The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All numbers in the following Notes are expressed in thousands, except for share and per share data)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION
(a)
Principal activities
NQ Mobile Inc. (NQ Mobile, or the Company), through its subsidiaries, its variable
interest entity (VIE), and the VIEs subsidiaries, is principally engaged in the provision of mobile Internet services in the Peoples Republic of China (the PRC or China) and overseas markets. NQ
Mobiles service portfolio includes mobile security, productivity and privacy protection, mobile games as well as related applications (e.g. live mobile social video platform, vlife wallpaper, music radar, healthcare, themed-wallpaper and
desktop applications etc.) and advertising for the consumer market and an entire mobility solution set for the enterprise market. The Company, its wholly-owned and majority-owned subsidiaries, VIE and wholly-owned subsidiaries of the VIE are
hereinafter collectively referred to as the Group.
(b) Reorganization and FL Mobile and Showself Transaction
The Company was incorporated as a limited liability company under the laws of the Cayman Islands on March 14, 2007. The Company was 100%
owned by RPL Holdings Limited (RPL). RPL is a limited liability company organized under the laws of British Virgin Islands (BVI), which was owned and controlled by Dr. Henry Yu Lin, Dr. Vincent Wenyong Shi, and
Mr. Xu Zhou (collectively, the Founders). In 2015, one of the shareholders changed from Dr. Henry Yu Lin to Ms. Lingyun Guo. The others remain the same. Therefore, the shareholders become Ms. Lingyun Guo,
Dr. Vincent Wenyong Shi, and Mr. Xu Zhou (collectively, the Controlling Shareholders).
In May 2007, the Company established NQ
Mobile (Beijing) Co., Ltd. (NQ Beijing or NQ WFOE) as a wholly foreign-owned enterprise in the PRC. In June 2007, the Company undertook a reorganization (the Reorganization) to become the ultimate holding company
of the Group. Prior to the Reorganization, the Groups business was operated by Beijing NQ Technology Co. Ltd. (Beijing Technology), a company wholly owned and controlled by the Controlling Shareholders, which commenced operations
on October 21, 2005. By entering into a series of agreements (collectively, NQ VIE Agreements) with the Controlling Shareholders and NQ Beijing, Beijing Technology became a variable interest entity whose primary beneficiary is NQ
Beijing. Consequently, the Company as the parent of NQ Beijing became the ultimate primary beneficiary of Beijing Technology and has consolidated financial statements of Beijing Technology and its subsidiaries. Beijing Technology was the predecessor
of the Group and operated all of the business of the Group prior to the Reorganization.
From 2012 to 2016, the Group established several
subsidiaries and consolidated affiliated entities to support their expansion, including NQ (Beijing) Co., Ltd. (NQ Tongzhou) in January 2013, Beijing NQ Mobile Co., Ltd. (NQ Yizhuang) in September 2014, NQ Technology
(Guizhou) Co., Ltd. (NQ Guizhou) in December 2015, Showself (Beijing) Technology Co., Ltd. (Showself (Beijing)) in July 2015, Xinjiang NQ Mobile Venture Capital Investment Co., Ltd. (Xinjiang NQ) in February 2016.
During the same period, the Group also acquired companies including NationSky through Beijing Technology (Nation Sky), Beijing Fanyue Information Technology Co., Ltd. (Fanyue), Beijing Tianya Co., Ltd. (Tianya),
Best Partners Ltd. (Best Partners), Beijing Trustek Technology Co., Ltd. (Beijing Trustek), Beijing Showself Technology Co., Ltd.(Beijing Showself), Linkmotion Holdings Ltd. (Linkmotion), Shanghai
Launcher Software Technology Co., Ltd. (Launcher ) and Glory Team Ltd. (Glory). Beijing Showself was reorganized as a wholly owned subsidiary of Showself (Beijing) in June 2016.
During 2010 and 2012, the Group acquired 100% of the equity interests in FL Mobile Jiutian Technology Co., Ltd. (FL Mobile).
Following subsequent reorganization in 2014, FL Mobile became one of the Groups consolidated affiliated entities and controlled by the Group through contractual arrangements.
In August 2015, the Group entered into a framework agreement (the FL Framework Agreement) with Beijing Jinxin Rongda Investment
Management Co. Ltd. (Beijing Jinxin), a subsidiary of Tsinghua Holdings Co., Ltd., to begin the divestment of the FL Mobile business (FL Mobile Divestment). In connection with the FL Mobile Divestment, FL Mobile was
reorganized as a subsidiary of Xinjiang NQ in March 2016.
The Group has discussed the FL Mobile Divestment with several potential
purchasers since 2015, including Gansu Huangtai Wine-Marketing Industry Co., Ltd. and Shenzhen Prince New Materials Co., Ltd., both listed on the Shenzhen Stock Exchange, and private equity investment fund. These three transactions, however, did not
come to fruition due to various reasons, including ongoing changes in the capital market conditions and uncertainty surrounding relevant policies in China.
F-7
As part of FL Mobile Divestment, (i) the Group sold 22% of equity interests in FL Mobile to
Dr. Vincent Wenyong Shi, the Companys chairman and chief operating officer, for a consideration of RMB880 million (US$127million) via a termination and share purchase agreement in March 2016, however, 5.66% of the equity interests
transferred was reverted in November 2016, as both the Company and Dr. Vincent Wenyong Shi have the right to revert the transaction entirely, such consideration was recorded as consideration received from shareholder on the balance sheet as of
December 31, 2016, (ii) the Group sold 12% of equity interests in FL Mobile to Xinjiang Yinghe Equity Investment Management Limited Partnership (Xinjiang Yinghe), an affiliate of the management of FL Mobile, however, such
transaction was terminated and reverted in November 2016, (iii) the Group sold a total of 20.66% of equity interests in FL Mobile to several affiliates of Beijing Jinxin in May 2016 and August 2016.
In March 2017, the Group entered into definitive agreements (the Agreements) with Tongfang Investment Fund Series SPC (the
Investor), affiliate private equity investment fund of Tsinghua Tongfang. Pursuant to the terms of the Agreements, the Investor will acquire (i) 63% equity interests in FL Mobile, being all of the equity interests beneficially owned by
the Company, for a cash consideration of RMB2,520 million and (ii) 65% equity interests in Showself (Beijing) Technology Co., Ltd (Showself (Beijing)), a live social video business, being all of the equity interests beneficially
owned by the Company, for a cash consideration of RMB 800 million. The Investor had paid RMB150 million in cash as the
non-refundable
earnest money which will be counted towards the payment of the
purchase price. The Investor will pay the remaining amount of the total consideration on or before May 31, 2017 after the Company delivers all of its equity interests in FL Mobile and Showself (Beijing). The consummation of the Transactions is
subject to customary closing conditions (see Note 24(b)).
The Company has transferred their equity interests in FL Mobile and Showself
(Beijing) to these purchasers pursuant to their contracts with them, and are in the process to collect remaining purchase price and close the whole FL Mobile and Showself (Beijing) Divestment. In addition to purchasing FL Mobile and Showself
(Beijing), the affiliate private equity fund of Tsinghua Tongfang also has the option to purchase US$100 million worth of Class A Common shares of the Company at a price of US$1.05 per share, or US$5.25 per ADS within 3 months after the
date of the full payment pursuant to the agreements to purchase FL Mobile.
(c) Divestment of NationSky
On November 26, 2015, the Group entered an agreement with former member of management of Beijing NationSky Network Technology Co., Ltd
(NationSky) and a third party to divest 100% of the equity interests of NationSky with cash consideration of RMB510,000. On December 30, 2015, the transaction was closed with all consideration received by the Group, and the
registration with Industrial and Commercial Registration had been completed.
F-8
(d) Subsidiaries, VIE and VIEs subsidiaries
As of December 31, 2016, details of the Companys major subsidiaries***, VIE and the VIEs subsidiaries are as follows.
|
|
|
|
|
|
|
|
|
Name
|
|
Date of
Incorporation
or Acquisition
|
|
Place of
Incorporation
|
|
Relationship
|
|
Principal Activities
|
Subsidiaries
|
|
|
|
|
|
|
|
|
NQ International Limited
(NQ HK)
*
|
|
April 26, 2010
|
|
Hong Kong
|
|
Wholly-owned subsidiary
|
|
Consumer mobile security services in overseas markets
|
NQ Mobile US Inc. (NQ US)**
|
|
November 5, 2010
|
|
United States
|
|
Wholly-owned subsidiary
|
|
Consumer mobile value added services and advertising services in US and overseas markets.
|
NQ Mobile (Beijing) Co., Ltd. (NQ Beijing or NQ WFOE)
|
|
May 15, 2007
|
|
The PRC
|
|
Wholly-owned subsidiary
|
|
Consumer mobile security services in PRC and overseas markets, and technology consulting and services
|
NQ (Beijing) Co., Ltd. (NQ Tongzhou)
|
|
January 5, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary
|
|
Software design and development for computer and mobile devices and other technology consulting services
|
Best Partners Ltd. (Best Partners)
|
|
September 6, 2013
|
|
Cayman Islands
|
|
Wholly-owned subsidiary of FL Mobile Inc.
|
|
Mobile advertising services
|
Beijing NQ Mobile Co., Ltd. (NQ Yizhuang)
|
|
September 29, 2014
|
|
The PRC
|
|
Wholly-owned subsidiary
|
|
Consumer mobile security services in PRC and overseas markets, and technology consulting and services
|
FL Mobile Inc.
|
|
January 21, 2013
|
|
Cayman Islands
|
|
Wholly-owned subsidiary
|
|
Mobile advertising and mobile games services
|
Linkmotion Holdings Ltd. (Linkmotion)
|
|
June 15, 2015
|
|
Cayman Islands
|
|
67%-owned subsidiary
|
|
Optimization of software and hardware in vehicle platform
|
Variable Interest Entities
|
|
|
|
|
|
|
|
|
Beijing Technology
|
|
October 21, 2005
|
|
The PRC
|
|
VIE of NQ Beijing
|
|
Consumer mobile security services in PRC market and research and development
|
Subsidiaries of VIE
|
|
|
|
|
|
|
|
|
Qingyun (Tianjin) Financial Management Co., Ltd. (Tianjin Qingyun)
|
|
February 21, 2012
|
|
The PRC
|
|
Wholly-owned subsidiary of Beijing Technology
|
|
Financial management services
|
FL Mobile
|
|
November 30, 2012
|
|
The PRC
|
|
63%-owned subsidiary of Xinjiang NQ
|
|
Mobile games and advertising
|
Beijing Fanyue Information Technology Co., Ltd. (Fanyue)
|
|
March 21, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of FL Mobile
|
|
Off-line
user acquisition services
|
FL Mobile (Beijing) Co., Ltd. (FL Beijing)
|
|
June 3, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of FL Mobile Hong Kong Limited
|
|
Mobile advertising and mobile games services
|
Beijing Wanpu Century Co., Ltd. (Wanpu Century)
|
|
September 6, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of FL Mobile
|
|
Advertising services based on mobile internet platform in the PRC
|
Beijing Tianya Co., Ltd. (Tianya)
|
|
September 24, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of Beijing Technology
|
|
Mobile healthcare application developments and search engine marketing in healthcare industry
|
Chengdu Ruifeng Technology Co., Ltd. (Ruifeng)
|
|
October 15, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of Beijing Technology
|
|
Enterprise mobility system development and iOS training program
|
Shanghai Yinlong Information Technology Co., Ltd. (Yinlong)
|
|
November 11, 2013
|
|
The PRC
|
|
Wholly-owned subsidiary of Beijing Technology
|
|
Mobile music search, matching and recognition software services
|
Beijing Trustek Technology Co., Ltd. (Beijing Trustek)
|
|
January 10, 2014
|
|
The PRC
|
|
Wholly-owned subsidiary of Xinjiang NQ
|
|
Enterprise mobility solutions and services
|
Tianjin Huayong Wireless Technology Co., Ltd. (Huayong)
|
|
January 31, 2014
|
|
The PRC
|
|
68%-owned subsidiary of Beijing Technology
|
|
Research and development of live wallpapers
|
Showself (Beijing) Technology Co., Ltd. (Showself)
|
|
May 15, 2014
|
|
The PRC
|
|
65%-owned subsidiary of Beijing Technology
|
|
Development and operation of live mobile social video platform
|
Glory Team Ltd. (Glory)
|
|
October 1, 2015
|
|
Seychelles
|
|
Wholly-owned subsidiary of FL Mobile Hong Kong Limited
|
|
Mobile games distribution
|
Beijing Century Hetu Software Technology Co., Ltd. (Hetu)
|
|
October 1, 2015
|
|
The PRC
|
|
Wholly-owned subsidiary of FL Mobile
|
|
Mobile games design and development
|
Shanghai Launcher Technology Co., Ltd. (Launcher)
|
|
February 29, 2016
|
|
The PRC
|
|
51%-owned subsidiary of Beijing Technology
|
|
Mobile desktop
|
Xinjiang NQ Mobile Venture Capital Investment Co., Ltd. (Xinjiang NQ)
|
|
January 28, 2016
|
|
The PRC
|
|
Wholly-owned subsidiary of Beijing Technology
|
|
Financial management services
|
*
|
NetQin International Limited was renamed to NQ International Limited on August 1, 2012.
|
**
|
NetQin US Inc. was renamed to NQ Mobile US Inc. on December 14, 2011.
|
***
|
Other consolidated entities of the Company have been omitted from this list since, considered in an aggregate as one single entity, they would not constitute a significant subsidiary.
|
F-9
(e) Variable Interest Entity
Basic Information
PRC laws and
regulations prohibit or restrict foreign ownership of companies from providing mobile value added services, mobile games and mobile advertising in the PRC where certain licenses are required for the provision of such services. To comply with these
PRC laws and regulations, the Company provides services subject to such restrictions through the VIE and its subsidiaries in China. To provide the Company with the expected residual returns of the VIE and their subsidiaries, the Group entered into a
series of contractual arrangements, such as power of attorney and exclusive equity purchase option agreement with the VIE and the shareholders of the VIE to enable the Company, through the Groups subsidiaries (Primary
Beneficiaries), which give the Primary Beneficiaries the rights to direct the activities that most significantly affect the economic performance of the VIE and to acquire the equity interests in the VIE when permitted by the PRC laws,
respectively to:
|
|
|
exercise effective control over the VIE;
|
|
|
|
receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks of expected losses from the VIE as if they were their sole shareholders; and
|
|
|
|
have an exclusive option to purchase all of the equity interests in the VIE.
|
The Group has
adopted the guidance of accounting for VIE, which requires certain VIE to be consolidated by the primary beneficiary of the entities. The Groups management evaluated the relationships among the Company, NQ Beijing and Beijing Technology, and
the economic benefits flow of the applicable contractual arrangements. The Group concluded that NQ Beijing is the primary beneficiary of Beijing Technology. As a result, the results of operations, assets and liabilities of Beijing Technology and its
subsidiaries have been included in the Companys consolidated financial statements.
