,411Amount
      received towards directors –
                purchase
      plan and issuance of shares    under the
      plan..........................................
              
              
              72,600
              
              
              
              1
              
              
              
              421
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              422Reclassification
      adjustment for gains, net of losses included in net income, net of income
      tax of  $NIL................................
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,566
              )
              
              $
              (2,566
              )Balance
      at December 31, 2007
              
              
              46,572,092
              
              
              $
              466
              
              
              $
              133,987
              
              
              $
              28,829
              
              
              $
              —
              
              
              $
              1,411
              
              
              $
              164,693




The
accompanying notes are an integral part of these financial
statements.
  67
 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, re-sells products that are purchased on
consignment basis and engages in direct sale of products that are
purchased.
  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 (“U.S. GAAP”) 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. 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. U.S. Treasury
securities with original maturity of three months or less were classified as
available-for-sale securities prior to 2007. As the U.S. Treasury securities are
backed by U.S. government and are highly liquid and readily convertible to cash,
the Company reassessed the presentation of these securities in year 2007 and
determined that it is more appropriate to present the U.S. Treasury securities
with original maturity of three months or less under cash and cash equivalents.
Accordingly, the Company has presented the U.S. Treasury securities with
original maturity of three months or less under cash and 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
   68
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  any
unrealized holding gains and losses, net of related tax effect if any, presented
under shareholders’ equity as accumulated other comprehensive
income.
  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-sale
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
  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.
  Inventory
of the goods purchased for Global Sources Direct Sales is stated at 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
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
              Over
      the remaining lease period
                or
      50 years whichever is shorterFixtures,
      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
      esti-
   69
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  mated
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.
  The
Company expensed $66, $7 and $75 during the years ended December 31, 2005, 2006
and 2007, 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.
  Intangible
assets other than goodwill are carried at cost less accumulated amortization.
Intangible assets are generally amortized on a straight-line basis over the
useful lives of the respective assets.
  Goodwill
is carried at cost. Goodwill is not amortized but is subject to an annual test
for impairment at the reporting unit level and between annual tests in certain
circumstances. The performance of the test involves a two-step process. The
first step of the impairment test involves comparing the fair value of the
Company’s reporting unit with the reporting unit’s carrying amount, including
goodwill. The Company generally determines the fair value of its reporting unit
using the expected present value of future cash flows. If the carrying amount of
a reporting unit exceeds the reporting unit’s fair value, the Company performs
the second step of the goodwill impairment test to determine the amount of
impairment loss, if any.
  The net
intangible assets as of December 31, 2006 and 2007 was $NIL for both years. The
Company recorded amortization of intangible assets amounting to $NIL, $NIL and
$35 during the year ended December 31, 2005, 2006 and 2007, respectively. The
Company recorded impairment loss on goodwill and intangible assets of $NIL $NIL
and $3,101 during the year ended December 31, 2005, 2006 and 2007, respectively.
Impairment loss on goodwill and intangible assets of $3,101 during the year
ended December 31, 2007 is related to the acquisition of business from Blue
Bamboo China Ventures (Note 29).
  (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.
   70
 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’s policy is to regularly review the carrying values of the non-quoted
long term 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.
  (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, 2007 and
2006. The impairment charge of the Company’s intangible assets and goodwill
recorded in 2007 is discussed in note 29.
  (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 and from direct sale of
products.
  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 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.
 
 The
Company received license fees and currently receives royalties from licensing
its trade and service marks. Revenue from license fees is 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 income from its direct product sales. Under the direct product
sales business model, the revenue is recorded when the right of return has
expired after the delivery of the goods to the buyer and the corresponding cost
of products purchased is recorded under sales costs. The net amount of shipping
costs invoiced to the buyers less the shipping costs paid is reported under
revenue.
  The
Company also derives commission income on the re-sale of products on consignment
basis. Under the Consignment Sales business model, the commission income which
is the sales proceeds, net of the cost of the purchased products payable to the
consigner and the associated direct transaction costs, is recognized upon
conclusion of the sale to the buyer.
  The
Company presents the sales taxes imposed on revenue generating transactions on
gross basis, i.e included in revenue and costs. During the year ended December
31, 2005, 2006 and 2007 such taxes recorded were $1,446, $1,172 and $1,924,
respectively.
   71
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  (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. For
online and other media services the commission expense is recognized when the
associated revenue is recognized or when the associated accounts receivable are
paid, whichever is earlier. For exhibitions, the commission expense is
recognized when the associated revenue is recognized, upon conclusion of the
event.
  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 in which the expenses are
incurred. Other advertising and promotion expenses are expensed as incurred. The
Company recorded advertising and promotion expenses of $3,612, $7,483 and $
7,331 during the years ended December 31, 2005, 2006 and 2007,
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 $3,553, $3,535 and $ 3,783 during the years ended December 31, 2005,
2006 and 2007, 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.
  In cases
where the option to renew is exercised before the original lease agreement
expires and the new agreement is signed to extend the lease beyond the expiry
date of original agreement, the remaining rental expense as per the original
agreement and the total rental as per the new agreement are added up and the
resulting total rental expense is apportioned on a straight-line basis starting
from the date of signing the new agreement until the expiry date of the new
agreement.
  (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.
   72
 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.
 
 eMedia
Asia Ltd. had excess reserves of cash as it was not allowed to pay cash
dividends. In October 2006, approval of the board of directors and the
shareholders of eMedia Asia Ltd. was 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 was received.
 
 The
minority interest of $2,913 and $4,940 as at December 31, 2006 and 2007,
respectively, reflects UBM Asia’s proportionate interest in the net book value
of eMedia Asia Ltd.
   73
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  (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,
where material are recorded under accumulated other comprehensive income. The
Company recorded cumulative translation differences of $1,411 during the year
ended December 31, 2007 under accumulated other comprehensive income. The
cumulative translation differences were not material as of December 31, 2006.
The aggregate amount of foreign currency transaction gains and losses recorded
by the Company were net losses of $80, $714, and $1,213 during the year ended
December 31, 2005, 2006 and 2007, respectively.
  (s)           Segment
Reporting
  Statement
of Financial Accounting Standard (“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.
   74
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 Comprehensive
income consists of the following:
 
 Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Unrealized
      gain on available-for-sale securities, net of income tax of
      $NIL
              
              $
              948
              
              
              $
              2,665
              
              
              $
              —Reclassification
      adjustment for gains, net of losses included in net income, net of income
      tax of $NIL
              
              $
              (977
              )
              
              $
              (309
              )
              
              $
              (2,566
              )Cumulative
      foreign currency translation differences
              
              $
              —
              
              
              $
              —
              
              
              $
              1,411Net
      income
              
              $
              13,378
              
              
              $
              27,880
              
              
              $
              23,999$
              13,349
              
              
              $
              30,236
              
              
              $
              22,844
   (u)    Basic
and Diluted Net Income Per Share
  The
Company discloses the earnings per share under two-class method, prescribed by
SFAS No. 128, “Earnings Per Share” and Emerging Issues Task Force (“EITF”) Issue
No. 03-6, “Participating Securities and the Two-Class Method under FASB
Statement No.128”. 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 31,2005
              
              
              2006
              
              
              2007Net
      income before cumulative effect of change in accounting
      principle
              
              $
              13,378
              
              
              $
              27,629
              
              
              $
              23,999Cumulative
      effect of change in accounting principle
              
              
              -
              
              
              
              251
              
              
              
              -Net
      income
              
              $
              13,378
              
              
              $
              27,880
              
              
              $
              23,999Basic
      net income per common share before cumulative effect of change in
      accounting principle
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.52Cumulative
      effect of change in accounting principle
              
              $
              -
              
              
              $
              0.01
              
              
              $
              -Basic
      net income per common share
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.52Diluted
      net income per common share before cumulative effect of change in
      accounting principle
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.51






75
  GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (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 common share
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.51Weighted
      average common shares used in basic net income per common share
      calculations
              
              
              43,710,673
              
              
              
              44,692,422
              
              
              
              45,000,808Effect
      of dilutive shares
              
              
              54,869
              
              
              
              55,740
              
              
              
              162,687Weighted
      average common shares used in diluted net income per share
      calculations
              
              
              43,765,542
              
              
              
              44,748,162
              
              
              
              45,163,495Basic
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.52Cumulative
      effect of change in accounting principle
              
              $
              -
              
              
              $
              0.01
              
              
              $
              -Basic
      net income per non-vested restricted share
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.52Diluted
      net income per non-vested restricted share before cumulative effect of
      change in accounting principle
              
              $
              0.29
              
              
              $
              0.59
              
              
              $
              0.51Cumulative
      effect of change in accounting principle
              
              $
              -
              
              
              $
              0.01
              
              
              $
              -Diluted
      net income per non-vested restricted share.
              
              $
              0.29
              
              
              $
              0.60
              
              
              $
              0.51Weighted
      average non-vested restricted shares used in basic net income per
      non-vested restricted share calculations
              
              
              1,783,351
              
              
              
              1,790,150
              
              
              
              1,559,748Effect
      of dilutive shares.
              
              
              -
              
              
              
              -
              
              
              
              263,618Weighted
      average non-vested restricted shares used in diluted net income per
      non-vested restricted share calculations
              
              
              1,783,351
              
              
              
              1,790,150
              
              
              
              1,823,366Antidilutive
      share subscriptions
              
              
              100,000
              
              
              
              100,000
              
              
              
              -







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 that 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.
   76
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  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.
  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.
   77
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  (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)     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 2006, 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, in 2006, the Company has
recorded the prior years’ cumulative non-cash compensation expenses of $1,851
against the Company’s opening retained earnings for the year ended December 31,
2006 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.
 
 (z)           Recent
Accounting Pronouncements
 
 In March
2006, the 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. The Company adopted EITF
06-3 guidance with effect from January 1, 2007. The Company is 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 periods, disclosure and transition.  This
Interpretation is effective for fiscal years beginning after December 15, 2006.
The Company adopted FIN No. 48 with effect from January 1, 2007 and the adoption
this interpretation does not have any material impact on the consolidated
financial statements of the Company.
  78
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 
 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). However in February 2008, the FASB issued FSP FAS
157-2, which delays the effective date of SFAS No. 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair values in the financial statements on a recurring basis. This
FSP partially defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008. The Company will adopt SFAS No. 157 from
January 1, 2008 except as it applies to those nonfinancial assets and
nonfinancial liabilities as noted in FSP FAS 157-2. The Company is currently
evaluating whether the partial 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.
 
 In
December 2007, the FASB issued SFAS No. 160, “Accounting and Reporting of
Noncontrolling Interest in Consolidated Financial Statements - an amendment of
ARB No.51”. SFAS No. 160 establishes accounting and reporting requirements for
ownership interests in subsidiaries held by parties other than parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 160 is effective for fiscal year beginning
after December 15, 2008. The Company is currently evaluating whether the
adoption of SFAS No. 160 has any impact on its consolidated financial
statements.
  3.           Available-for-sale
Securities
  At
      December 31,2006
              
              
              2007Cost
              
              
              Unrealized
      holding gain
              
              
              Fair
                  value
              
              
              Cost
              
              
              Unrealized
      holding gain
              
              
              Fair
                  valueEquity
      securities
              
              $
              12,237
              
              
              $
              2,265
              
              
              $
              14,503
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Other
      securities
              
              
              5,898
              
              
              
              301
              
              
              
              6,199
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              18,135
              
              
              $
              2,566
              
              
              $
              20,702
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
 
   79
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 The gross
realized gains and losses from the sale of available-for-sale securities were as
follows:
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Gross
      realized
      gains
              
              $
              1,011
              
              
              $
              309
              
              
              $
              3,392Gross
      realized
      losses
              
              
              (34
              )
              
              
              -
              
              
              
              (2,301
              )$
              977
              
              
              $
              309
              
              
              $
              1,091
 
  The
Company recorded dividend income derived from the available-for-sale securities
of $320, $1,893 and $NIL during the year ended December 31, 2005, 2006 and 2007,
respectively. The Company recorded interest income derived form
available-for-sale securities of $10, $NIL and $NIL during the year ended
December 31, 2005, 2006 and 2007, respectively.
  4.           Current
Assets
   At
      December 31,2006
                
                
                2007Accounts
      receivable:Gross
      trade
      receivables
                
                $
                7,148
                
                
                $
                7,399Less:  Allowance
      for doubtful
      debts
                
                
                (680
                )
                
                
                (734
                )$
                6,468
                
                
                $
                6,665
 
 Movements in allowance for doubtful
debts:
 
 Year
      Ended December 31,2005
                
                
                2006
                
                
                2007Balance
      at beginning of
      year
                
                $
                1,028
                
                
                $
                652
                
                
                $
                680Provision
      during the
      year
                
                
                18
                
                
                
                216
                
                
                
                444Write-off
      during the
      year
                
                
                (394
                )
                
                
                (188
                )
                
                
                (390
                )Balance
      at end of
      year
                
                $
                652
                
                
                $
                680
                
                
                $
                734
 
 At
      December 31,2006
                
                
                2007Prepaid
      expenses and other current assets:Unsecured
      employee loans and other
      debtors
                
                $
                127
                
                
                $
                42Prepaid
      expenses
                
                
                870
                
                
                
                838Deferred
      expenses – short
      term
                
                
                10,834
                
                
                
                11,664Other
      current
      assets
                
                
                2,343
                
                
                
                2,789$
                14,174
                
                
                $
                15,333
   80
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  5.           Property
and Equipment, net
  At
      December 31,2006
              
              
              2007Building
              
              $
              19,384
              
              
              $
              27,012Capital
      work-in-progress
              
              
              985
              
              
              
              501Leasehold
      improvements
              
              
              8,649
              
              
              
              10,147Motor
      vehicles
              
              
              266
              
              
              
              176Computer
      equipment, software, fixtures, fittings and office
    equipment
              
              
              20,113
              
              
              
              22,877Reusable
      trade show
      booths
              
              
              191
              
              
              
              228Software
      development
      costs
              
              
              3,832
              
              
              
              3,893Property
      and equipment, at
      cost
              
              
              53,420
              
              
              
              64,834Less:  Accumulated
      depreciation
              
              
              (25,046
              )
              
              
              (29,482
              )$
              28,374
              
              
              $
              35,352
 
 Depreciation
expense for the years ended December 31, 2005, 2006 and 2007 was $2,640, $3,428
and $4,517 respectively and the amortization of software costs for the years
ended December 31, 2005, 2006 and 2007 was $1,335, $1,250 and $158 respectively.
The accumulated amortization of software costs as of December 31, 2006 and 2007
was $3,530 and $3,724 respectively.
  During
2004, the Company entered into an agreement to purchase approximately 9,000
square 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 in 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 lease term. The depreciation expenses on
the said building amounted to $311, $414 and $414 during the year 2005, 2006 and
2007, respectively.
  During
2007, the Company purchased approximately 1,939.38 square 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 the land will
revert to the local government authority. The delivery of the office space to
the Company was completed in 2007. The depreciation on this property commenced
during 2007. The building, which is under capital lease is depreciated on a
straight-line basis over the remaining lease term. The depreciation expenses on
the said building amounted to $123 during 2007.
 