Exclusive Technical Consulting Services
Agreement
between NQ Beijing and Beijing Technology. Under the exclusive technical consulting services agreement, NQ Beijing has the exclusive right to provide to Beijing Technology the technical consulting services related to Beijing
Technologys business operation. NQ Beijing owns the intellectual property rights developed by either NQ Beijing or Beijing Technology in the performance of this agreement. Beijing Technology pays to NQ Beijing quarterly service fees,
determined unilaterally by NQ Beijing due to its control over Beijing Technology. The amount of service fees to be charged to Beijing Technology are determined at the sole discretion of NQ Beijing by considering, among others, the technical
complexity of the services, the actual costs that may be incurred for providing the services, and the operations of Beijing Technology. As of December 31, 2016, the retained earnings in Beijing Technology was US$30,978 after being charged the
service fees by NQ Beijing. The service fees are eliminated upon consolidation. This agreement is effective until NQ Beijing ceases to exist or is terminated at NQ Beijings sole discretion by giving 30 days advanced notice to Beijing
Technology.
Business Operation Agreements
between NQ Beijing and the shareholders of Beijing Technology. Under the business
operation agreements, the registered shareholders of the VIE may not enter into any transactions that could materially affect the assets, liabilities, interests or operations of the VIE, without prior written consent from NQ Beijing. In addition,
the shareholders of the VIE irrevocably appointed NQ Beijing, to vote on their behalf on all matters, including matters relating to the transfer of any or all of their respective equity interests in the VIE and appointments of the directors, chief
executive officer, chief financial officer, and other senior management of the VIE. Each of these agreements will remain in effect till the date when NQ Beijing is dissolved, and can be terminated at the sole discretion of NQ Beijing.
Powers of Attorney
executed by the shareholders of Beijing Technology in favor of NQ Beijing. Each of these powers of attorney
irrevocably authorizes NQ Beijing, to vote on behalf of the registered shareholders of the VIE on matters stipulated by laws and the Article of Association of the VIE. The Powers of Attorney shall remain effective from the date it is signed to the
date when NQ Beijing is dissolved in accordance with the laws of the Peoples Republic of China, unless the Business Operations Agreement for the VIE is terminated in advance.
Equity Disposition Agreements
between NQ Beijing and the shareholders of Beijing Technology. The equity disposition agreements
irrevocably granted to NQ Beijing, or their designated parties, an exclusive option to purchase, to the extent permitted by the PRC law, any part or all of the equity interests in the VIE from the registered shareholders. The exercise price for the
options to purchase the equity interests is the minimum amount of consideration permissible under PRC law. The options are exercisable at any time at the sole discretion of NQ Beijing, during the term of agreements. Each of the registered
shareholders agrees not to transfer, pledge or dispose of its equity interests in the VIE in any way before NQ Beijing exercise their options in full or deliver the written approval. Each agreement has a term of 10 years and renewable on the same
terms at the sole discretion of NQ Beijing.
F-10
Loan Agreements and Amended Loan Agreements
between NQ Beijing and the shareholders of
Beijing Technology and between the Company and the shareholders of Beijing Technology. Under these agreements, an aggregate of interest-free loans of RMB46,123 from NQ Beijing and 6% interest loan of US$250 from the Company were extended to the
registered shareholders of Beijing Technology for sole purpose of contributing the registered capital to Beijing Technology in exchange for 100% of the equity interest in Beijing Technology. Without the prior consent of the Company and NQ Beijing,
the registered shareholders of Beijing Technology cannot approve any transaction including merger, acquisition, new investments and etc., significantly affecting the registered shareholders rights of Beijing Technology. The loans have original
terms of 10 years and are repayable if the Company and NQ Beijing decide to exercise their exclusive purchase option under Equity Disposition Agreements. The amendments requires that the loans can be settled fully only by the shareholders
transferring the equity interests of Beijing Technology according to Equity Disposition Agreements to the Company and NQ Beijing.
Equity Interest Pledge Agreements
between NQ Beijing and the shareholders of Beijing Technology. Under the equity interest pledge
agreements, the registered shareholders of the VIE pledged all of their respective equity interests in the VIE to secure the VIEs obligations under the relevant Exclusive Technical Consulting Services Agreement, Exclusive Business Cooperation
Agreements, Business Operation Agreements and Equity Disposition Agreements described above. Each shareholder agrees not to sell, mortgage or dispose of any of the VIEs equity interest it holds without prior written consent from NQ Beijing.
These agreements are terminable only when the VIEs obligations under the other agreements are fully settled.
Amended and
Restated Business Operation Agreement, Amended and Restated Equity Interest Pledge Agreement and Amended and Restated Equity Disposition Agreement
between NQ Beijing and shareholders of Beijing Technology, entered into on June 6, 2012,
reflected the increase of the registration capital of Beijing Technology from RMB10 million to RMB50 million. All the other terms remain the same as the original agreements.
Amended and Restated Business Operation Agreement, Amended and Restated Equity Interest Pledge Agreement and Amended and Restated Equity
Disposition Agreement between NQ Beijing and shareholders of Beijing Technology, entered into on November 17, 2015, reflected the shareholder of Beijing Technology change from Dr. Henry Yu Lin to Ms. Lingyun Guo. All the other terms
remain the same as the original agreements.
Risks in Relation to the VIE Structure
The Ministry of Commerce of PRC (MOC) published a discussion draft of the proposed Foreign Investment Law (the Draft)
in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China. The Draft embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with
prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The MOC is currently soliciting comments on the Draft and substantial uncertainties exist with respect
to its enactment timetable, interpretation and implementation. The Draft, if enacted as proposed, may materially impact the viability of current corporate structure, corporate governance and business operations. The Draft expands the definition of
foreign investment and introduces the principle of actual control in determining whether a company is considered a VIE.
Under
the Draft, variable interest entities that are controlled via contractual arrangement would be deemed as VIEs, if they are ultimately controlled by foreign investors. Therefore, for any companies with a VIE structure in an industry
category that is on the negative list, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling
person(s) is/are of foreign nationalities, then the variable interest entities will be treated as VIEs and any operation in the industry category on the negative list without market entry clearance may be considered as illegal. Moreover,
for the enterprises which are not incorporated under the laws of China (foreign investors) but are controlled by Chinese investors, they may submit documentary evidence to apply for identifying their investment as the investment by
Chinese investors when they applying for the market entry clearance to engage in any investment as set out in the negative list in China. The competent authorities of foreign investment will grant the review opinion on whether the said
investment is identified as the investment by Chinese investors.
In conclusion, if the Draft enacted as proposed, it is possible that the
Companys conduct of certain of its operations and businesses through the VIE could be found by PRC authorities to be in violation of PRC laws and regulations prohibiting or restricting foreign ownership of companies that engage in such
operations and businesses. If such a finding were made, regulatory authorities with jurisdiction over the licensing and operation of such businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating
the Companys income, revoking the business or operating licenses of the affected businesses, requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any portion of its
operations. Any of these actions could cause significant disruption to the Companys business operations, and have a material adverse impact on the Companys cash flows, financial position and operating performance. The Companys
management considers the possibility of such a finding by PRC regulatory authorities to be remote.
F-11
In addition, it is possible that the VIE Agreements would not be enforceable in China if PRC
government authorities or courts were to find that such agreements contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the
Company would not be able to exert effective control over the affected VIE and consequently, the results of operations, assets and liabilities of the affected VIE and its subsidiaries would not be included in the Companys consolidated
financial statements. If such were the case, the Companys cash flows, financial position and operating performance would be materially adversely affected. The Companys agreements with respect to its consolidated VIE are approved and in
place. The Companys management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Companys operations and contractual relationships would find
the agreements to be unenforceable under existing laws.
Financial Information of VIE
The financial information of Beijing Technology and its subsidiaries were presented in aggregate as follows, which were included in the
accompanying consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Cash and cash equivalents
|
|
|
103,794
|
|
|
|
59,632
|
|
Term deposits
|
|
|
66,296
|
|
|
|
124,117
|
|
Restricted cash
|
|
|
1,640
|
|
|
|
|
|
Other intercompany receivable to WOFEs
|
|
|
608
|
|
|
|
51,354
|
|
Other intercompany receivable
|
|
|
3
|
|
|
|
23,967
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
287,997
|
|
|
|
426,428
|
|
Total
non-current
assets
|
|
|
362,919
|
|
|
|
333,049
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
650,916
|
|
|
|
759,477
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable to WOFEs for the service fees
|
|
|
20,139
|
|
|
|
19,062
|
|
Other intercompany payable to WOFEs
|
|
|
39,089
|
|
|
|
17,005
|
|
Other intercompany payable
|
|
|
185,551
|
|
|
|
222,050
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
312,523
|
|
|
|
386,174
|
|
Deferred tax liabilities,
non-current
|
|
|
6,840
|
|
|
|
3,976
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
319,363
|
|
|
|
390,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Total net revenues
|
|
|
275,372
|
|
|
|
377,506
|
|
|
|
335,760
|
|
Net income/(loss)
|
|
|
18,751
|
|
|
|
36,136
|
|
|
|
(11,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net cash provided by/(used in) operating activities
|
|
|
30,094
|
|
|
|
30,287
|
|
|
|
(89,032
|
)
|
Net cash (used in)/provided by investing activities
|
|
|
(9,415
|
)
|
|
|
45,017
|
|
|
|
41,665
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
603
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,643
|
)
|
|
|
(1,018
|
)
|
|
|
2,602
|
|
Net increase/(decrease) in cash and cash equivalents balance
|
|
|
18,036
|
|
|
|
74,286
|
|
|
|
(44,162
|
)
|
F-12
The VIE contributed an aggregate of 83%, 93% and 98% of the consolidated revenues for the years
ended December 31, 2014, 2015 and 2016, respectively. As of December 31, 2015 and 2016, the VIE, without the recourse to the Company, accounted for an aggregate of 81% and 80%, respectively, of the consolidated total assets, and 26% and
35%, respectively, of the consolidated total liabilities. The consolidated assets of VIE mainly comprised of recognized and unrecognized revenue-producing assets. The recognized revenue-producing assets include goodwill and intangible assets
acquired through business acquisitions, purchased servers and office facilities. The balances of these assets as of December 31, 2015 and 2016 were included in the line of Total
non-current
assets in the table above.
Goodwill primarily represents the expected synergies from combining the acquired business with the
business of the Company. Intangible assets acquired through business acquisition are comprised of customer relationships,
non-compete
agreements, revenue sharing agreements, user base, technologies and games.
Please refer to Note 4 Business Combination for goodwill and intangible assets acquired through business combination.
All intercompany transactions and balances were eliminated upon consolidation.
In accordance with the VIE Agreements, the Company has power to direct activities of the VIE and its subsidiaries, and can have assets
transferred out of the VIE and its subsidiaries without any restrictions. Therefore, the Company considers that there is no assets in the consolidated VIE and its subsidiaries that can be used only to settle obligations of the consolidated VIE
except for registered capitals of US$7,251 and PRC statutory reserves of US$9,903, of their VIE and VIEs subsidiaries, as of December 31, 2016. As the VIE and its subsidiaries are incorporated as limited liability companies under the PRC
Company Law, and as such the creditors of liabilities of the PRC incorporated VIE have recourse only to the assets of these entities. Accordingly, the creditors of all the liabilities of the Companys consolidated VIE do not have recourse to
the Companys general credit.
Currently, there is no contractual arrangement that could require the Company to provide additional
financial support to the VIE. As the Company is conducting mobile value added services, enterprise mobility, advertising business and other services through the VIE and its subsidiaries in the PRC, the Company may provide such support on a
discretional basis in the future, which could expose the Company to a loss.
There are no VIE where the Company has variable interests but
is not the primary beneficiary.
F-13
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation and consolidation
The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries, its VIE for which the
Company is the ultimate primary beneficiary, and the VIEs subsidiaries.
These consolidated financial statements have been prepared
on a historical cost basis to reflect the financial position and results of operations of the Company, its subsidiaries, VIE and VIEs subsidiaries in accordance with the accounting principles generally accepted in the United States of America
(US GAAP).
Commencing January 1, 2013, due to the expansion of the Companys business and diversification of
revenue streams, revenue presentation was reclassified into categories of (i) mobile value added services, which includes original revenue stream of consumer mobile security, mobile games, and live mobile social video platform;
(ii) enterprise mobility; (iii) advertising services; and (iv) other services.
Subsidiaries are those entities in which
the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority
of votes at the meeting of directors.
A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears
the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore, the Company or its subsidiary is the primary beneficiary of the entity.
All significant inter-company transactions and balances have been eliminated upon consolidation.
(
b) Business combinations
The
Company accounts for its business combinations using the purchase method of accounting in accordance with ASC 805: Business Combinations. The purchase method accounting requires that the consideration transferred to be allocated to the assets,
including separately identifiable assets and liabilities the Company acquired based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets
given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any
non-controlling
interests. The excess of (i) the total of cost of acquisition, fair value of the
non-controlling
interests and acquisition date fair value of any previously held equity interest in the acquired entity
over (ii) the fair value of the identifiable net assets of the acquired entity is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly
in the consolidated statements of comprehensive income.
The determination and allocation of fair values to the identifiable assets
acquired, liabilities assumed and
non-controlling
interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these
valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be
used based on the risks inherent in the related activitys current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over the relevant period.
In a business combination achieved in stages, the Company
re-measures
its previously held equity
interest in the acquired entity at its acquisition-date fair value and recognizes the resulting gain or loss in earnings.
F-14
(c) Use of estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. Management makes its estimates based on historical experience and on various other
assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Significant accounting
estimates reflected in the Companys consolidated financial statements mainly include the allowance for doubtful accounts, the valuation allowance of deferred tax assets, the estimated useful lives of long-lived assets, the impairment
assessment of goodwill, intangibles, other long-lived assets and equity investments, the valuation and recognition of share-based compensation, fair value of identifiable assets and liabilities acquired through business combination and valuation and
recognition of derivative liability bifurcated from the Convertible debt.