 6.
              Long-term
      Investments and Bonds Held to
Maturity
  (i)
              As
      at December 31, 2007, 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.
   81
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  The net
carrying value of the long term investment as at December 31, 2006 and 2007 was
$100.  The Company will continue to evaluate this investment for
impairment.
  (ii)
              U.S.
      Treasury strips zero % coupon
  At
      December 31,2006
              
              
              2007The
      amortized cost classified by date of contractual maturity is as
      follows:Due
      within one
      year
              
              $
              195
              
              
              $
              99Due
      after one year through five
      years
              
              
              94
              
              
              
              -$
              289
              
              
              $
              99
 
 
 At
      December 31,2006
              
              
              2007The
      fair value based on the market price, classified by  date of
      contractual maturity is as follows:Due
      within one year
              
              $
              196
              
              
              $
              100Due
      after one year through five years
              
              
              95
              
              
              
              -$
              291
              
              
              $
              100
 
 
 At
      December 31,2006
              
              
              2007Gross
      unrealized holding
      gains
              
              $
              2
              
              
              $
              1
 
 Proceeds
from the matured U.S. Treasury strips zero % coupons during the years ended
December 31, 2005, 2006 and 2007 were $240, $200 and $205
respectively.
 
 7.
              Other
      Assets
  At
      December 31,2006
              
              
              2007Employee
      housing
      loans
              
              $
              184
              
              
              $
              154Club
      memberships
              
              
              418
              
              
              
              272Deferred
      expenses – exhibitions – long term
              
              
              750
              
              
              
              1,090Rental,
      utility and other
      deposits
              
              
              210
              
              
              
              1,265$
              1,562
              
              
              $
              2,781
 
  82
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 8.
              Current
      Liabilities
  At
      December 31,2006
              
              
              2007Deferred
      income and customer prepayments:Advertising
              
              $
              34,627
              
              
              $
              43,896Exhibitions,
      subscription and
      others
              
              
              27,409
              
              
              
              34,245$
              62,036
              
              
              $
              78,141
 
 At
      December 31,2006
              
              
              2007Accrued
      liabilities:Salaries,
      wages and
      commissions
              
              $
              2,062
              
              
              $
              1,940Retirement
      contribution
      plans
              
              
              665
              
              
              
              769Current
      portion of liabilities for incentive and bonus plans
              
              
              1,399
              
              
              
              1,474Printing,
      paper and bulk mailing
      cost
              
              
              958
              
              
              
              1,167Sales
      commissions and fees to third parties
              
              
              4,337
              
              
              
              3,867Others
              
              
              3,006
              
              
              
              3,329$
              12,427
              
              
              $
              12,546
 
  9.           Liabilities
for Incentive and Bonus Plans
  At
      December 31,2006
              
              
              2007Liability
      for long term discretionary bonus plan
              
              $
              102
              
              
              $
              —
 
 10.           Deferred
Income and Customer Prepayments – Long Term
  At
      December 31,2006
              
              
              2007Exhibitions
              
              $
              1,802
              
              
              $
              4,934
 
  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% per annum,
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 $184 and $154 as of December 31, 2006
and 2007, respectively.  Loans due from employees for lease of
residences were $31 and $39 as of December 31, 2006 and 2007, respectively.
There were no other loans due from the Company’s directors and executive
officers as at December 31, 2006 and 2007. Other temporary advances to staff,
which are generally repayable within twelve months, were $96 and $3 as of
December 31, 2006 and 2007, respectively.
   83
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  12.           Liabilities
for Incentive and Bonus Plans
  Before
the commencement of the Equity Compensation Plans (Note 23), 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, 2005, 2006 and 2007. 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, 2005, 2006 and 2007 were $126, $317 and $306
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, 2006 and 2007 were $641 and $719,
respectively.
  The
Company incurred costs of $1,166, $1,213 and $1,306 with respect to the
retirement plans in the years ended December 31, 2005, 2006 and 2007,
respectively.
  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, Singapore, the People’s Republic of China and certain other
jurisdictions 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 31,2005
              
              
              2006
              
              
              2007Cayman
      Islands
              
              $
              12,828
              
              
              $
              27,494
              
              
              $
              19,579Foreign
              
              
              2,590
              
              
              
              2,943
              
              
              
              6,775$
              15,418
              
              
              $
              30,437
              
              
              $
              26,354
 
  84
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  The
provision for income taxes consists of:
 
 Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Current
      tax expense:Cayman Islands
              
              $
              —
              
              
              $
              —
              
              
              $
              —Foreign
              
              
              650
              
              
              
              932
              
              
              
              690Deferred
      tax expense:Cayman Islands
              
              
              —
              
              
              
              —
              
              
              
              —Foreign
              
              
              109
              
              
              
              (33
              )
              
              
              (362
              )Total
      provision
              
              $
              759
              
              
              $
              899
              
              
              $
              328
 
 
 The
provision for income taxes for the years ended December 31, 2005, 2006 and 2007
differed from the amount computed by applying the statutory income tax rate of
0% as follows:
 
 Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Income
      taxes at statutory rate
              
              $
              —
              
              
              $
              —
              
              
              $
              —Foreign
      income and revenues taxed at higher rates
              
              
              759
              
              
              
              899
              
              
              
              369Impact
      of change in enacted tax rates
              
              
              —
              
              
              
              —
              
              
              
              (41
              )Total
              
              $
              759
              
              
              $
              899
              
              
              $
              328Effective
      tax rate
              
              
              4.92
              %
              
              
              2.95
              %
              
              
              1.24
              %
  
 Deferred
tax assets consist of the following:
  Year
      Ended December 31,2006
              
              
              2007Long Term
              
              
              Short TermDeductible
      temporary differences
              
              $
              —
              
              
              $
              196
              
              
              $
              46Net
      operating loss carry forwards
              
              
              5,961
              
              
              
              6,144
              
              
              
              36Less:  valuation
      allowance
              
              
              (5,961
              )
              
              
              (6,144
              )
              
              
              (36
              )Deferred
      tax
      assets
              
              $
              —
              
              
              $
              196
              
              
              $
              46
 
  The
Company recorded a full valuation allowance for the deferred tax assets relating
to net operating loss carry forwards due to the uncertainty as to their ultimate
realization. The net change in valuation allowance for the years ended December
31, 2005, 2006 and 2007 was a decrease (increase) of approximately $39, $1,410
and $(219) 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, 2007 and 2006, a United States subsidiary had net operating loss
carry forwards of approximately $16,861 and $16,982 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.
   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
Company’s subsidiary in Dubai, United Arab Emirates has been granted a fifty
year tax holiday in Dubai since it is located in a Free Trade Zone, which may be
subject to further renewal upon expiry of the initial fifty-year period in
2057.
  The
Company recognized a deferred tax liability of $403 and $283 as at December 31,
2006 and 2007, 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.
  The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007.
  Under FIN
48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of being sustained.
Additionally, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.
  The total
amount of unrecognized tax benefits as of January 1, 2007 and December 31, 2007
were not material. As a result of the implementation of FIN 48, the Company did
not recognize an increase in the liability for unrecognized tax benefits and no
retained earnings adjustment was recorded as of January 1, 2007.
 