(d) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits, and other short-term highly liquid investments placed with banks, which have
original maturities of three months or less and are readily convertible to known amounts of cash.
(e) Term deposits
Term deposits represent time deposits placed with banks with original maturities of more than three months and equal or less than one year.
Interest earned is recorded as interest income in the consolidated statements of comprehensive income (loss) during the period.
(f) Restricted cash
Cash that is deposited in the bank but restricted for a specific purpose and therefore not available for immediate and general use
by the Company is classified as restricted cash, which is presented separately from cash and cash equivalents on the consolidated balance sheet. The deposited balance is included in the Groups bank account for guarantee of certain business
purpose under an agreement until being used for the designated purpose or withdrawn due to expiration of the guarantee. As of December 31, 2015 and 2016, the Company had a restricted cash balance which is set aside for a period of 12 months of
US$1,640 and $nil, respectively.
(g) Short-term investments
Short term investments refer to the
available-for-sale
investments made in financial instruments with guaranteed return of principal upon maturity with a variable interest rate indexed to the performance of underlying assets. In accordance with ASC 825, for investments in financial instruments with a
variable interest rate indexed to the performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value, with the changes in fair value record as
unrealized gain or loss in accumulated other comprehensive loss.
For the years ended December 31, 2015 and 2016, the Company
invested US$289,266 (equivalent to RMB1,888,150), US$33,156 (equivalent to RMB 230,000) in a financial instruments managed by a bank in the PRC. The terms of the financial product are within 90 days. The Company earned investment income of US$65,
US$1,435 and US$115 on the financial instruments, which was included in realized gain on investments in the consolidated statements of comprehensive income (loss) for the years ended December 31, 2014, 2015 and 2016. As of December 31,
2015 and 2016, there were no short-term investment.
(h) Allowance for doubtful accounts
An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable based on an assessment of specific
evidence indicating doubtful collection, historical experience, account balance aging and prevailing economic conditions. Receivable balances are written off after all collection efforts have been exhausted and the potential for recovery is
considered remote. The following table presents movement of the allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Year
|
|
|
Charged to
Expenses
|
|
|
Recoveries
|
|
|
Disposal of
Subsidiaries
|
|
|
Balance
at End
of Year
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
3,918
|
|
|
|
4,974
|
|
|
|
|
|
|
|
|
|
|
|
8,892
|
|
2015
|
|
|
8,892
|
|
|
|
9,829
|
|
|
|
(845
|
)
|
|
|
(777
|
)
|
|
|
17,099
|
|
2016
|
|
|
17,099
|
|
|
|
9,728
|
|
|
|
(1,414
|
)
|
|
|
(714
|
)
|
|
|
24,699
|
|
F-15
(i) Inventory
Inventories, consisting of products and devices available for sale, are accounted for using first in first out method, and are valued at the
lower of cost or market. This valuation requires the Group to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or
liquidations, and expected recoverable values of each disposition category.
(j) Equity investments
The Companys equity investments are comprised of privately-held companies and limited partnerships. The Company uses the cost method to
account for investments in shares that are not common stock or
in-substance
common stock, or investments in shares that are common stock or
in-substance
common stock,
but over which the Company does not have significant influence. The Company uses the equity method to account for investments in shares in common stock or
in-substance
common stock over which the Company has
significant influence but does not own a majority equity interest or otherwise control. The Company also uses the equity method to account for investments in limited partnerships unless the Companys equity interest is so minor that the Company
may have virtually no influence over the partnerships operating and financial policies.
Cost method investments
In accordance with ASC subtopic
325-20
(ASC
325-20),
Investments-Other: Cost Method Investments, the Company carries the cost method investments at cost and only adjusts for other-than-temporary impairment and distributions of earnings. Management
regularly evaluates the impairment of the cost method investments based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investees
cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs.
Equity method investments
In accordance with ASC subtopic
323-10
(ASC
323-10),
Investments-Equity Method and Joint Ventures: Overall, the Company initially records its equity method investments at cost and any excess of the cost of the investment over the proportional fair
value of the underlying tangible and intangible assets and liabilities of the investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The Company subsequently adjusts
the carrying amount of the investment to recognize the Companys proportionate share of each equity investees net income or loss into consolidated statements of comprehensive income after the date of investment. The Company will
discontinue applying equity method if an investment (and additional financial supports to the investee, if any) has been reduced to zero.
Sales of equity interests of an investee by the Company is accounted for as gains or losses equal to the difference at the time of sale
between selling price and carrying amount of the equity interests sold.
Impairment for equity investments
The Group assesses its equity investments for other-than-temporary impairment by considering factors including, but not limited to, current
economic and market conditions, operating performance of the companies, including current earnings trends and undiscounted cash flows, and other company-specific information. The fair value determination, particularly for investments in
privately-held companies, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and determination of whether any
identified impairment is other-than-temporary. Other-than-temporary impairment loss is recognized in the consolidated statements of comprehensive income equal to the excess of the investments carrying value over its fair value at the balance
sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of such investment.
F-16
(k) Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and impairment. Depreciation is provided on a straight-line basis over
the following estimated useful lives:
|
|
|
|
|
|
|
Estimated useful lives of the assets
|
|
Computer equipment
|
|
|
3 years
|
|
Leasehold improvements
|
|
|
Shorter of lease terms and estimated useful lives
|
|
Electronic equipment
|
|
|
3 years
|
|
Office equipment
|
|
|
5 years
|
|
Motor vehicles
|
|
|
5 years
|
|
Expenditure for repairs and maintenance is expensed as incurred. The gain or loss on disposal of property and
equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of comprehensive income.
(l) Goodwill
Goodwill is the
excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business combination.
The
Company tests goodwill for impairment at the reporting unit level on an annual basis as of November 1 and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. The Company first
has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is
more-likely-than-not
that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment
test consists of a
two-step
goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount. If the fair value of each reporting unit exceeds its carrying amount,
goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting
units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the
reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning
assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining
appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. The Group has performed impairment test on November 1, 2016 for
the fiscal year of 2016, and the Group recognized goodwill impairment loss in the consolidated statements of comprehensive loss for the year ended December 31, 2016 (see Note 10).
When a portion of a reporting unit that constitutes a business is to be disposed of, goodwill associated with that business shall be included
in the carrying amount of the business in determining the gain or loss on disposal. The amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the
reporting unit that will be retained. However, if the business to be disposed of was never integrated into the reporting unit after its acquisition and thus the benefits of the acquired goodwill were never realized by the rest of the reporting unit,
the current carrying amount of that acquired goodwill shall be included in the carrying amount of the business to be disposed of. That situation might occur when the acquired business is operated as a standalone entity or when the business is to be
disposed of shortly after it is acquired. Situations in which the acquired business is operated as a standalone entity are expected to be infrequent because some amount of integration generally occurs after an acquisition. When only a portion of
goodwill is allocated to a business to be disposed of, the goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment using its adjusted carrying amount.
F-17
(m) Intangible Assets
Intangible assets, comprising computer software, domain name use right, customer relationship,
non-compete
agreements, user base, technology, game and other finite-lived intangible assets, which are separable from the fixed assets, are stated at cost less accumulated amortization. Amortization is
computed using the straight-line method over the estimated useful lives of the assets. The carrying amounts of the finite-lived intangible assets are reviewed for impairment when indicators of impairment are present in accordance with ASC
360-10.
In accordance with ASC
360-10,
an impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its
fair value. Impairment loss on intangible assets amounted to US$0, US$298 and US$6,159 was recorded for the years ended December 31, 2014, 2015 and 2016, respectively (see Note 9).
(n) Impairment of long-lived assets other than goodwill and intangible assets
The carrying amounts of long-lived assets other than goodwill and intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be
generated by the assets. Such assets are considered to be impaired if the sum of the expected undiscounted cash flow is less than carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amounts
of the assets exceed the fair value of the assets. It mainly represents the prepaid Intellectual Property license fee for the games. The Group classifies the impairment of Intellectual Property for the games that generated limited revenues into cost
of revenues. Considering there will be no future expected cash flow from certain long-lived assets other than goodwill and intangible assets, full impairment was made. The impairment of long-lived assets recorded in cost of revenues for the years
ended December 31, 2014, 2015 and 2016 is US$0, US$2,214 and US$ 935, respectively. For the Intellectual Property for the games that are not launched yet and are not expected to bring in future cash flow, the Group classifies the impairment
into general and administrative expense. The impairment of long-lived assets other than goodwill and intangible assets for the years ended December 31, 2014, 2015 and 2016 are US$0, US$4,185 and US$452 respectively. All these impairment loss
were included in the consumer segment.
(o) Convertible debt
In accordance with ASC subtopic
470-20,
the convertible debts are initially carried at the principal
amount of the convertible debts. Debt premium or discounts, which are the differences between the carrying value and the principal amount of convertible debts at the issuance date, together with related debts issuance cost which is a direct
deduction from the principal amount, are subsequently amortized using effective interest method as adjustments to interest expense from the debt issuance date to its first redemption date. Derivative associated with the convertible debt should be
measured with its fair value. Fair value of the derivative should be appraised in each reporting period and the change of its fair value should be recorded as fair value change from derivative in the financial statements. Convertible debts are
classified as a current liability if they are or will be callable by the Company or puttable by the debt holders within one year from the balance sheet date, even though liquidation may not be expected within that period.
(p) Functional currency and foreign currency translation and transactions
The Groups reporting currency is the U.S. dollar (US$). The functional currency of the Company, and the Companys
overseas subsidiaries is US$, while the functional currency of the Companys PRC subsidiaries, VIE and VIEs subsidiaries is RMB. In the consolidated financial statements, the financial information of the Companys subsidiaries, VIE
and VIEs subsidiaries has been translated into US$. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, except for changes in accumulated deficit
during the year which is the result of income statement translation process, and revenues, expenses, gains and losses are translated using the average exchange rate during the year. Translation adjustments are reported as foreign currency
translation adjustments and are shown as a separate component of other comprehensive income or loss in the consolidated statements of changes in equity and comprehensive income (loss). The exchange rates as of December 31, 2015 and 2016 are
6.4936 and 6.9370, respectively. The annual average exchange rates for the years ended December 31, 2014, 2015 and 2016 are 6.1429, 6.2272 and 6.6377, respectively.
Transactions denominated in currencies other than the functional currency are translated into prevailing functional currency at the exchange
rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are included in the consolidated statements of comprehensive loss.
F-18
(q) Mezzanine equity
Mezzanine Equity consists of
non-controlling
interests in FL Mobile Inc. and a put option pursuant to
which the
non-controlling
shareholders will have the right to put their equity interests in FL Mobile Inc. to the Company at a
pre-determined
price if FL Mobile Inc.
does not complete a qualified listing. The put option will expire within three month after the first anniversary of the closing date. Since the occurrence of the put is not solely within the control of the Company, the Company classifies the
non-controlling
interest as mezzanine equity instead of permanent equity in the Companys consolidated financial statements.
In accordance with ASC subtopic
480-10,
the Company calculates, on an accumulative basis from the
acquisition date, (i) the amount of accretion that would increase the balance of
non-controlling
interest to its estimated redemption value over the period from the date of the issuance to the earliest
redemption date of the
non-controlling
interest and (ii) the amount of net profit attributable to
non-controlling
shareholders of FL Mobile Inc. based on their
ownership percentage. The carrying value of the
non-controlling
interest as mezzanine equity will be adjusted by an accumulative amount equal to the higher of (i) and (ii). See Note 14
Mezzanine Equity.
(r) Revenue recognition
The Group recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred and/or service has been performed, the
price is fixed or determinable and collection is reasonably assured.
In accordance with ASC
605-45,
the Company adopts net presentation method for its revenue, under which revenues are net of business tax, related surcharges and value added tax.
Revenues presented in the consolidated statements of comprehensive loss include revenues from mobile value added services that are comprised
of consumer mobile security, mobile games and live mobile social video platform, advertising services, enterprise mobility and other services.
Mobile Value Added Services Revenues
Consumer
mobile security revenues
Consumer mobile security revenues are derived principally from providing premium mobile security and
productivity services to end users. The basic functions of security and productivity services, including anti-virus, anti-malware, anti-spam, privacy protection, data backup and recovery are free of charge. The customers are charged for updating the
anti-virus database on a
pay-per-use
basis or paying a fee to subscribe to the premium security and productivity services including continuous update of anti-virus
database, continuous update of the semantics of anti-spam, and advanced privacy protection on a monthly, quarterly, semi-annually or annually basis. The Group recognizes revenue for premium services considered to be software-related (e.g., mobile
security services) in accordance with industry specific accounting guidance for software and software-related transactions. For premium services where the customer does not take possession of fully-functioning software (e.g., mobile productivity
services), the Group recognizes revenue pursuant to ASC 605, Revenue Recognition. Provided collectability is probable, revenue is recognized over the usage period which is the same for software-related services and services where software is
incidental to the provision of the services. Basic functions and customer support are provided to end users free of charge, whether they subscribe to services or not. Customer arrangements may include premium mobile security and productivity
services which are multiple elements. Revenue on arrangements that include multiple elements is allocated to each element based on the relative fair value of each element. Fair value is generally determined by vendor-specific- objective-evidence
(VSOE). For all the periods presented, the usage period for the elements in arrangements that include multiple elements is the same. No allocation was performed as there is no impact from the allocation on revenue recognized.
Revenue for
pay-per-use
services is recognized on a
per-use
basis when the update is made. Proceeds from sale of subscription services are deferred when received and revenue for the subscription services is recognized on a straight-line basis over the estimated
service period provided all revenue recognition criteria have been met.
The payment channels include wireless carriers and service
providers, independent distributors of prepaid cards, and third-party payment processors.
Wireless carriers and service providers.
The Group, via service providers, cooperates with wireless carriers to provide consumer mobile security services to the customers. In China, service providers have the exclusive licenses to contract with wireless carriers in offering consumer mobile
security services to the end users and they are mainly responsible for assisting in the billing of consumer mobile security services. Wireless carriers are mainly responsible for billing, collection and customer support relating to the end users.
Under certain circumstances, the Group itself is a service provider and contract directly with wireless carriers.
F-19
Fees paid for premium service are charged to the customers telephone bills and shared
between us and wireless carriers. The sharing percentage is fixed and determined by wireless carriers. The Group does not enter into arrangements directly with the wireless carriers except when the Group acts as a service provider and the wireless
carriers are not acting as an agent for us in the transactions. Therefore, the revenue recognized is net of the amounts retained by the wireless carriers.
The Group recognizes and reports consumer mobile security services revenues on a gross basis based on service providers portion of the
billings as the Group has the primary responsibility for fulfillment and acceptability of the consumer mobile security services and are considered a principal in the transactions. The amounts attributed to services providers share are
determined pursuant to the arrangements between services providers and us and are recognized as costs of revenues.
To recognize consumer
mobile security services revenues, the Group relies on wireless carriers and service providers to provide us with the billing confirmations for the amount of services they have billed to their mobile customers. At the end of each reporting period,
when the wireless carriers or service providers are yet to provide us the monthly billing confirmations, the Group uses information generated from internal system as well as the historical data to estimate the amounts of collectable consumer mobile
security services fees and to recognize revenue. Historically, there have been no significant adjustments to the revenue estimates.
Prepaid cards.
The Group sells prepaid cards to customers through independent distributors. The customers can use the prepaid cards to
subscribe to the premium services offered by the group. Once the customers activate the premium services using the prepaid cards, the Group starts to recognize revenues on a straight-line basis over the service period. The unused cash balances
remaining in users accounts are recorded as a liability in deferred revenue. While the Group has primary responsibility for fulfillment and acceptability, the Group does not have control of, and generally does not know, the ultimate selling
price of the prepaid cards sold by the distributors, and therefore, net proceeds from the distributors form the basis of revenue recognition.
Third-party payment processors.
The customers can also subscribe to premium services directly through the Companys website and
the billings are handled by third-party payment processors. Under these circumstances, the Group has the primary responsibility for fulfillment and acceptability of the service and recognizes the revenue on a gross basis. The amounts attributed to
third-party payment processors are recognized as costs of revenue.
Mobile games revenues
Mobile game revenues are derived principally from game operations for both third-party developed mobile games and self-developed mobile games
and game licensing of self-developed mobile games to other third-party game operators.
Mobile game operations.
The Group generates
mobile games revenues from operating and publishing mobile games developed by third parties and itself. The Group enters into exclusive or joint operation agreements with developers for licensed mobile game applications. The Group distributes the
games on Apples App Store, Android platforms, FL Mobiles platforms and other channels (collectively, Platforms). Game players can download the
free-to-play
games and pay to acquire virtual currency which can be redeemed in the game for
in-game
virtual items.
The Group sells both consumable and durable virtual goods in games. Consumable goods are items that are used up
one-time,
while durable goods are items accessible to the user over an extended period of time. For games under joint operation, the Group recognizes revenue from the sales of both consumable goods and durable
goods at once when the virtual items are delivered. For games under exclusive operations, the Group recognizes revenue from the sales of consumable goods when the goods are used up. The Group recognizes revenue from the sales of durable goods
actually consumed by ended-user in the content providers platform.
Pursuant to agreements signed between the Group and game
developers and between the Group and Platforms, revenues from the sale of game currency to be used for the purchase of virtual items are shared among the Group, game developers and Platforms for third-party developed games and between the Group and
Platforms for self-developed games, based on a
pre-agreed
ratio for each game.
The determination
of whether to record these revenues using gross or net method is based on an assessment of various factors. The primary factors are whether the Group is acting as the principal in offering services to the game players or as an agent in the
transaction, and the specific requirements of each agreement.
F-20
For third-party developed games operated under exclusive operation agreements and self-developed
games, the Group recognizes revenue based on the gross amount billed to customers (i.e., inclusive of the amount retained by Platforms and the amounts paid to game developers under revenue-sharing arrangements if any), because the Group is able to
determine pricing for the virtual items sold and is the primary obligor to the customers. The amount paid to Platforms and game developers are recorded as cost of services.
For third-party developed games operated under joint operation agreements, the game developer is considered the primary obligor to the
customers and has latitude in establishing price. The Group accounts for such sales on a net basis by recognizing the commission it retains from each sale (i.e., revenue net of the amount retained by Platforms and the amounts paid to game developers
under revenue-sharing arrangements).
To determine whether the Platform plays a role of primary obligor or an agent, the Group has
considered ASC
605-45-45
and concluded that the Platform is an agent in the sale of
in-game
virtual items to the customers
because it 1) is not responsible for the fulfillment of
in-game
virtual items and does not take overall responsibility of the services provided to the customers, 2) does not have pricing latitude and only
receives a fixed commission, 3) does not have inventory risk, 4) does not change the virtual items sold or determine specifications of the game or the virtual items sold, and 5) does not have credit risk. In the case of self-developed games and
third-party developed games under exclusive operation by the Group, Platforms are the agents of the Group. In the case of third-party developed games under joint operation, Platforms are the agents of the game developers.
Mobile game licensing.
The Group licenses its self-developed games to other third-party game operators and generally receives revenue
in forms of initial license fees,
non-refundable
minimum guarantee, monthly revenue-based fees under revenue-sharing arrangement or a combination. The initial license fee is generally a fixed amount and
recognized ratably over the term of the license. The
non-refundable
minimum guarantee is generally a fixed amount and recognized once the fees are collected. The revenue-based fees under revenue-sharing
arrangement are generally equal to a fixed percentage of the revenues generated by the game operators from the sale of virtual items and are recognized when the game operators provide the Group the monthly billing confirmation.
Live Mobile Social Video Platform
The Group operates live mobile social video communities, including Showself Live Video, Lehai Live Video and Haixiu Live Video. The community
contains thousands of real time video rooms (the Room) with user-created content provided by hosts and online users, and showed to the Rooms viewers. The Group is responsible for providing a technological infrastructure to enable
the hosts, online users and viewers to interact through live mobile social online video platforms.
All the Rooms can be accessed for
free. The Group mainly derives the revenue from sales of virtual currency which can be used to purchase virtual presents in the Rooms.
The Groups operating entities primarily cooperate with independent third-party distributors to sell the Groups virtual currency
through annual distribution agreements with these distributors. Third-party distributors purchase virtual currency from the Group with no refund provision according to the annual distribution agreements, and they are responsible for selling the
virtual currency to end users. They may engage their own sales representatives, which are referred to as sales agents to directly sell to individual end users. The Group has no control over such sales agents. The Group has
discretion to determine the price of the virtual currency sold to third-party distributors, but have no discretion as to the price at which virtual currency is sold by third-party distributors to the sales agents. Revenues earned from sales through
third-party distributors are recognized net of the sales discount to these distributors and ratably over the estimated average playing period of paying users.
The Group also utilizes third-party payment collection channels, which charges the group the payment handling cost for users to purchase the
virtual currency directly from it. The payment handling costs are recorded in cost of sales. There is no sales discount to third-party payment collection channels. Upon sales of virtual currency, the Group typically has an implied obligation to
provide the services which enable the virtual currency to be used on platform. The Group has discretion to determine the price of the virtual currency sold to end users. In addition, the Group takes overall responsibility of the content or
performances provided by hosts in community. Consequently, the Group recognizes revenue on a gross basis pursuant to ASC
605-45,
and recognizes revenue ratably over the estimated average playing period of
paying users.
F-21
The Groups estimates the playing periods of paying users based on available data obtained since
the Company launched the platform Showself Live Video in April 2014, platform Lehai Live Video in October 2015 and platform Haixiu Live Video in May 2016. On a quarterly basis, the Groups determines the estimated average playing period for paying
players, beginning at the time of a payers first purchase on platform and ending on a date when that paying player is no longer active. The Group recognized revenue directly for payment from users, which used for instant consumable virtual
good related to Rooms hosts. For payment used for virtual goods that are durable to be consumed and those consumed by end users, the group recognized deferred revenue and amortizes the amount over the estimated average playing period of paying
users.
The Group determines that a paying player has ceased playing on platform once the player reached an Inactive Period. The Group
defines the Inactive Period as the length of time after which if a paying player has not logged into the community, the possibility that he/she will continue to play on platform in the future is very low. To determine the Inactive Period, the Group
regularly analyzes paying players activities in the community. For the players who have not logged on platform for 50 days as of the period end, the Group deems them inactive players. Currently estimated average playing periods are
approximately three months, based on current available paying users information. The Group regularly reassesses these estimates and may revise such estimates in the future as additional data becomes available and if and when future data
indicates a change in playing patterns or behaviors.
Advertising Revenues
Advertising revenues are derived principally from promotion of third-parties applications, games or services over a particular period of
time, through a variety of patterns, which are classified into online advertising services and offline advertising services.
Online
advertising revenues.
The Group promotes third-parties games and applications through NQ security applications and related applications in a variety of forms including but not limited to offer-walls, push-notification, and content
integrations. Advertising fees are generally charged to advertisers on the cost per action (CPA) basis. The desired actions to be performed include but are not limited to activation, download, click, registration or
opt-ins,
which are determined by the advertisers. The revenues are generally recognized when the end users activate the applications, register accounts or deliver their
opt-ins.
The Group also provides advertising services by embedding the advertisement in
applications developed by third-party content providers. The Group signs agreements with advertisers and content providers separately. The determination of whether to record these revenues using gross or net method is based on an assessment of
various factors. The primary factors are whether the Group is acting as the principal in offering services to advertisers or as an agent in the transaction, and the specific requirements of each agreement. After considering the Companys
obligations and risks, latitude in establishing price, determination of service specifications and etc., the Group concludes that the Group is the primary obligor in the contracts with advertisers. The fees are charged to advertisers on the CPA
basis. The revenues are recognized by us on a gross basis pursuant to ASC
605-45,
including payments to content providers. The advertising fees paid to the third-party content providers are recognized as costs
of services.
Moreover, the Group provides advertisement placements on the Companys websites and interest-based communities. The
Group enters into
pay-for-time
(CPT) contracts with advertisers, under which the fixed price and advertising services are established upfront and charged
ratably over the contractual period of display.
Offline
pre-installation
revenues.
The
Group provides the
pre-installation
services to promote various applications in mobile phones. The revenues are recognized when the end users activate the applications or become active users within certain
periods, pursuant to the contracts.
Enterprise Mobility Revenues
Enterprise mobility revenues are derived principally from hardware sales to enterprise users, technology and software development, and
commission income shared from mobile network operators, all of which are provided on a stand-alone basis in the years of 2014, 2015 and 2016.
The revenue from sale of hardware is recognized upon the time of delivery. Hardware is considered delivered to customers once customers
acknowledge the receipt of the hardware delivered and the title and risk of loss have been transferred. For most of the hardware sales, these criteria are met at the time customers sign off the delivery notes.
F-22
The Group recognizes the revenue from technology and software development upon the delivery and
acceptance by customers of the standard proprietary software or tailored enterprise software, which involves significant production, modification, or customization. These software arrangements generally include the right to post contract customer
support (PCS). The Group recognizes the technology and software development revenues immediately after the Group delivers the software since PCS is assessed insignificant after considering the facts of (i) no additional charges are
incurred for PCS; (ii) all PCS are normally for a period of 6 months to 1 year; (iii) the estimated cost for such services is insignificant based on historical records; and (iv) the Group does not offer upgrades or enhancements to the
software during PCS period and these services are expected to continue to be infrequent. The Group adopts completed-contract method to account for revenues from technology and software development, given the substantive acceptance terms in
arrangements and short duration of development.
Commission income is derived from bringing enterprise users to the mobile network
operators and is determined based on fixed percentages of actual charges to the enterprise users as agreed with the mobile operators. Commission incomes are recognized in the month in which the service is provided to the enterprise users. For the
amount of revenues to be recognized, the Group firstly estimates the amount of service fee and recognizes revenue based on the fixed commission rates as stipulated on the contract that multiply the estimated customer charges. When the Group later
receives the statements of actual charge issued by the mobile network operators, the Group records a
true-up
adjustment. Based on the historical experience, there had not been any material adjustments
incurred.
Other Services Revenues
Other services revenues are derived principally from providing technology development and training services. The Group recognizes these
revenues when performance is completed.
(s) Cost of revenues
Cost of revenues primarily consists of customer acquisition cost paid to third party business partners based on number of end users referred by
them, which are expensed when earned by third party business partners, fees paid to the handset makers and promotion agents for them to preload the Groups software and fees paid to or retained by SPs and third party payment processors for
their services relating to the billing of the Groups consumer mobile security revenues. Cost of revenues also includes the hardware procurement cost for enterprise mobility business, as well as fees paid to third-party content providers for
advertising services and mobile game operations. Staff costs of those departments directly involved in providing mobile value added services; enterprise mobility and advertising services, as well as other services are also included in cost of
revenues.
(t) Marketing and advertising costs
Marketing and advertising costs consist primarily of costs for the promotion of corporate image and product marketing. The Group expensed all
marketing and advertising costs as incurred. Marketing and advertising costs for the years ended December 31, 2014, 2015 and 2016 are US$11,293, US$7,706, and US$8,265 respectively.
(u) Research and development
Research and development related expenses consist primarily of payroll-related expenses incurred for new product development and product
enhancements. The Group expenses all costs incurred for the development of mobile security and productivity software, technology and software for enterprise customers, and technology of mobile platforms when incurred prior to the establishment of
technological feasibility. Once the software has reached technological feasibility with a proven ability to operate in the market, all subsequent software development costs shall be capitalized until that software is marketed. The amount of costs
qualifying for capitalization has been immaterial and, as a result, the Group did not capitalize any research and development costs for the years ended December 31, 2014, 2015 and 2016.
(v) Operating leases
Leases where
substantially all the risks and rewards of ownership of the assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of comprehensive loss on a straight line
basis over the lease periods.
F-23
(w) Government grant
Government grant is recorded as a liability in deferred revenue when receive upfront, and recognize as other income or reduction of related
expense in the period when (i) all of the conditions attached to the subsidy are satisfied or it is not subject to future return or reimbursement, and (ii) the subsidies have been received or become receivable with reasonable assurance.
The Group recorded subsidies from the PRC government of US$852, US$2,535, and US$128, in other income for the years ended December 31, 2014, 2015 and 2016, respectively.
(x) Employee benefits
Full-time
employees of the Group in mainland China are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The
Group is required to accrue for these benefits based on certain percentages of the employees salaries. The Group is required to make contributions to the plans out of the amounts accrued. The PRC government is responsible for the medical
benefits and the pension liability to be paid to these employees and the Groups obligations are limited to the amounts contributed.
The Group recorded employee benefit expenses of US$7,274, US$10,601 and US$9,167 for the years ended December 31, 2014, 2015 and 2016,
respectively.