 The
Company’s subsidiaries are subject to taxation in Hong Kong, the People’s
Republic of China, Singapore and other jurisdictions. There are no ongoing
examinations by taxing authorities as of December 31, 2007. These subsidiaries’
tax returns mainly for years 2006 and 2007 remain open in various local tax
jurisdictions.
 
 The
Company’s policy is to recognize interest and/or penalties related to uncertain
tax positions in income tax expense. To the extent accrued interest and
penalties do not ultimately become payable, amounts accrued will be reduced and
reflected as a reduction of the overall income tax provision in the period that
such determination is made. During the year ended December 31, 2007, the Company
did not record any interest or penalty relating to uncertain tax
positions.
 
 15.
              Share
      Capital
  On
February 28, 2006 and 2007, the Company issued 106,480 and 72,600 common shares,
respectively, under the Directors Purchase Plan. During 2006 the Company
increased its authorized share capital form 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, 2006 and 2007 is 75,000,000 common
shares of $0.01 par value. As at December 31, 2006 and 2007, the Company has
46,499,492 and 46,572,092 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
   86
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  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, 2005, 2006 and 2007. No
customer accounted for more than 10% of the accounts receivable as of December
31, 2006 and 2007.
  In 2007,
the Company derived 69% of its revenue from online and other media services. The
Company expects that a majority of its future revenue will continue to be
generated from online and other media services. Market competition from other
service providers could negatively impact the revenue.
  In 2007,
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.
  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, 2005, 2006 and 2007, the Company’s operating lease
rental and building management services expenses were $1,409, $1,185 and $1,305
respectively.  The estimated future minimum lease rental payments
under non-cancelable operating leases as of December 31, 2007 are as
follows:
  Year
      Ending December 31,
              
              Operating
      Leases2008
              
              $
              6452009
      onwards
              
              
              -$
              645
 
 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 31,2005
              
              
              2006
              
              
              2007Revenue:Online
      and other media services (Note (a))
              
              $
              97,062
              
              
              $
              113,097
              
              
              $
              125,818Exhibitions
              
              
              14,300
              
              
              
              42,122
              
              
              
              51,608Miscellaneous
              
              
              832
              
              
              
              1,262
              
              
              
              4,633Consolidated
              
              $
              112,194
              
              
              $
              156,481
              
              
              $
              182,059
 
 Miscellaneous
revenue consists mainly of technical services fee income, rental income,
commission income from consignment sales and for 2007 also includes revenue from
resale of products purchased.
   87
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  Revenue
from barter transactions was $1,366, $1,268 and $1,617 during the years ended
December 31, 2005, 2006 and 2007, respectively. Similarly the expenses from
barter transactions were $1,142, $1,365 and $ 1,320 during the years ended
December 31, 2005, 2006 and 2007, respectively.
 
 Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Income/(Loss)
      from Operations:Online
      and other media services
              
              $
              13,460
              
              
              $
              21,936
              
              
              $
              22,341Exhibitions
              
              
              (1,258
              )
              
              
              (3,752
              )
              
              
              (193
              )Miscellaneous
              
              
              695
              
              
              
              (76
              )
              
              
              834Consolidated
              
              $
              12,897
              
              
              $
              18,108
              
              
              $
              22,982
   At
      December 31,2006
              
              
              2007Identifiable
      Assets:Online
      and other media
      services
              
              $
              151,926
              
              
              $
              180,499Exhibitions
              
              
              67,182
              
              
              
              84,762Miscellaneous
              
              
              1,781
              
              
              
              6,547Consolidated
              
              $
              220,889
              
              
              $
              271,808
   Note:               (a)       Online
and other media services consist of:
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Online
      services
              
              $
              53,829
              
              
              $
              64,396
              
              
              $
              75,919Print
      services
              
              
              43,233
              
              
              
              48,701
              
              
              
              49,899$
              97,062
              
              
              $
              113,097
              
              
              $
              125,818
 
  (b)           Foreign
Operations
  Year
      Ended December 31,2005
              
              
              2006
              
              
              2007Revenue:Asia
              
              $
              104,746
              
              
              $
              146,315
              
              
              $
              171,621United
      States
              
              
              6,175
              
              
              
              7,610
              
              
              
              8,596Europe
              
              
              679
              
              
              
              1,571
              
              
              
              242Others
              
              
              594
              
              
              
              985
              
              
              
              1,600Consolidated
              
              $
              112,194
              
              
              $
              156,481
              
              
              $
              182,059
 
   88
 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 31,2006
              
              
              2007Long-Lived
      Assets:Asia
              
              $
              30,030
              
              
              $
              38,429United
      States
              
              
              6
              
              
              
              -Consolidated
              
              $
              30,036
              
              
              $
              38,429
 
 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 will have a material
adverse effect on the Company’s consolidated financial position and results of
operations.
  21.
              Capital
      Commitments
  The
commitments as at December 31, 2007 for purchase of computers and for the
development of software amounted to $350. The capital commitments as at December
31, 2006 were $1,427 for leasehold improvements, purchase of software 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 6,455,283 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 806,913 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 5,648,370 shares is subject to
employment, non-compete and vesting terms under an employment agreement with one
of the Company’s United States subsidiaries. The 5,648,370 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, including the
Equity
   89
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  Compensation
Plans Numbers I to VII described below.  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.
  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 the Company 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
December 31, 2007, no shares have been contributed by the Company to the 2007
Trust. In exercising its powers under the Trust, the Trustee may be directed by
a plan committee to be constituted and appointed by the Company.  The
plan committee (“ECP 2007 Plan Committee”) was constituted and appointed by the
Board of Directors on February 15, 2007.
  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.
  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 of 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 $2,567 and
$2,148, respectively, were recognized over the three year vesting term from the
respective award dates.
   90
 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 IV are awarded a defined amount
of compensation payable in Global Sources Ltd. common shares, the number of
which is determined by the plan committee periodically.
  Entitlement
of the employees and directors to these common shares is subject to employment
and vesting terms. Entitlement of consultants of 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 was determined by the plan
committee.
  Entitlement
of the employees and directors to these common shares is subject to employment
and vesting terms. Entitlement of 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 subsequently approved additional awards of common shares under ECP and
ECP V on various dates.
  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 $2,981 and $3,758,
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 is determined by the
plan committee.
  Entitlement
of the employees, directors and consultants to these common shares is subject to
non-compete and vesting terms.
  The
Equity Compensation Plan committee approved ECP VI on March 13, 2001 and
made awards of common shares under the plan on various dates subsequently. The
non-cash compensation expenses associated with the awards in accordance with
SFAS No. 123(R), under ECP VI totaling approximately $1,688 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 is
determined by the plan committee periodically. Entitlement of the employees and
directors to these common shares is subject to employment and vesting terms.
Entitlement of 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 VII on January 1, 2002 and made further awards on various dates
subsequently. The non-cash compensation expenses associated with the above
awards in accordance with SFAS No. 123(R), under ECP VII of approximately
$17,707 are recognizedover the six years
vesting term from the respective award dates.
  A new
equity compensation plan, known as “The Global Sources Equity Compensation
(2007) Master Plan” (“ECP 2007 Master Plan”) was approved by the Company’s
shareholders on May 8, 2006. The ECP 2007 Master Plan commenced with effect on
January 1, 2007 and, unless terminated earlier by the Company’s Board of
Directors, will expire on December 31, 2012. The employees, directors and
consultants of the Company are eligible to be awarded grants of the Company’s
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
   91
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  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, the Company 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 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
during 2007. The non-cash compensation expenses associated with the awards of
approximately $6,431 are recognized over the six year vesting term of the
award.
  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 the employees, directors or consultants 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 is 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.
The ECP 2007 Plan Committee approved awards of common shares under the plan
during 2007. The non-cash compensation expenses associated with the awards of
approximately $222 are recognized over the five year vesting term of the
award.
  The
Company expensed $1,875, $4,000 and $7,753 in non-cash compensation costs
associated with the awards under the above ECP plans in the years ended December
31, 2005, 2006 and 2007, respectively. As of December 31, 2007, there was
$11,731 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, 2007 and changes during the year
ended December 31, 2007 were as follows:
 ECP V