(y) Share-based compensation
The Group grants share options and restricted shares to its selected employees, directors and
non-employee
consultants. Awards granted to employees with service conditions attached are measured at the grant date fair value and are recognized as an expense using graded vesting method, net of estimated
forfeitures, over the requisite service period, which is generally the vesting period. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures will be recognized through a cumulative
catch-up
adjustment in the period of change and will also impact the amount of share-based compensation expense to be
recognized in future periods.
Awards granted to employees with performance conditions attached are measured at fair value on the grant
date and are recognized as the compensation expenses in the period and thereafter when the performance goal becomes probable to achieve.
Awards granted to employees with market conditions attached are measured at fair value on the grant date and are recognized as compensation
expenses over the estimated requisite service period, regardless of whether the market condition has been satisfied if the requisite service period is fulfilled.
Awards granted to
non-employees
are measured at fair value at the earlier of the commitment date or
the date the services are completed, and are recognized using graded vesting method over the period the service is provided.
Binomial
option-pricing models are adopted to measure the value of awards at each grant date or measurement date. The determination of fair value is affected by the share price as well as assumptions relating to a number of complex and subjective variables,
including but not limited to the expected share price volatility, actual and projected employee and
non-employee
share option exercise behavior, risk-free interest rates and expected dividends. The use of the
option-pricing model requires extensive actual employee and
non-employee
exercise behavior data for the relative probability estimation purpose, and a number of complex assumptions.
(z)
Non-controlling
interest
Non-controlling
interest represents the equity interest in subsidiaries that is not attributable,
either directly or indirectly, to the Companys shares in such subsidiaries. The
non-controlling
interest is presented in the consolidated balance sheets, separately from equity attributable to the
shareholders of the Company.
Non-controlling
interest in the results of the Company is presented on the face of the consolidated statements of comprehensive loss as an allocation of the total profit or loss
for the periods between
non-controlling
shareholders and the shareholders of the Company.
F-24
(aa) Treasury stock
The Company accounted for shares repurchased as treasury shares under the cost method and includes such treasury shares as a component within
shareholders equity in accordance with ASC
505-30,
and the treasury shares acquired are shown separately in the shareholders equity as the Company has not yet decided on the ultimate method of
disposition for those shares. When the treasury stock is retired, or repurchased for reissue, an excess of repurchase price over par value may be allocated into additional
paid-in
capital.
(ab) Income tax
Current income
tax is provided on the basis of income for financial reporting purpose, adjusted for income and expense items which are not assessable or deductible for income tax purpose, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income tax is accounted for using the liability approach which requires the recognition of income tax payable or refundable for the current year and deferred income tax liabilities and assets for the future tax consequences of events that
have been recognized in the Groups financial statements or tax returns. Deferred income tax is determined based on the differences between the financial reporting and tax basis of assets and liabilities and is measured using the currently
enacted income tax rates and laws. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the consolidated statements of comprehensive income in the period when such changes are enacted. A valuation
allowance is provided to reduce the carrying amounts of deferred income tax assets if it is considered more likely than not that a portion or all of the deferred income tax assets will not be realized.
(ac) Uncertain tax position
The
Group adopts a more likely than not threshold and a
two-step
approach for the measurement of tax position and financial statement recognition. Under the
two-step
approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including the resolution of related appeals or
litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
The Company has elected to classify interest related to an uncertain tax position (if and when required) to interest expense, and classify
penalties related to an uncertain tax position (if and when required) as part of other expense in the consolidated statements of comprehensive income. For the years ended December 31, 2014, 2015 and 2016, the Company did not have any material
interest or penalties associated with tax positions nor did the Company have any significant unrecognized uncertain tax positions.
(ad) Statutory
reserve
The Companys PRC subsidiaries, VIE and VIEs subsidiaries in China are required to make appropriations to
certain
non-distributable
reserve funds.
In accordance with the laws applicable to Chinas
Foreign Investment Enterprises, the Companys subsidiaries that are foreign investment enterprises in China have to make appropriations from their
after-tax
profit (determined under the Accounting
Standards for Business Enterprises promulgated by the Ministry of Finance of the Peoples Republic of China (PRC GAAP)) to reserve funds including (i) general reserve fund; (ii) enterprise expansion fund; and
(iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the
after-tax
profits calculated in accordance with PRC GAAP. Appropriation is not required if the
reserve fund has reached 50% of the registered capital of the respective companies. Appropriations to the other two reserve funds are subject to discretion of respective companies.
In accordance with China Company Laws, the Companys PRC subsidiary, VIE and VIEs subsidiaries that are domestic companies must
make appropriations from their
after-tax
profit (determined under PRC GAAP) to
non-distributable
reserve funds including (i) statutory surplus funds; and
(ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the
after-tax
profits calculated in accordance with PRC GAAP. Appropriation is not required if the
surplus fund has reached 50% of the registered capital of the respective companies. Appropriation to the discretionary surplus fund is made at the discretion of respective companies.
The use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses or
increase of registered capital of the respective companies. These reserves are not allowed to be transferred to the Company in any forms of cash dividends, loans or advances, nor can they be distributed except under liquidation.
F-25
For the years ended December 31, 2014, 2015 and 2016, profit appropriation to the general
reserve fund and the statutory surplus fund (statutory reserve) totaled US$941, US$1,572, and US$8,468 respectively, and there was no profit appropriation to other reserve funds for any of those years.
(ae) Loss per share
Basic loss
per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period for
options and restricted shares under treasury stock method and for convertible debts under
if-convertible
method, if dilutive. Potential common shares are not included in the denominator of the diluted earnings
per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded. Loss per share is computed on Class A common shares and Class B commons shares together, because both classes
have the same dividend rights and the same participation rights in the Companys undistributed earnings.
(af) Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, stockholder, or a related
corporation.
(ag) Comprehensive loss
Comprehensive loss is defined as the change in equity of the Group during a period from transactions and other events and circumstances
excluding those resulting from investments by and distributions to shareholders. Accumulated other comprehensive loss, as presented on the accompanying consolidated balance sheets, only consists of cumulative foreign currency translation adjustment.
(ah) Segment reporting
Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is
available that is evaluated regularly by the Groups chief operating decision-maker (CODM), Chairman of the Board and Chief Executive Officer, in deciding how to allocate resources and assess performance.
The Companys organizational structure is based on a number of factors that the CODM uses to evaluate, view and run the Companys
business operations, which include, but are not limited to, customer base, homogeneity of products and technology. The Companys operating segments are based on its organizational structure and information reviewed by the Companys CODM to
evaluate the operating segment results.
The Company has determined that the business segments that constitute its primary reportable
segments are consumer and enterprise. The consumer segment primarily consists of mobile value added services, which includes mobile security services, mobile games and live mobile social video platform, advertising services and other services. The
enterprise segment mainly consists of technology and software development services and hardware sales aggregated under enterprise mobility revenues.
(ai) Fair value measurement
The
Companys financial instruments include cash equivalents, term deposits, short-term investments, accounts receivable, certain other current and
non-current
assets, accounts payable, accrued expenses and
other current liabilities and other
non-current
liabilities. For fair value measurement, U.S. GAAP establishes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in
measuring fair value:
Level 1observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2other inputs that are directly or indirectly observable in the marketplace.
Level 3unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. See Note 11 Fair value measurements.
F-26
(aj) Discontinued operation
A discontinued operation may include a component of an entity or a group of components, a business. Disposal of a component or group of
components should be reported in discontinued operations if the disposal represents a strategic shift that has, or will have a major effect on the entitys operations and financial results. Examples of a strategic shift that has (or will have)
a major effect on an entitys operations and financial results could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity. The results of operations of a
discontinued operation that has either been disposed of or classified as held for sale should be presented on the face of the statement in which net income is reported. Any gain or loss on the disposal or on classification as held for sale maybe
disclosed on the face of the statement and in a note to the financial statements.
(ak) Effect of recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09, Revenue
from Contracts with Customers, which was subsequently modified in August 2015 by ASU No.
2015-14, Revenue
from Contracts with Customers:
Deferral of the Effective Date. The core principle of ASU
No. 2014-09
is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that
reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify
the implementation guidance on principal versus agent considerations (ASU
2016-08),
on identifying performance obligations and licensing (ASU
2016-10),
and on
narrow-scope improvements and practical expedients (ASU
2016-12)
as well as on the revenue recognition criteria and other technical corrections (ASU
2016-20).
Based on
its preliminary evaluation of ASUs, the Group expects no material impact on its Advertising services and Product revenue streams in the period after adoption. The Group expects to complete its assessment of the effect of adopting ASUs by the end of
2017, as well as the selection of a transition approach.
In July 2015, the FASB issued No. ASU
No. 2015-11,
Simplifying the Measurement of Inventory. This ASU changes the measurement principle for inventories valued under the FIFO or weighted-average methods from the lower of cost or market to
the lower of cost and net realizable value. Net realizable value is defined by the FASB as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU
does not change the measurement principles for inventories valued under the LIFO method. The amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
The Group has evaluated the cumulative effect on the consolidated financial statements of adopting this guidance so as to transit to the new guidance in the year of 2017. The Group expects the effect is immaterial.
In November 2015, the FASB issued ASU
No.2015-17,
Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes. The update eliminates the requirement to classify deferred tax assets and liabilities as noncurrent or current within a classified statement of financial position. Current guidance requires entities to classify
deferred taxes as noncurrent or current. Under ASU
2015-17,
a reporting entity is required to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position. Current
guidance requiring the offsetting of deferred tax assets and liabilities of a
tax-paying
component of an entity and presentation as a single noncurrent amount is not affected. The amendment applies to all
entities that present a classified statement of financial position. The update is effective for public business entities issuing financial statements for the annual periods beginning after December 15, 2016, and interim periods within those
annual periods. Early application is permitted for financial statements as of the beginning of an interim or annual reporting period. Entities may apply the update prospectively to all deferred tax assets and liabilities and taxes, or
retrospectively for all periods presented. If an entity applies the update prospectively, the entity shall disclose the nature and reason of the change in accounting principle and disclose that the prior periods were not retrospectively adjusted. If
an entity adopts the update retrospectively, the entity shall disclose the nature and reason of the change in accounting principle and disclose the quantitative effects of the accounting change on prior periods. The Company adopted this ASU on
January 1, 2017 on a prospective basis. Accordingly, the adoption had no impact on the Companys financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU
No. 2016-01
(ASU
2016-01), Financial
Instruments. ASU
2016-01
requires equity investments (except those accounted for under the equity method of accounting or those that
result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU
2016-01
also simplifies the impairment assessment
of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair
value. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Group is currently evaluating the impact
of adopting this standard on its consolidated financial statements.
F-27
The FASB issued ASU
No.2016-02,
Leases (Topic 842). ASU
2016-01
requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease
liability) and a
right-of-use
asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is
permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period
presented using a modified retrospective approach. Public business entities should apply the amendments in ASU
2016-02
for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Group is in process of evaluating the cumulative
effect on the consolidated financial statements of adopting this guidance so as to transit to the guidance in 2019.
In March 2016, the
FASB issued ASU
No.2016-07(ASU
2016-07),
InvestmentsEquity Method and Joint Ventures (Topic 323), which related to simplify the accounting for equity method
investments. This standard addresses several aspects of the accounting for investments under equity method and joint ventures, including: (a) Eliminate the requirement in Topic 323 that an entity retroactively adopt the equity method of
accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. (b) The equity method investor add the cost of acquiring the additional interest in the investee to
the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.(c) The equity method investor add the cost of acquiring the
additional interest in the investee to the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. This standard will be
effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Group expects the impact of adopting this standard on its consolidated financial statements is not material.
In March, 2016, the FASB issued
ASU No.2016-09 (ASU 2016-09), Compensation
Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which
relates to accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either
equity or liabilities; and (c) classification in the statement of cash flows; and (d) accounting for forfeitures of share-based payments. This standard will be effective for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. The Group is expects the impact of adopting this standard on its consolidated financial statements is not material.
In June 2016, the FASB issued Accounting Standards Update
(ASU) 2016-13, Financial Instruments-Credit
Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This
guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. The Group is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In October, 2016, the FASB issued
ASU No.2016-16 (ASU 2016-16), Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which relates to income
tax of intra-entity transfers of assets other than inventory. The standard requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This standard will be
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group is currently evaluating the impact of adopting this standard on its consolidated financial statements
In August 2016, the FASB issued Accounting Standards Update
(ASU) 2016-15, Statement
of Cash Flows Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation and classification of certain cash receipts and
cash payments in the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Group
is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In
November 2016, the FASB issued Accounting Standards Update
(ASU) No. 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total
amounts shown in the
statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be
applied using a retrospective transition method to each period presented. The Group is currently evaluating the impact of adopting this standard on its consolidated financial statements.
F-28
In January 2017, the FASB issued Accounting Standards Update
(ASU) No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Group will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or
disposals of assets or businesses.
In January 2017, the FASB issued Accounting Standards Update
(ASU) 2017-04, Simplifying
the Test for Goodwill Impairment. The guidance removes Step 2 of a goodwill impairment test, which requires a hypothetical purchase price
allocation. A goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or
any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is currently evaluating the
impact of adopting this standard on its consolidated financial statements.
3. CONCENTRATION AND RISKS
(a) Credit risks
The Group holds
its cash and bank deposits at Chinese financial institutions located inside the PRC with high credit ratings and good reputations and international financial institutions located outside the PRC with high credit ratings from
internationally-recognized rating agencies and well-acknowledged in the worldwide. The Company manages its credit risks by diversity of deposit banks and strict consideration in selection of these institutions by taking into account their
reputation, stability, ratings, reported cash reserve and etc.
Additionally, Chinese financial institutions are subject to a series of
risk control regulation and PRC laws, which protect the third-party depositors rights over their depository capital and related interests. The PRC bank regulatory authorities are empowered to take over the operation and management when any PRC
bank faces a material credit crisis.
(b) Concentration of risks
No individual customer accounted for more than 10% of the Groups total net revenues in 2014 and 2015. Customer A accounted for 21% of the
Groups total net revenue in 2016. No individual customer accounted for more than 10% of the Groups cost of revenues in 2014. Apple Inc. accounted for 32% and 10% of the Groups cost of revenues in 2015 and 2016, respectively.
Service supplier A accounted for 15% of the Groups cost of revenues in 2016. No individual customer accounted for more than 10% of the Groups accounts receivable as of December 31, 2015. Customer A accounted for 32% of the Groups
total net accounts receivable as of December 31, 2016.