                    Grant
      Plan
                
                
                ECP VI

                    Grant
      Plan
                
                
                ECP VII

                    Grant
      Plan
                
                
                The
      Global Sources Share Grant Award Plan
                
                
                The
      Global Sources Retention Share Grant PlanShares
                
                
                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
                
                
                Shares
                
                
                Weighted
      average grant date fair valueNon-vested
      at January 1, 2007
                
                
                19,326
                
                
                $
                4.02
                
                
                
                33,302
                
                
                $
                6.71
                
                
                
                1,608,124
                
                
                $
                6.06
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Granted
                
                
                36,630
                
                
                $
                16.13
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                396,464
                
                
                $
                14.15
                
                
                
                7,850
                
                
                $
                21.16Vested
                
                
                (25,553
                )
                
                $
                6.97
                
                
                
                (11,473
                )
                
                $
                5.75
                
                
                
                (205,169
                )
                
                $
                4.87
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Forfeited
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (20,946
                )
                
                $
                6.07
                
                
                
                (6,182
                )
                
                $
                13.23
                
                
                
                —
                
                
                
                —Non-vested
      at December 31, 2007
                
                
                30,403
                
                
                $
                16.13
                
                
                
                21,829
                
                
                $
                7.22
                
                
                
                1,382,009
                
                
                $
                6.23
                
                
                
                390,282
                
                
                $
                14.16
                
                
                
                7,850
                
                
                $
                21.16
   92
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  The total
fair value of shares vested during the years ended December 31, 2005, 2006 and
2007 were as follows:
 
 Year
      ended
                  December
      31,
              
              ECP
      IV
                  Grant
      Plan
              
              
              ECP
      V
                  Grant
      Plan
              
              
              ECP
      VI
                  Grant
      Plan
              
              
              ECP
      VII
                  Grant
      Plan
              
              
              Total2005
              
              $
              940
              
              
              $
              424
              
              
              $
              224
              
              
              $
              590
              
              
              $
              2,1782006
              
              $
              1,024
              
              
              $
              586
              
              
              $
              324
              
              
              $
              946
              
              
              $
              2,8802007
              
              $
              -
              
              
              $
              436
              
              
              $
              167
              
              
              $
              3,030
              
              
              $
              3,633
 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.
  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 following his or her exercise of the Grant of
Options and payment of the Option Price would no longer result in a forfeiture
of the subscribed shares.  The exercise price is the average closing
price of the shares for the last five trading days of the previous calendar
year. The balance of 85% must be paid on or before the end of the holding
period, which is four years. The ownership of the awards will transfer after
four years.
  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
balance of 90% must be paid on or before the end of the holding period. There
were no other changes to the terms of the plan.
  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 the
previous calendar year, on or before 28th day of
February of the year, with the balance of 90% payable by the end of the four
year period from that day 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 purchased shares, however, failure 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.
   93
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
  On
November 7, 2006 the Company 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).
  All the
monies received under the Director Purchase Plan are credited to additional paid
in capital upon receipt. Upon issuance of shares under the plan, the par value
of the issued shares is transferred from additional paid in capital to common
share capital.
  A summary
of share option activity under Directors Purchase Plan during the year ended
December 31, 2007 was as follows:
  Shares
              
              
              Weighted
      average exercise priceOutstanding
      at January 1, 2007
              
              
              -
              
              
              
              -Granted
              
              
              140,000
              
              
              
              17.198Exercised
              
              
              90,000
              
              
              
              17.198Forfeited
              
              
              -
              
              
              
              -Expired
              
              
              50,000
              
              
              
              17.198Outstanding
      at December 31, 2007
              
              
              -
              
              
              
              -Exercisable
      at December 31, 2007
              
              
              -
              
              
              
              -
 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, 2007, the unutilized amount under this facility was approximately
$509.  Hongkong and Shanghai Banking Corporation Limited has also
provided guarantees on behalf of the Company to the Company’s
suppliers.  As at December 31, 2007, 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,
2007 the amount paid under these agreements was $23,514.  The amount
paid is expensed when the related events are held. Subsequently, in March 2007,
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 cancelable under Force Majeure conditions, or upon notice and
payment of cancellation charges to the other party. The amounts paid will be
expensed when the related events are held. As of December 31, 2007,
approximately $1,078 was paid under these agreements.
  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, 2007
was $3,181.
  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 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 monthly is-
   94
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  sue 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
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
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
16, 2007.  In addition, the Company has reclassified $38 and $38 from
additional paid in capital to common share capital as of December 31, 2006 and
2007, respectively.
  28.
              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. In the year 2006,
Trade Media Holdings Limited (“TMHL”), a wholly-owned subsidiary of the Company,
entered into an agreement (“Sale and Purchase Agreement”) with IDG Technology
Venture Investment, Inc. (“IDGVC”) for, and completed, the purchase from IDGVC
of 47,858,000 HC International shares (representing an approximate 9.77% equity
interest in HC International as of September 30, 2007), at a consideration of
approximately $9,875, which was subject to an adjustment (“Price Adjustment”) if
and when HC International achieved a certain benchmark with reference to the HC
International group’s performance (“Performance Benchmark”) or upon completion
of the sale and purchase of the Option HC Shares (as defined
below).
 
 The
Company announced, via a press release dated March 19, 2007, that the
Performance Benchmark referred to above has not been met, and that accordingly,
TMHL would not be required to make the Price Adjustment referred to above under
the condition relating to the Performance Benchmark.
  TMHL also
entered into a call options deed with IDGVC, Guo Fansheng (“Guo”) and others
(which include certain members of the senior management of HC International)
(“Option Grantors”), under which the Option Grantors granted to TMHL (i) a
right, exercisable within 12 months from June 21, 2006 (the date of completion
of the Sale and Purchase Agreement) (“Option Period”), to purchase all (but not
in part only) of the 167,722,814 HC International shares owned by the respective
Option Grantors and any HC International 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 HC International shares) are exercised, which together
represent a maximum of approximately 35.11% of the total issued share capital of
HC International as of September 30, 2007 (“Option HC Shares”), 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 of not less than
approximately $0.2896 per Option HC Share, during the Option
Period.
 
 In
addition, TMHL also entered into a call option deed with Huicong Construction
Co., Ltd. (“Huicong Construction”), in which Guo has an 80% equity interest,
under which Huicong Construction granted to TMHL a right, exercisable within the
Option Period, to purchase (or to nominate a subsidiary of TMHL to purchase)
Huicong Construction’s entire 18% equity interest in Beijing Huicong
International Information Co., Ltd. (“Beijing Huicong”), an 82% indirect
subsidiary of HC International (“Beijing Huicong Option”), at an aggregate
exercise price of approximately $31,916.
 
 The
Company announced, via a press release dated June 17, 2007, that TMHL would not
be exercising the HC Options and the Beijing Huicong Option (collectively, the
“Options”). Both Options subsequently lapsed and expired at the end of the
Option Period, without being exercised by TMHL.
  95
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 
 In the
last quarter of 2007, the Company announced, via a press release dated December
10, 2007, that the Company and TMHL had entered into an agreement with IDG
Technology Venture Investment III, L.P. (“IDGTVI III”) to sell all its and
TMHL’s equity interests in HC International (amounting to 62,652,000 HC
International shares) to IDGTVI III, at a sale consideration of approximately
$0.1968 per HC International share. The sale was subsequently completed on
December 18, 2007, as announced in the Company’s press release dated December
18, 2007.
 
 On August
1, 2006 HC International appointed the Company’s Chief Operating Officer, John
Craig Pepples (“Pepples”), as a non-executive director on the board of directors
of HC International. However upon completion of the afore-mentioned sale of all
of its and TMHL’s equity interests in HC International, Pepples resigned from
the board of directors of HC International, as announced in the Company’s press
release dated December 18, 2007.
 
 As the
fair value of this investment as of June 30, 2007 is less than the cost, the
Company’s management evaluated the investment in HC International as of June 30,
2007 for impairment and concluded that the impairment was other-than-temporary
impairment. As per the Company’s accounting policy, declines in value judged to
be other-than-temporary on available-for-sale securities are included in the
statement of income. Accordingly the unrealized loss of approximately $2,301 on
the HC International investment was recorded in the income statement as of June
30, 2007.
 
 Pursuant
to IDGVC’s indemnification obligations under the Sale and Purchase Agreement,
TMHL received approximately $455 from IDGVC during the second quarter ended June
30, 2007. This amount was recorded in the income statement.
 
 The
approximate amount of $1,846, being the net amount of the approximately $2,301
impairment loss and the approximately $455 receipt mentioned above, is reflected
under the item “Loss on Investment, net” in the income statement for the year
ended December 31, 2007.
 
 During
the fourth quarter of 2007, the Company and TMHL sold all the 62,652,000 HC
International shares held by it and TMHL to IDGTVI III, at approximately $0.1968
per HC International share and recorded a gain of approximately $2,361, which is
included under “Gain on sale of available-for-sale securities” in the income
statement for the year ended December 31, 2007.
  29.          Business
Acquisition
 
 On August
16, 2007, Trade Media Holdings Limited (“TMHL”), a wholly owned subsidiary of
the Company and Blue Bamboo China Ventures (“BBCV”) an exempted company
incorporated in Cayman Islands entered into a Sales and Purchase Agreement
(“S&P”) with BBCV, in which TMHL will purchase certain intellectual property
rights and other related intangible assets (the “Acquired Assets”) of BBCV. The
S&P was duly completed on September 12, 2007. BBCV is an online media
company that built a network of four websites that provide information about
home renovation, overseas study, weddings and parenting to urban Chinese
consumers. This acquisition was made in line with the Company’s strategy to
expand its domestic China initiatives.
 
 The
Company recorded this transaction as a business acquisition in accordance with
SFAS No.141. The total purchase consideration was $3,136, of which approximately
$1,364 was paid to BBCV on the completion date, approximately $1,636 was placed
in an escrow account with an appointed escrow agent and the balance $136 was the
direct transaction costs. The escrow amount will be released to BBCV within one
year of the completion date, subject to terms and conditions stipulated in the
S&P.
  96
 GLOBAL
SOURCES LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (In
U.S. Dollars Thousands, Except Number of Shares and Per Share Data)
  
 The
allocation of purchase consideration to the assets acquired based on their fair
values was as follows:
 
 AmountWebsite
      intangibles
              
              $
              588Goodwill
              
              $
              2,548Total
              
              $
              3,136
 
 The
intangible assets have a useful life of five years. The Company recorded $35
amortization costs on the website intangible assets in its income statement for
the year ended December 31, 2007. The goodwill was assigned to the Blue Bamboo
reporting unit.
 
 Subsequent
to the acquisition, the Company realigned its business strategy to focus on the
development of its other Global Sources domestic B2B China initiatives such as
Elegant Living Online and Electronic Supply & Manufacturing – China Online
and has terminated its plans to launch Blue Bamboo websites.
 
 Due to
this change in business strategy, the Company no longer has any plans to launch
the newly acquired business. Hence, the Company performed an impairment
assessment of the Blue Bamboo website intangibles and goodwill and determined
that the carrying values of website intangibles of $553 and goodwill of $2,548
were fully impaired and recorded an impairment charge of $3,101 in its financial
statements for the year ended December 31, 2007. This impairment charge of
$3,101 is assigned to online and other media services segment.
 
 30.           Reclassification
 
 Certain
prior year amounts have been reclassified to conform to the current year
presentation. In the prior years the Company presented U.S. Treasury securities
under available-for-sale securities. As the U.S. Treasury securities are backed
by U.S. government and are highly liquid and readily convertible to cash, the
Company reassessed the presentation of these securities in year 2007 and
determined that it is more appropriate to present the U.S. Treasury securities
with original maturity of three months or less under cash and cash equivalents.
Accordingly, the Company has presented the U.S. Treasury securities with
original maturity of three months or less under cash and cash equivalents and in
addition, such securities for prior years have been reclassified to cash and
cash equivalents to conform to the current year presentation.
 
 31.           Post
Balance Sheet Events
 
 On
December 20, 2007, the Company announced a one for ten bonus share issue on the
Company’s outstanding common shares. Shareholders of record on January 1, 2008
received one additional common share for every ten common shares held, of face
value of $0.01 each. The bonus shares have been distributed on or about February
1, 2008. 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 $42 and $42 from additional paid in capital to common share
capital as of December 31, 2006 and 2007, respectively.
  On
February 4, 2008 the Company’s board of directors has authorized a program to
buyback up to $50,000 of common shares. The Company intends, from time to time,
as business conditions warrant, to purchase shares in the open market or through
private transactions. The buyback program does not obligate the Company to
buyback any specific number of shares and may be suspended or terminated at any
time at its discretion. The timing and amount of any buyback of shares will be
determined by the Company based on its evaluation of market conditions and other
factors. As of April 17, 2008, the Company has not bought back any of its
shares.
  97
  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, March 1, 2005, March 6, 2006, March
5, 2007 and on December 20, 2007.
  Period
              