Revenues from consumer mobile securities accounted for approximately 17%, 5%
and 2% of the Groups total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively. Revenues from mobile games accounted for approximately 14%, 18% and 24% of the Groups total net revenues for the years ended
December 31, 2014, 2015 and 2016, respectively. Revenues from advertising services accounted for approximately 22%, 18% and 30% of the Groups total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively.
Revenues from enterprise mobility including hardware sales and software development accounted for approximately 45%, 47% and 12% of the Groups total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively. Revenues
from live mobile social video platform accounted for approximately 1%, 11% and 32% of the Groups total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively.
Revenue derived from the PRC account for approximately 87%, 91% and 87% of
the Groups total net revenues for the years ended
December 31, 2014, 2015 and 2016, respectively.
(c) Foreign currency risk
The Group conducts its business in both the PRC and overseas. A majority of the Groups operating transactions are denominated in RMB and
a significant portion of the Groups assets and liabilities is denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes based on the PRC central government policies and to
international economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the Peoples Bank of China
(PBOC). Remittances in currencies other than RMB by the companies in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
F-29
4. BUSINESS COMBINATION
For Enterprise Business
Acquisition of
NationSky
On May 11, 2012, the Group acquired 55% of the equity interests in NationSky, which is engaged in enterprise
mobility services, for cash consideration of US$3,157 and 2,300,000 common shares of the Company, the fair value of which was US$4,196. The Group began to consolidate NationSkys financial statements on June 1, 2012. The purpose of the
acquisition was to expand into the enterprise mobility market.
On July 15, 2013, the Group acquired all of the remaining equity
interest of NationSky held by the
non-controlling
shareholder, representing 45% of the outstanding share capital of NationSky, for an aggregate cash consideration of approximately US$11,024 and 8,352,940
common shares of the Company, the fair value of which is US$16,355. Effective upon July 15, 2013, NationSky became the wholly owned subsidiary of Beijing Technology.
In November 2015, the Group entered into an agreement with former member of management of NationSky and a third party company to divest all of
the equity interests of NationSky for a total cash consideration of RMB510,000. On December 30, 2015, the deal was closed with all the consideration received by the Group. The Group recorded a gain from the disposal of a subsidiary of
approximately $56,211 related to the completion of the NationSky divestment for the year ended December 31, 2015. Because the Group still keeps and continuously expands the enterprise mobility service business line, thus the sale of NationSky
does not represent a strategic shift of the Group; the Group does not consider the disposal of NationSky as discontinued operation on the consolidated financial statements. The carrying amount of goodwill and intangible assets result from the
acquisition of NationSky, which are US$2,033, US$1,905 are entirely included as part of the carrying amount of NationSky in determining the gain of the disposal rather than using a relative fair value method as NationSky has been operated as a
standalone entity. The goodwill remaining in the portion of the enterprise reporting unit to be retained was tested for impairment using its adjusted carrying amount at the date of disposal and no impairment was recorded.
Acquisition of NQ Shenzhen
On
June 8, 2013, the Group acquired 100% of the equity interests in NQ Shenzhen for cash consideration of US$809 and 1,314,815 common shares of the Company, the fair value of which was US$2,125. NQ Shenzhen is primarily engaged in development of
education platform and education software and providing education service by internet and multi-media mediums. The Group began to consolidate NQ Shenzhens financial statements on June 30, 2013. The purpose of the acquisition was to add a
new category of software services to the Groups growing product portfolio and expand the business into youth education industry.
In
June 2015, The Group treated the fact that the total fair value of NQ Shenzhen was lower than the carrying value of NQ Shenzhens net assets as an indicator that the goodwill associated with NQ Shenzhen should be impaired. As NQ Shenzhen is a
standalone entity since acquired, the goodwill is written off entirely rather than allocated it based on relatively fair value. Accordingly, US$2,241 of goodwill is impaired. Meanwhile, the intangible assets acquired as part of NQ Shenzhen
acquisition is recorded in impairment loss of US$298.
In July 2015, the Group divested 100% equity interests of NQ Shenzhen to a third
party. No disposal gain or loss was recognized.
As the sale of NQ Shenzhen does not represent a strategic shift of the Group, the Group
does not consider the disposal of NQ Shenzhen as discontinued operation on the consolidated financial statements as of December 31, 2015.
F-30
Acquisition of Ruifeng
On October 15, 2013, the Group acquired 100% of the equity interests of Ruifeng for a fixed cash consideration of US$2,403 and 1,825,349
common shares of the Company, the fair value of which was approximately US$7,593. Ruifeng is primarily engaged in enterprise mobility system development and iOS training services. The purpose of the acquisition was to enhance the research and
development capability in enterprise mobility and acquire the expertise for system and application development. The Group began to consolidate Ruifengs financial statement on November 1, 2013.
In December 2016, the Company entered into an agreement to divest all the equity interests of Ruifeng. The disposal was completed in March
2017 (see Note 24). Accordingly, the Company recorded impairment loss on goodwill and intangible assets amounted to US$8,012 and US$104 (see Notes 9 and 10).
Acquisition of Beijing Trustek
On
January 10, 2014, the Group acquired 100% equity interest in Beijing Trustek for a cash consideration of US$1,639, 2,845,529 common shares of the Company, the fair value of which is US$8,229. Beijing Trustek is primarily engaged in providing
enterprise mobility solutions and services, including hardware supplies, system management, application development, business intelligence and maintenance services. The purpose of the acquisition was to acquire business relationship in the
healthcare industry and enhance market share in enterprise mobility. The Group began to consolidate Beijing Trusteks financial statement on January 10, 2014.
On the acquisition date, the fair value of share consideration is measured based on the market price of the Companys share of the equity
interest on the acquisition date. The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach applied. The allocation of the
consideration for assets acquired, liability assumed and previously held equity interests based on their fair value was as follows:
|
|
|
|
|
|
|
As of January 10, 2014
|
|
|
|
US$
|
|
Cash consideration
|
|
|
1,639
|
|
Share consideration
|
|
|
8,229
|
|
|
|
|
|
|
Total
|
|
|
9,868
|
|
|
|
|
|
|
Cash and marketable security
|
|
|
3,591
|
|
Other current assets
|
|
|
4,830
|
|
Fixed assets
|
|
|
58
|
|
Other long term assets
|
|
|
249
|
|
Identifiable intangible assets acquired
|
|
|
1,623
|
|
Goodwill
|
|
|
6,294
|
|
Liability assumed
|
|
|
(6,777
|
)
|
|
|
|
|
|
Total
|
|
|
9,868
|
|
|
|
|
|
|
Total identifiable intangible assets acquired upon acquisition mainly include Apple authorization of US$1,213
with an estimated useful life of 3 years, and customer relationship of US$410 with an estimated useful life of 4 years.
The excess of the
purchase price over the tangible assets, identifiable intangible assets acquired and liabilities assumed was recorded as goodwill relating to enterprise segment. Goodwill primarily represents the expected synergies from combining operations of
Beijing Trustek with those of the Group, which are complementary to each other, and intangible assets that do not qualify for separate recognition. In accordance with ASC350, goodwill is not amortized but is tested for impairment and is not
deductible for tax purposes.
The amount of net revenue and net income of Beijing Trustek included in the Companys consolidated
statements of comprehensive income/loss from the acquisition date to December 31, 2014 are US$62,569 and US$2,774, respectively.
Prior to the acquisition, Beijing Trustek did not prepare its financial statements in accordance with US GAAP. The Company determined
that the cost of reconstructing the financial statement of Beijing Trustek for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial performance of all companies acquired by the Group and a comparison
of Beijing Trusteks and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Beijing Trustek on its own to be material to the Group. Thus the Groups management believes that the
presentation of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
F-31
Acquisition of Linkmotion
On June 15, 2015, the Group acquired 67% of the equity interests by acquiring preferred shares of Linkmotion for cash consideration of
US$5,360. The preferred shares acquired take the voting rights as common shares. Linkmotion is primarily engaged in development of an optimized software and hardware in vehicle platform, in which everything is controlled by just one computer. The
purpose of the acquisition was to add a new category of software and hardware services to the Groups growing product portfolio and expand the Groups business scale. The Group began to consolidate Linkmotions financial statements on
June 15, 2015.
On the acquisition date, the valuations used in the purchase price allocation were determined by the Group with the
assistance of an independent third party valuation firm with the income approach applied. The allocation of the consideration for assets acquired, liability assumed and
non-controlling
interests based on their
fair value was as follows:
|
|
|
|
|
|
|
As of June 15, 2015
|
|
|
|
US$
|
|
Cash consideration
|
|
|
5,360
|
|
|
|
|
|
|
Total consideration transferred
|
|
|
5,360
|
|
|
|
|
|
|
Other tangible assets
|
|
|
5,362
|
|
Identifiable intangible assets acquired
|
|
|
3,047
|
|
Goodwill
|
|
|
726
|
|
Liability assumed
|
|
|
(2,175
|
)
|
Fair value of
non-controlling
interest
|
|
|
(1,600
|
)
|
|
|
|
|
|
Total
|
|
|
5,360
|
|
|
|
|
|
|
Total identifiable intangible assets acquired include
non-compete
agreement of US$762 with an estimated useful life of 1 year, software platform of US$1,949 with an estimated useful life of 5 years and hardware design of US$336 with an estimated useful life of 5 years.
The excess of the purchase price over the tangible assets, identifiable intangible assets acquired and liabilities assumed was recorded as
goodwill relating to enterprise segment. Goodwill primarily represents the expected synergies from combining operations of Linkmotion with those of the Group, which are complementary to each other and intangible assets that do not qualify for
separate recognition. In accordance with ASC350, goodwill is not amortized but is tested for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.
The fair value of
non-controlling
interest in Linkmotion has been determined in the valuation mainly
based on the number of shares held by
non-controlling
shareholders and the equity value close to the acquisition date, taking into consideration a 33% discount for lack of control. The equity value close to
the acquisition date was implied by the fair value of cash transferred on the acquisition date as consideration for the acquisition.
The
amount of net revenue and net losses of Linkmotion included in the Groups consolidated statements of comprehensive income/loss from the acquisition date to December 31, 2015 are US$80 and US$2,526, respectively.
Prior to the acquisition, Linkmotion did not prepare its financial statements in accordance with US GAAP. The Company determined that the
cost of reconstructing the financial statement of Linkmotion for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial performance of all companies acquired by the Group and a comparison of
Linkmotions and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Linkmotion on its own to be material to the Group. Thus the Groups management believes that the presentation
of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
For Consumer
Business
Acquisition of Hetu
In June 2013, the Group, through FL Mobile, acquired 20% of equity interests in Hetu, which primarily engaged in mobile game development and
operation, for a cash consideration US$16 and 1,150,385 common shares with fair value of US$1,722. As of December 31, 2013, the Groups equity interest in Hetu was diluted to 18.18% due to incoming of new investors. The equity investment
was accounted for under the cost method, as the Group has no control or significant influence over Hetu prior to October 1, 2015.
F-32
On October 1, 2015, the Group, through FL Mobile, acquired the remaining 81.82% equity
interests of Hetu for aggregated fair value of cash consideration of US$9,410. Thus, the Group owns 100% equity interest of Hetu. The purpose of the acquisition is to enhance the development and profitability of mobile games. The Group began to
consolidate Hetus financial statement on October 1, 2015.
On the acquisition date, the valuations used in the purchase price
allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach applied. The preliminary allocation of the consideration for assets acquired, and liability assumed based on their
fair value was as follows:
|
|
|
|
|
|
|
As of October 1,
2015
|
|
|
|
US$
|
|
Fair value of previous held 18.18% of equity interests
|
|
|
2,094
|
|
Cash consideration (paid)
|
|
|
6,137
|
|
Cash consideration (Contingent)
*
|
|
|
3,273
|
|
|
|
|
|
|
Total
|
|
|
11,504
|
|
|
|
|
|
|
Cash
|
|
|
770
|
|
Other current assets
|
|
|
2,446
|
|
Fixed assets
|
|
|
17
|
|
Identifiable intangible assets acquired
|
|
|
4,874
|
|
Goodwill
|
|
|
6,766
|
|
Liability assumed
|
|
|
(3,369
|
)
|
|
|
|
|
|
Total
|
|
|
11,504
|
|
|
|
|
|
|
*
|
The conditions of contingent consideration of Hetu were met, and the consideration of US$2,455 was paid in 2016 and remaining US$3,682 was paid in 2017.
|
Total identifiable intangible assets acquired from Hetu mainly include
non-compete
agreement of US$79
with an estimated useful life of 36 months, the royalty fee of developed games of US$2,044 with an estimated useful life of 18 months and IPR&D games of US$2,751with an estimated useful life of 46 months. The developed mobile games are
games that are already developed and ready to publish. IPR&D games are games that are under researching and developing.
The excess of
the purchase price over the tangible assets, identifiable intangible assets acquired and liabilities assumed was recorded as goodwill relating to consumer segment. Goodwill primarily represents the expected synergies from combining operations of
Hetu and with those of the Group, which are complementary to each other and intangible assets that do not qualify for separate recognition. In accordance with ASC350, goodwill is not amortized but is tested for impairment at least annually or more
frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.
The amount of net revenue and net
income of Hetu included in the Groups consolidated statements of comprehensive income/loss from the acquisition date to December 31, 2015 are US$5,253 and US$4,399, respectively.
Prior to the acquisition, Hetu did not prepare its financial statements in accordance with US GAAP. The Company determined that the cost
of reconstructing the financial statement of Hetu for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial performance of all companies acquired by the Group and a comparison of Hetus and the
Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Hetu on its own to be material to the Group. Thus the Groups management believes that the presentation of pro forma financial
information with respect to the results of operations of the Group for the business combination is impractical.
Acquisition of Glory
On October 1, 2015, the Group, through FL Mobile Hong Kong Limited, which is a 100% owned subsidiary of FL Mobile Inc., acquired 100% of
Glory with aggregated fair value of cash consideration of US$18,766. Glory primarily engages in publishing and operating mobile games overseas. The purpose of the acquisition is to enhance the development and profitability of mobile games business.
The Group began to consolidate Glorys financial statement on October 1, 2015.
F-33
On the acquisition date, the valuations used in the purchase price allocation were determined by
the Company with the assistance of an independent third party valuation firm with the income approach applied. The preliminary allocation of the consideration for assets acquired, and liability assumed based on their fair value was as follows:
|
|
|
|
|
|
|
As of October 1, 2015
|
|
|
|
US$
|
|
Cash consideration (paid)
|
|
|
12,500
|
|
Cash consideration (Contingent)
*
|
|
|
6,266
|
|
|
|
|
|
|
Total
|
|
|
18,766
|
|
|
|
|
|
|
Cash
|
|
|
287
|
|
Other
non-current
assets
|
|
|
472
|
|
Identifiable intangible assets acquired
|
|
|
4,637
|
|
Goodwill
|
|
|
14,129
|
|
Liability assumed
|
|
|
(759
|
)
|
|
|
|
|
|
Total
|
|
|
18,766
|
|
|
|
|
|
|
*
|
The conditions of contingent consideration of Glory were met, and the consideration of US$5,000 was paid in 2016 and remaining US$7,500 was paid in 2017.
|
Total identifiable intangible assets acquired from Glory mainly include the distribution of three mobile games of US$4,637 with an estimated
useful life of 36 months.
The excess of the purchase price over the tangible assets, identifiable intangible assets acquired and
liabilities assumed was recorded as goodwill relating to consumer segment. Goodwill primarily represents the expected synergies from combining operations of Glory and with those of the Group, which are complementary to each other and intangible
assets that do not qualify for separate recognition. In accordance with ASC 350, goodwill is not amortized but is tested for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill
may be impaired.
The amount of net revenue and net income of Glory included in the Groups consolidated statements of comprehensive
income/loss from the acquisition date to December 31, 2015 are US$3,508 and US$2,796, respectively.
Prior to the acquisition, Glory
did not prepare its financial statements in accordance with US GAAP. The Company determined that the cost of reconstructing the financial statement of Glory for the periods prior to the acquisition outweighed the benefits. Based on an
assessment of the financial performance of all companies acquired by the Group and a comparison of Glorys and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Glory on its own to
be material to the Group. Thus the Groups management believes that the presentation of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
Acquisition of Huayong
In
September of 2013, the Group acquired 10% of the equity interests in Huayong, which is primarily engaged in the research and development, customizing and marketing of live wallpapers for smart phones using Android system, for a cash consideration of
US$2,060. Meanwhile, the Group injected additional cash US$5 along with all other shareholders proportionately for capital increase. In December of 2013, the Group acquired additional 29.01% of equity interest in Huayong for a cash consideration of
US$34,634 and 3,039,449 common shares valued at US$7,015. As of December 31, 2013, the equity investment was accounted for under the cost method, as the Group has no control or significant influence over Huayong prior to January 25, 2014.
On January 25, 2014, the Group acquired additional 18.99% of the equity interests in Huayong, accumulated to 58% of equity interest
in Huayong in aggregate, for a cash consideration of US$249 and 12,930,378 common shares of the Company, the fair value of which was approximately US$40,808. The purpose of the acquisition was to acquire Huayongs products, enhance business
relationship with mobile manufacturers and optimize business resources between NQ and its subsidiaries. The Group began to consolidate Huayongs financial statements on January 25, 2014.
F-34
On the acquisition date, the fair value of share consideration is measured based on the market
price of the Companys share on the acquisition date. The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach applied. The
allocation of the consideration for assets acquired, liability assumed and previously held equity interests based on their fair value was as follows:
|
|
|
|
|
|
|
As of January 25, 2014
|
|
|
|
US$
|
|
Fair value of previously held 39.01% equity interests
|
|
|
43,406
|
|
Cash consideration
|
|
|
249
|
|
Share consideration
|
|
|
40,808
|
|
|
|
|
|
|
Total
|
|
|
84,463
|
|
|
|
|
|
|
Cash
|
|
|
294
|
|
Other current assets
|
|
|
2,974
|
|
Fixed assets
|
|
|
98
|
|
Identifiable intangible assets acquired
|
|
|
12,796
|
|
Goodwill
|
|
|
97,657
|
|
Liability assumed
|
|
|
(5,544
|
)
|
Fair value of
non-controlling
interest
|
|
|
(23,812
|
)
|
|
|
|
|
|
Total
|
|
|
84,463
|
|
|
|
|
|
|
Total identifiable intangible assets acquired upon acquisition mainly include core technology of mobile
animation engine of US$4,309 with an estimated useful life of 5 years, mobile applications of US$721 with an estimated useful life of 1.5 years, user base of US$1,343 with an estimated useful life of 1.5 years, and the partnership with cell phone
manufacturers of US$6,423 with and estimated useful life of 4 years.
In accordance with ASC 805 in a business combination achieved in
stages the Group
re-measured
its previously held equity interest in Huayong on its acquisition-date fair value using the discounted cash flow method and recognized a loss of US$308 in the current year. The
significant inputs used in the valuation of the Groups previously held equity interests in Huayong include (i) an assumed discount rate of 28%; (ii) an assumed terminal value based on a long-term sustainable growth rate of 3%; and
(iii) the operating projections which are estimated based on historical pattern, future business plan and expected market growth rate.
The fair value of
non-controlling
interest in Huayong has been determined in the valuation mainly
based on the number of shares held by
non-controlling
shareholders and the equity value under
non-controlling
basis close to the acquisition date. The equity value under
non-controlling
basis was determined using discounted cash flow method. A control premium of 25% is considered when determining the equity value, to reflect lack of control associated with
non-controlling
interest shareholders.
The amount of net revenue and net losses of Huayong included in
the Companys consolidated statements of comprehensive income/loss from the acquisition date to December 31, 2014 are US$471 and US$892, respectively.
Prior to the acquisition, Huayong did not prepare its financial statements in accordance with US GAAP. The Company determined that the
cost of reconstructing the financial statement of Huayong for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial performance of all companies acquired by the Group and a comparison of Huayongs
and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Huayong on its own to be material to the Group. Thus the Groups management believes that the presentation of pro forma
financial information with respect to the results of operations of the Group for the business combination is impractical.
In June of
2014, the Group acquired additional 10% of the equity interest of Huayong held by the
non-controlling
shareholder, for an cash consideration of approximately US$114 and 18,450,000 common shares of the Company,
the fair value of which is USD$28,155.
F-35
Acquisition of Yipai
On May 15, 2014, the Group acquired 70% equity interests of Yipai, which mainly engaged in image recognition and related advertising
services, for the cash consideration of US$7,041 and 33,900,000 common shares of the Company, the fair value of which was US$49,291. The Group began to consolidate Yipais financial statements on May 15, 2014. The purpose of the
acquisition was to acquire the image recognition technology and explore the advertising with traditional media on mobile internet platform, using image searching as an entry.
On the acquisition date, the fair value of share consideration is measured based on the market price of the Companys share on the
acquisition date. The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach applied. The allocation of the consideration for assets
acquired, liability assumed and
non-controlling
interest based on their fair value was as follows:
|
|
|
|
|
|
|
As of May 15, 2014
|
|
|
|
US$
|
|
Cash consideration
|
|
|
7,041
|
|
Share consideration
|
|
|
49,291
|
|
|
|
|
|
|
Total
|
|
|
56,332
|
|
|
|
|
|
|
Cash
|
|
|
2
|
|
Other current assets
|
|
|
6,711
|
|
Fixed assets
|
|
|
14
|
|
Identifiable intangible assets acquired
|
|
|
4,916
|
|
Goodwill
|
|
|
63,497
|
|
Liability assumed
|
|
|
(1,908
|
)
|
Fair value of
non-controlling
interest
|
|
|
(16,900
|
)
|
|
|
|
|
|
Total
|
|
|
56,332
|
|
|
|
|
|
|
Total identifiable intangible assets acquired mainly include Trade name of US$1,622 with an estimated useful
life of 10 years, Completed technology of US$3,115 with an estimated useful life of 5 years and Covenant
not-to-compete
(CNTC) of US$178 with an estimated
useful life of 5 years.
The excess of the purchase price over the tangible assets, identifiable intangible assets acquired and
liabilities assumed was recorded as goodwill relating to consumer segment. Goodwill primarily represents the expected synergies from combining operations of Yipai with those of the Group, which are complementary to each other and intangible assets
that do not qualify for separate recognition. In accordance with ASC 350, goodwill is not amortized but is tested for impairment and is not deductible for tax purposes.
The fair value of
non-controlling
interest in Yipai has been determined in the valuation mainly based
on the number of shares held by
non-controlling
shareholders and the equity value close to the acquisition date, taking into consideration a 30% discount for lack of control. The equity value close to the
acquisition date was implied by the fair value of cash and shares transferred on the acquisition date as consideration for the acquisition.
The amount of net revenue and net losses of Yipai included in the Groups consolidated statements of comprehensive income/loss from the
acquisition date to December 31, 2014 are US$995 and US$789, respectively.
Prior to the acquisition, Yipai did not prepare its
financial statements in accordance with US GAAP. The Company determined that the cost of reconstructing the financial statement of Yipai for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial
performance of all companies acquired by the Group and a comparison of Yipais and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Yipai on its own to be material to the Group.
Thus the Groups management believes that the presentation of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
In December 2016, the Group entered into an agreement with a third-party company to divest all of the equity interests of Yipai. The Group
recorded a loss from the disposal of a subsidiary of approximately $2,963 related to the completion of the Yipai divestment for the year ended December 31, 2016. In addition, the Company recorded impairment loss on goodwill and intangible
assets amounted to US$56,421 and US$2,423 (see Notes 9 and 10). Because the Group still keeps and continuously expands the security and others service business line, thus the sale of Yipai does not represent a strategic shift of the Group; the Group
does not consider the disposal of Yipai as discontinued operation on the consolidated financial statements.
F-36
Acquisition of Showself
In September of 2013, the Group acquired 20% of the equity interests in Showself, which provides live mobile social video platform on mobile
internet, for a cash consideration of US$500 and 885,478 common shares valued at US$3,004 on the investment date. The equity investment was accounted for under the cost method, as the Group has no control or significant influence over Showself prior
to May 15, 2014.
On May 15, 2014, the Group acquired additional 45% of the equity interest in Showself, accumulated to 65% of
equity interest in Showself in aggregate, for cash consideration of US$78 and 29,950,000 common shares of the Company, the fair value of which was US$43,547. The purpose of the acquisition was to bring a new service into the Groups product
portfolio. The Group begins to consolidate Showselfs financial statement on May 15, 2014.
On the acquisition date, the fair
value of share consideration is measured based on the market price of the Companys share on the acquisition date. The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third
party valuation firm with the income approach applied. The allocation of the consideration for assets acquired, liability assumed, previously held equity interests and
non-controlling
interests based on their
fair value was as follows:
|
|
|
|
|
|
|
As of May 15, 2014
|
|
|
|
US$
|
|
Fair value of previously held 20% equity interests
|
|
|
13,572
|
|
Cash consideration
|
|
|
78
|
|
Share consideration
|
|
|
43,547
|
|
|
|
|
|
|
Total
|
|
|
57,197
|
|
|
|
|
|
|
Cash
|
|
|
32
|
|
Other current assets
|
|
|
394
|
|
Fixed assets
|
|
|
37
|
|
Identifiable intangible assets acquired
|
|
|
7,853
|
|
Goodwill
|
|
|
76,468
|
|
Liability assumed
|
|
|
(3,836
|
)
|
Fair value of
non-controlling
interest
|
|
|
(23,751
|
)
|
|
|
|
|
|
Total
|
|
|
57,197
|
|
|
|
|
|
|
In accordance with ASC 805 in a business combination achieved in stages the Group
re-measured
its previously held equity interest in Showself on its acquisition-date fair value using the discounted cash flow method and recognized a gain of US$10,083 in other income for the year ended
December 31, 2014. The significant inputs used in the valuation of the Groups previously held equity interests in Showself include (i) an assumed discount rate of 22%; (ii) an assumed terminal value based on a long-term
sustainable growth rate of 3%; and (iii) the operating projections which are estimated based on historical pattern, future business plan and expected market growth rate.
Total identifiable intangible assets acquired mainly consist of (i) Agency relationship of US$1,574 with an estimated useful life of 5.7
years; (ii) Trademark of US$2,158 with an estimated useful life of 10 years; (iii) Gaming in development of US$1,557 with an estimated useful life of 2.7 years; and (iv) User name of US$1,460 with an estimated useful life of 2.7
years.
The excess of the purchase price over the tangible assets, identifiable intangible assets acquired and liabilities assumed was
recorded as goodwill relating to consumer segment. Goodwill primarily represents the expected synergies from combining operations of Showself with those of the Group, which are complementary to each other and intangible assets that do not qualify
for separate recognition. In accordance with ASC 350, goodwill is not amortized but is tested for impairment and is not deductible for tax purposes.
The fair value of
non-controlling
interest in Showself has been determined in the valuation mainly
based on the number of shares held by
non-controlling
shareholders and the equity value close to the acquisition date, taking into consideration a 30% discount for lack of control. The equity value close to
the acquisition date was implied by the fair value of cash and shares transferred on the acquisition date as consideration for the acquisition.
The amount of net revenue and net losses of Showself included in the Groups consolidated statements of comprehensive income/loss from
the acquisition date to December 31, 2014 are US$4,309 and US$1,013, respectively.
F-37
Prior to the acquisition, Showself did not prepare its financial statements in accordance with
US GAAP. The Company determined that the cost of reconstructing the financial statement of Showself for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the financial performance of all companies acquired
by the Group and a comparison of Showselfs and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Showself on its own to be material to the Group. Thus the Groups management
believes that the presentation of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
Acquisition of Launcher
In
September 2014, the Group acquired 15% of equity interest in Launcher for cash consideration of RMB 15,000. The equity investment was accounted for under the cost method, as the Group has no control or significant influence over Launcher.
In March 2016, the Group acquired additional 36% of Launchers equity interest, with total cash consideration of RMB 72,000. Together
with the originally held 15% equity interest, the Group holds in total 51% of Launchers equity interest. After the transaction, the Group holds 51% of Launchers equity interest, and consolidates Launcher into NQ Groups financial
statements starting from March 1, 2016.
On the acquisition date, the fair value is measured based on the market price of the
companys share of the equity interest on the acquisition date. The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach
applied. The allocation of the consideration for assets acquired, liability assumed and previously held equity interests based on their fair value was as follows:
|
|
|
|
|
|
|
As of March 1, 2016
|
|
|
|
US$
|
|
Fair value of previous held: equity interests 15%
|
|
|
3,772
|
|
Cash consideration-Paid
|
|
|
11,000
|
|
|
|
|
|
|
Total
|
|
|
14,772
|
|
|
|
|
|
|
Cash
|
|
|
228
|
|
Other current assets
|
|
|
1,258
|
|
Fixed assets
|
|
|
26
|
|
Identifiable intangible assets acquired
|
|
|
8,098
|
|
Goodwill
|
|
|
20,088
|
|
Liability assumed
|
|
|
(2,606
|
)
|
Fair value of
non-controlling
interest
|
|
|
(12,320
|
)
|
|
|
|
|
|
Total
|
|
|
14,772
|
|
|
|
|
|
|
Total identifiable intangible assets acquired include Q Engine of US$ 1,070 with an estimated useful life of 5
years, and Partnership with smart phone manufacturers of US$7,028 with an estimated useful life of 4.8 years.