              High
              
              LowYear
      2003
              
              $6.89
              
              $2.52Year
      2004
              
              $11.49
              
              $4.00Year
      2005
              
              $15.59
              
              $4.52Year
      2006
              
              $14.88
              
              $7.02Year
      2007
              
              $35.35
              
              $12.64First
      Quarter 2006
              
              8.73
              
              7.03Second
      Quarter 2006
              
              10.33
              
              7.02Third
      Quarter 2006
              
              10.82
              
              7.02Fourth
      Quarter 2006
              
              14.88
              
              8.00First
      Quarter 2007
              
              17.27
              
              12.66Second
      Quarter 2007
              
              20.91
              
              12.64Third
      Quarter 2007
              
              22.58
              
              13.85Fourth
      Quarter 2007
              
              35.35
              
              19.22First
      Quarter 2008
              
              29.35
              
              10.50December
      2007
              
              30.85
              
              24.22January
      2008
              
              29.35
              
              12.50February
      2008
              
              15.13
              
              12.20March
      2008
              
              16.50
              
              10.50April
      2008
                May
      2008
              
              15.70
                16.89
              
              11.84
                12.88
 
 Markets
  Our
shares are listed and traded under the symbol “GSOL” on Nasdaq.
  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.
  The
Company is registered with the Bermuda Registrar Companies with registration
number EC 27310. It has the usual objects and powers of a Bermuda exempt
company, found in its Memorandum of Association, empowering it to, among other
things, deal in goods of all kinds, and to acquire, hold and dispose of all
forms of real property outside Bermuda, and personal property worldwide,
including intellectual property. 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 January 1, 2008 and distributed on or about February 1,
2008.  As of April 30, 2008, we had 46,702,092 common shares issued
and outstanding.
   98
  
  ·
              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:
  ·
              the
      chairman of the meeting;
  ·
              at
      least three shareholders present in person or by
  proxy;
   99
  
  ·
              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 cash 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 association 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. On February 4, 2008, we announced via a press release
that our board of directors has authorized a program to repurchase up to $50
million of our common shares in the open market or through private transactions,
from time to time, as business conditions warrant, but on the basis that we are
not obligated to
   100
  repurchase
any specific number of shares and that the program may be suspended or
terminated at any time at our management’s discretion. The timing and amount of
the repurchase of shares (if any) will be determined by our management, based on
its evaluation of market conditions and other factors. As of June 25, 2008, no
repurchases of our common shares have been made.
  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.
  Change
of Control
  The
Company's bye-laws have two provisions that could delay a change of control. The
first is the classified board, which means that only a portion of the directors
come up for election every year, thus delaying a change in the composition of
the Board. The second is the "Business Combinations" bye-law, which requires the
approval of sixty-six and two-thirds percent (66 2⁄3%) of shareholders voting at a
general meeting, over and above any other approvals required by the bye-laws to
permit certain mergers, amalgamations or similar transaction to go
forward.
  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.
   101
  
  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
Nasdaq).
  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
   102
  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 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. As set forth in our bye-laws, a
casual director so appointed shall hold office only until the next following
annual general meeting, and if not reappointed at such annual general meeting,
shall vacate office.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.
   103
  
  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;
  ·
              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 Nasdaq) 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.
   104
  
  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.
  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.
   105
  
  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.
  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.
  Our
bye-laws also contain provisions for the advancement of funds to our directors,
officers and other indemnified persons for expenses incurred in defending legal
proceedings against them arising from the course of their duties. At our Annual
General Meeting on June 11, 2008, our shareholders approved amendments to our
bye-laws to extend the coverage of these provisions to our auditors and to
provide more specifically that if any fraud or dishonesty on the part of the
director, officer, auditor or other indemnified person concerned is proved, any
such funds advanced to him or her must be repaid. These amendments conformed our
bye-laws with changes to the Companies Act.
  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, 2007, the amount paid under these agreements was approximately
$23.5 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 40% of the net after-tax profits of the business. eMedia entered
into another separate 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. In 2006, the
Company’s wholly-owned subsidiary, Trade Media Holdings Limited (“TMHL”),
purchased 47,858,000 shares of HC International, at a consideration of
approximately $9.9 million, pursuant to an agreement (“Sale and Purchase
Agreement”) with IDG Technology Venture Investment, Inc. (“IDGVC”). This
purchase was subject to an adjustment (“Price Adjustment”) if and when HC
International
   106
  achieved
a certain benchmark with reference to the HC International group’s performance
(“Performance Benchmark”) or upon completion of the sale and purchase of the
Option HC Shares (as defined below).
  The
Company announced, via a press release dated March 19, 2007, that the
Performance Benchmark referred to above had not been met, and that accordingly
TMHL would not be required to make the Price Adjustment referred to above under
the condition relating to the Performance Benchmark.
  TMHL also
entered into a call options deed with IDGVC, Guo Fansheng (“Guo”) and others
(which include certain members of the senior management of HC International)
(“Option Grantors”), under which the Option Grantors granted to TMHL (i) a
right, exercisable within the 12 months from June 21, 2006 (the date of the
completion of the Sale and Purchase Agreement) (“Option Period”), to purchase
all of the 167,722,814 HC Shares owned by the respective Option Grantors and any
HC International 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  HC International shares) are exercised ( “Option HC
Shares”), 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.
  In
addition, TMHL also entered into a call option deed with Huicong Construction
Co., Ltd. (“Huicong Construction”), in which Guo has an 80% equity interest,
under which Huicong Construction  granted to TMHL a right, exercisable
during the Option Period, to purchase (or to nominate a subsidiary of TMHL to
purchase) Huicong Construction’s entire 18% equity interest in Beijing Huicong
International Information Co., Ltd. (“Beijing Huicong”), an 82% indirect
subsidiary of HC International (“Beijing Huicong Option”), at an aggregate
exercise price of approximately $31.9 million.
  The
Company announced, via a press release dated June 17, 2007, that TMHL would not
be exercising the HC Options and the Beijing Huicong Option (collectively, the
“Options”). Both Options subsequently lapsed and expired at the end of the
Option Period, without being exercised by TMHL.
  In the
last quarter of 2007, the Company announced, via a press release dated December
10, 2007, that the Company and TMHL had entered into an agreement with IDG
Technology Venture Investment III, L.P. (“IDGTVI III”) to sell all of the
Company’s and TMHL’s equity interests in HC International (amounting to
62,652,000 HC International shares) to IDGTVI III, for approximately $0.1968 per
HC International share. The sale was subsequently completed on December 18,
2007, as announced in the Company’s press release dated December 18,
2007.
  On August
1, 2006, HC International had appointed the Company’s Chief Operating Officer,
John Craig Pepples (“Pepples”), as a non-executive director on the board of
directors of HC International. However, upon completion of the aforementioned
sale of all of the Company’s and TMHL’s equity interests in HC International,
Pepples resigned from the board of directors of HC International, as announced
in the Company’s press release dated December 18, 2007.
  As the
fair value of the Company’s investment in HC International as of June 30, 2007
was less than the cost, the Company’s management evaluated the investment in HC
International as of June 30, 2007 for impairment and concluded that the
impairment was other-than-temporary impairment. As per the Company’s accounting
policy, declines in value judged to be other-than-temporary on
available-for-sale securities are included in the statement of income.
Accordingly the unrealized loss of approximately $2.3 million on the HC
International investment was recorded in the income statement for the second
quarter ended June 30, 2007.
  Pursuant
to IDGVC’s indemnification obligations under the Sale and Purchase Agreement,
TMHL received approximately $0.5 million from IDGVC during the second quarter
ended June 30, 2007. This amount was recorded in the income statement for the
second quarter ended June 30, 2007.
  The
approximate net loss of $1.8 million, being the net amount of the approximately
$2.3 million impairment loss and the approximately $0.5 million of
indemnification obligations received from IDGVC as mentioned above, is reflected
under the item “Loss on investment, net” in the income statement for the year
ended December 31, 2007.
   107
  
  In
connection with afore-mentioned sale of all the 62,652,000 HC International
shares held by us and TMHL to IDGTVI III, we recorded a gain of approximately
$2.4 million, which is included under “Gain on sale of available-for-sale
securities” in the income statement for both the fourth quarter and the year
ended December 31, 2007.
  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. As of December 31, 2007, approximately
$1.1 million was paid under the terms of these agreements.
  We do not
believe any of our other contracts to be material to the operation of our
company, taken as a whole.
  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.
   108
  
  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 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.
   109
  
  The
following table summarizes our foreign currency Accounts Receivable and provides
the information in U.S. Dollar equivalent:
  As
      of December 31, 2007 (in U.S. Dollars Thousands)
              
              
              As
      of December 31, 2006 (in U.S. Dollars Thousands)Expected
      maturity dates
              
              
              
              
              
              
              
              
              Expected
      maturity datesCurrency
              
              2007
              
              
              Thereafter
              
              
              Total
              
              
              Fair value
              
              
              2007
              
              
              Thereafter
              
              
              Total
              
              
              Fair
      valueHKD
              
              
              1,549
              
              
              
              -
              
              
              
              1,549
              
              
              
              1,549
              
              
              
              1,741
              
              
              
              -
              
              
              
              1,741
              
              
              
              1,741CNY
              
              
              2,918
              
              
              
              -
              
              
              
              2,918
              
              
              
              2,918
              
              
              
              2,447
              
              
              
              -
              
              
              
              2,447
              
              
              
              2,447TWD
              
              
              774
              
              
              
              -
              
              
              
              774
              
              
              
              774
              
              
              
              1,034
              
              
              
              -
              
              
              
              1,034
              
              
              
              1,034JPY
              
              
              160
              
              
              
              -
              
              
              
              160
              
              
              
              160
              
              
              
              167
              
              
              
              -
              
              
              
              167
              
              
              
              1675,401
              
              
              
              -
              
              
              
              5,401
              
              
              
              5,401
              
              
              
              5,389
              
              
              
              -
              
              
              
              5,389
              
              
              
              5,389
 
  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 Dollar, which is currently pegged to the U.S. Dollar, the Chinese
Renminbi which historically remained relatively stable but 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 will fluctuate and our profits will be
affected. However, we manage this risk by monitoring the currency rate trends
and appropriately changing the currency in which we invoice and collect from our
customers.
  As of
December 31, 2007, we have not engaged in foreign currency hedging
activities.
  In the
year ended December 31, 2007 and the year ended December 31, 2006, 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
  Evaluation
of Disclosure Controls and Procedures
   As
required by Rules 13a-15 and 15d-15 under the Exchange Act, management, with the
participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Disclosure controls and procedures
refer to controls and other procedures designed to ensure that information
required to be disclosed in the reports we file or submit under
   110
   the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in our reports that we
file or submit under the Securities Exchange Act of 1934 is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding our
required disclosure.
  Based on
the foregoing, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2007, the end of the period covered by this
report, our disclosure controls and procedures were effective.
  Report
of Management on Internal Control over Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as such term is defined in Rule 13a-15(f) under the Exchange
Act.
  Internal
control over financial reporting refers to a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer and
effected by our Board of Directors, Management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. GAAP and includes those policies and procedures that:
   -
              pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;
   -
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. GAAP, and that
      our receipts and expenditures are being made only in accordance with
      authorizations of our management and members of our board of directors;
      and
   -
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on our financial
  statements.
  Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper override. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on
a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process, and
it is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
   Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
   Management
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2007 using the framework set forth in the report of the Treadway
Commission’s Committee of Sponsoring Organizations (“COSO”), “Internal Control —
Integrated Framework.”
   Based on
our evaluation under the framework in “Internal Control — Integrated Framework”,
our Management concluded that our internal control over financial reporting was
effective as of December 31, 2007.
  Our
independent registered public accountants, Ernst & Young, have issued an
audit report on our internal control over financial reporting, which is included
herein. Ernst & Young have also audited our consolidated financial
statements for the year ended December 31, 2007, as stated in its report which
is included on page 62 in this annual report.
   111
  
  REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   To the
Board of Directors and Shareholders of
 Global
Sources Ltd.
 
 We have
audited Global Sources Ltd. and its subsidiaries’ internal control over
financial reporting as of December 31, 2007, based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). Global Sources Ltd.’s (the
“Company’s”) management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Report of
Management on Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting
based on our audit.
  We
conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In our
opinion, Global Sources Ltd. and its subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2007, based on the COSO criteria.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Global
Sources Ltd. and its subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of income, shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2007, and our
report dated April 17, 2008, expressed an unqualified opinion
thereon.
  /s/  ERNST
& YOUNG
  Singapore
 April 17,
2008
 
 
 Changes
to Internal Controls
  Management
has evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, whether any changes in our internal control over financial
reporting that occurred during our last fiscal year have
   112
  materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. Based on the evaluation we conducted, management has
concluded that no such changes have occurred.
  ITEM
      15T.
              CONTROLS
      AND PROCEDURES
  -
      (Not applicable)
  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
also 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.
  During
2007, 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 2006
and 2007:
  Year
      ended
                  December 31,2007
              
              
              2006Audit
      fees
              
              $
              1,211,218
              
              
              $
              427,445Audit-related
      fees
              
              
              —
              
              
              
              —Total
              
              $
              1,
      211,218
              
              
              $
              427,445Tax
      fees
              
              
              2,000
              
              
              
              1,800All
      other
      fees
              
              
              192,291
              
              
              
              283,379Total
      fees
              
              $
              1,405,509
              
              
              $
              712,624
 
 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 2006 for tax compliance, tax advice and tax planning consisted of
preparation of tax returns and review of tax provision for a subsidiary. For
year 2007, such fees consisted of review of tax returns and review of tax
provision for a subsidiary.
  All other
fees for year 2006 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. For year 2007, 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 and
review of tax status.
   113
  
  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)
  
 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.
              Description1.1
              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).
      *****
  114
  
 Exhibit
      No.
              Description4.24
              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. ++++++4.38
              Sale
      and Purchase Agreement, dated December 10, 2007, by and between Global
      Sources Ltd., Trade Media Holdings Limited and IDG Technology Venture
      Investment III, L.P.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, 333-138474 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. #######14.9
              Press
      release dated December 20, 2007 to announce the bonus share issue by
      Global Sources Ltd. ########14.10
              Press
      release dated February 4, 2008 to announce share buyback program
      #########
 
 
 ___________________
 
 *
              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.
   115
  
  ***
              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.
  ++++++
              Incorporated
      by reference to form 20-F Annual report of Global Sources Ltd. filed with
      the Securities and Exchange Commission on June 28,
  2007.
  #
              Incorporated
      by reference to Form 20-F Annual Report of Global Sources Ltd. filed with
      the Securities and Exchange Commission on May 5,
  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
  ########
              Incorporated
      by reference to Form 6-K filed with the Securities and Exchange Commission
      on December 21, 2007
   116
  
  #########
              Incorporated
      by reference to Form 6-K filed with the Securities and Exchange Commission
      on February 5, 2008
  
   117
  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 25, 2008