The excess of purchase
price over tangible assets, identifiable intangible assets and liabilities assumed was recorded as goodwill relating to consumer segment. In accordance with ASC350, goodwill is not amortized but is tested for impairment and is not deductible for tax
purpose.
The fair value of
non-controlling
interest in Launcher has been determined in the
valuation mainly based on the number of shares held by
non-controlling
shareholders and the equity value close to the acquisition date, taking into consideration a 49% discount for lack of control. The equity
value close to the acquisition date was implied by the fair value of cash and shares transferred on the acquisition date as consideration for the acquisition.
The amount of net revenue and net income of Launcher included in the Companys consolidated statements of comprehensive income/ loss from
the acquisition date to December 31, 2016 are US$6,520, and US$239, respectively.
Prior to the acquisition, Launcher did not prepare
its financial statements in accordance with US GAAP. The Company determined that the cost of reconstructing the financial statement of Launcher for the periods prior to the acquisition outweighed the benefits. Based on an assessment of the
financial performance of all companies acquired by the Group and a comparison of Launchers and the Groups financial performance for the fiscal year prior to the acquisition, the Group did not consider Launcher on its own to be material
to the Group. Thus the Groups management believes that the presentation of pro forma financial information with respect to the results of operations of the Group for the business combination is impractical.
F-38
5. INVENTORY
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Mobile devices
|
|
|
1,831
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,831
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Housing loans to employees guaranteed by RPL (Note 22)
|
|
|
|
|
|
|
57
|
|
Interest-free loans to third parties, net of allowance
|
|
|
13,209
|
|
|
|
12,720
|
|
Advances to employees
|
|
|
3,131
|
|
|
|
2,694
|
|
Prepayments to business partners, net of allowance
|
|
|
11,180
|
|
|
|
17,169
|
|
Interest receivables
|
|
|
818
|
|
|
|
1,297
|
|
Receivables in connection with exercise of options from agents and employees
|
|
|
1,037
|
|
|
|
6
|
|
Short-term bridge loans in connection with potential investments, net of allowance
|
|
|
6,398
|
|
|
|
5,334
|
|
Prepayment for inventory
|
|
|
1,401
|
|
|
|
5,290
|
|
Unsecured interest-free loans to related parties, net of allowance (Note 22)
|
|
|
3,020
|
|
|
|
1,059
|
|
Others, net of allowance
|
|
|
1,545
|
|
|
|
2,354
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,739
|
|
|
|
47,980
|
|
|
|
|
|
|
|
|
|
|
Interest-free loans to third parties are mainly the loan to NationSky. The Group had been providing financial
support to NationSky as the Groups subsidiary and the amount was eliminated in the consolidated financial statement in prior years. After the disposal, NationSky becomes a third party. The loan will be repaid by NationSky within 2017. If not
repaid, the CEO of NationSky will bear the unlimited joint liability regarding the loan.
Prepayments to business partners represent
prepaid customer acquisition costs, advanced advertising and promotion fees, prepaid revenue sharing costs to third-party game developers associated with game operation, and any deposits for rentals and office-related supplies and etc.
The Groups short-term interest-free bridge loan balances, net of allowance, are US$6,398 and US$5,334 as of December 31, 2015 and
2016, respectively. The short-term interest-free bridge loans are for potential investees in consideration of future acquisitions or investments on these investees.
As of December 31, 2015, one of the factors for allowance of other current assets is from other current assets with the aging greater
than one year, mainly including the allowance of the bridge loan, which is US$2,048. Another factor is from the full impairment of equity investment in Hissage, an allowance of US$1,078 for the loan due from Hissage is recorded, based on the
agreement between the Group and another shareholder of Hissage.
As of December 31, 2016, the main factor for allowance of other
current assets is from the full impairment of equity investment in Asia Smart, an allowance of US$2,500 for the loan due from Asia Smart and its related company was recorded. Another factor for allowance of other current assets is from two bridge
loans with the aging greater than one year, which is US$1,874.
F-39
7. EQUITY INVESTMENTS, NET
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015*
|
|
|
2016*
|
|
|
|
US$
|
|
|
US$
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
Beijing NQ Guotai Investment Management Limited Partnership (NQ Guotai)
|
|
|
18,068
|
|
|
|
31,190
|
|
Taiyue Wutong Investment Limited Partnership (Taiyue Wutong Fund)
|
|
|
2,996
|
|
|
|
2,767
|
|
Beijing Wangqin Yuanxin Investment Limited Partnership (Yuanxin Fund)
|
|
|
7,700
|
|
|
|
28,831
|
|
Beijing QingzhouHulian Investment Limited Partnership (Qingzhou Fund)
|
|
|
770
|
|
|
|
708
|
|
Less: impairment loss on equity method investments
|
|
|
|
|
|
|
(8,171
|
)
|
|
|
|
|
|
|
|
|
|
Equity method investments, net
|
|
|
29,534
|
|
|
|
55,325
|
|
|
|
|
|
|
|
|
|
|
Cost method investments
|
|
|
|
|
|
|
|
|
Hesine Technologies International Worldwide Inc. (Hissage)
|
|
|
11,192
|
|
|
|
11,192
|
|
SIINE., Ltd (SIINE)
|
|
|
600
|
|
|
|
600
|
|
Asia Smart Media Inc. (Asia Smart)
|
|
|
3,901
|
|
|
|
3,901
|
|
Shanghai Launcher Software Technology Co.,Ltd.(Launcher)
|
|
|
2,310
|
|
|
|
|
|
Zhijian Fengyun (Beijing) Technology Co.,Ltd. (Zhijian)**
|
|
|
1,694
|
|
|
|
1,586
|
|
Beijing Jinxin Huachuang Equity Investment Center Limited Partnership(Jinxin Huachuang
Fund)**
|
|
|
4,620
|
|
|
|
4,325
|
|
Aole Yijie (Shenzhen) Computor Technology Co., Ltd ( Aoyi) **
|
|
|
462
|
|
|
|
432
|
|
Beijing Shigan Technology Co., Ltd (Shigan)**
|
|
|
307
|
|
|
|
288
|
|
Huijukechuang software Co., Ltd. (Huiju)
|
|
|
|
|
|
|
2,883
|
|
Beijing Linjia Technology Co. Ltd. (Linjia)
|
|
|
|
|
|
|
7,208
|
|
Beijing Ruijiexingguang Culture media Co. Ltd. (Ruijie)
|
|
|
|
|
|
|
2,883
|
|
Tianjin Yieryi Technology Co. Ltd. ( Yieryi)
|
|
|
|
|
|
|
5,766
|
|
DoFun Ltd. (DoFun)
|
|
|
|
|
|
|
650
|
|
Less: impairment loss on cost method investments
|
|
|
(13,486
|
)
|
|
|
(17,279
|
)
|
|
|
|
|
|
|
|
|
|
Cost method investments, net
|
|
|
11,600
|
|
|
|
24,435
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,134
|
|
|
|
79,760
|
|
|
|
|
|
|
|
|
|
|
*
|
Balances are presented using
period-end
exchange rate of RMB against USD.
|
**
|
Changes between the year of 2015 and 2016 are resulted from currency fluctuation.
|
Equity method
investments
In December of 2012, NQ Guotai was set up as an investment company. The Group invested US$16,238 (RMB99,000) through
Tianjin QingYun, a subsidiary of Beijing Technology, in NQ Guotai in exchange for 49.5% of the equity interest. Tianjin Qingyun is a limited partner of NQ Guotai. On April 9, 2013, Beijing Wuyue Tianxia Investment Consulting Ltd, the general
partner of NQ Guotai, withdrew its investment and transferred its 0.5% of the equity interest of NQ Guotai to Tianjin Qingyun for cash consideration of US$164 (RMB1,000). Meanwhile, Wangqin Guotai (Beijing) Capital Fund Management Ltd. was appointed
as the new general partner and injected capital of US$328 (RMB2,000) to NQ Guotai. As of June 30, 2013, the Group fully contributed the capital of US$16,402 (RMB100,000) and obtained 49.505% of equity interest in NQ Guotai. During the year
ended December 31, 2016, the Group has contributed capital of US$14,578 (RMB101,127) to
re-organize
NQ Guotai. The Group accounted for the investment using equity method as the Group does not have control
over NQ Guotai after considering various factors such as the board seats the Group has in the general partner of NQ Guotai. Management reviewed the Groups equity investments for impairment in accordance with ASC 320, and concluded that the
estimated fair value of the investment in NQ Guotai is less than its carrying value and the impairment is other-than-temporary, taking the evidence of market value into consideration. Therefore, the Group provided for an impairment of US$8,171 to
reduce the carrying value of this investment to $23,019 as of December 31, 2016.
In March of 2015, the Group, through FL Mobile,
invested US$3,080 (RMB20,000) in Taiyue Wutong Fund, an investment company, in exchange for 17.54% equity interests as a limited partner according to the investment agreement. The Group accounted for the investment by equity method.
F-40
In June of 2015, the Group contributed US$7,700 (RMB50,000) in Yuanxin Fund as the initial
contribution. As of December 31, 2016, the Groups total contribution in Yuanxin Fund is US$28,831(RMB200,000). The total investment will be US$37,729 ( RMB245,000) to exchange for 49% equity interests of Yuanxin Fund as a limited partner
according to the investment agreement. The Group accounted for the investment by equity method.
In November of 2015, the Group
contributed US$770 (RMB5,000) in Qingzhou Fund as the initial contribution the total investment will be US$1,540 (RMB10,000) to exchange for 10% equity interests as a limited partner according to the investment agreement. The Group accounted for the
investment by equity method.
According to ASC 946, each of the Funds, including NQ Guotai, Taiyue Wutong Fund, Yuanxin Fund, and Qingzhou
Fund, meet all characteristics of an investment company and adopts fair value approach to account for its investments due to the sole purpose for returns from capital appreciation and investment income. The Group evaluated the fair value of each
fund conducted by each of investments by considering the development stage of each investment, work force, customer and vendor relationships, financial conditions including historical financial statements and future financial forecasts, risk
factors, comparable companies in the same industry, time of investments to balance sheets date and price of recent investment by new investors, with various approaches applied, such as income approach, market approach or replacement cost approach,
as appropriate.
Cost method investments
In August of 2012, the Group acquired equity interests in Hissage, a provider of mobile messaging solution that provides with mobile push
notification and messaging service across various radio access technologies and wireless carriers, for a cash consideration of US$500 and 3,821,655 common shares with fair value of US$5,916. As of December 31, 2013 and 2014, the number of
shares the Group holds represented 35.14% equity interest in Hissage. In order to satisfy the working capital needs of Hissage, the Group loaned Hissage US$4,657 (equivalent to RMB29,000). As repayment for the loans, Hissage issued and delivered to
the Group 223,215 Series A preferred shares in 2015. Thus, the equity interest that the Group owns is increased to 48.34%. As the equity interest is not
in-substance
common stock, the Group accounts for the
equity investment using the cost method. In 2015, the Groups management reviewed the Groups equity investments for impairment in accordance with ASC 320, and concluded that the estimated fair value of the investment in Hissage is
significantly less than its carrying value and the impairment is other-than-temporary, taking the performance and financial position of the investee as well as other evidence of market value into consideration. Therefore, the Group provided for an
impairment loss of US$11,192 to reduce the carrying value of this investment to $nil as of December 31, 2015.
In August of 2012, the
Group acquired 15.7% of the equity interests in SIINE, a designer, manufacturer and marketer of user interface tools for Web, Connected TV, Gaming and Mobile devices for a cash consideration of US$600. As the Group does not have significant
influence over SIINE, the Group accounts for the equity investment using the cost method. In 2014, the Groups management reviewed the Groups equity investments for impairment in accordance with ASC 320, and concluded that the estimated
fair value of the investment in SIINE is significantly less than its carrying value and the impairment is other-than-temporary, taking the performance and financial position of the investee as well as other evidence of market value into
consideration. Therefore, the Group provided for an impairment loss of US$600 to reduce the carrying value of this investment to $nil as of December 31, 2014.
In May of 2013, the Group acquired 35.22% of the equity interests in Asia Smart, which is a new media company, for a cash consideration of
US$2,000 and 1,152,013 common shares with fair value of US$1,901. As of December 31, 2014 and 2015, the Groups equity interest in Asia Smart was diluted to 34.16% due to incoming of new investors. As the equity interest is not
in-substance
common stock, the Group accounts for the equity investment using the cost method. In 2016, the Groups management reviewed the Groups equity investments for impairment in accordance with ASC
320, and concluded that the estimated fair value of the investment in Asia Smart is significantly less than its carrying value and the impairment is other-than-temporary, taking the performance and financial position of the investee as well as other
evidence of market value into consideration. Therefore, the Group provided for an impairment loss of US$3,901 to reduce the carrying value of this investment to $nil as of December 31, 2016.
In June of 2013, the Group acquired 20% of the equity interests in Hetu, which is a mobile game developer, for a cash consideration of US$16
and 1,150,385 common shares with fair value of US$1,722 on the investment date. As of December 31, 2013, the Groups equity interest in Hetu was diluted to 18.18% due to incoming of new investors. On October 1, 2015, the Group,
through FL Mobile, acquired the remaining 81.82% equity interests of Hetu with aggregate fair value of consideration of US$9,410, accumulative 100% equity interests of Hetu. The Group begins to consolidate Hetus financial statement from
October 1, 2015. Please see Note 4 Business Combination for further information.
F-41
In September of 2014, the Group acquired 20% equity interest of Zhijian, which primarily engaged
in mobile game developments, for cash consideration of US$1,789. As the equity interest is not
in-substance
common stock, the Group accounts for the equity investment using the cost method. In 2015, the
Groups management reviewed the Groups equity investments for impairment in accordance with ASC 320 and concluded that the estimated fair value of the investment in Zhijian is significantly less than its carrying value and the impairment
is other-than-temporary, taking the performance and financial position of the investee as well as other evidence of market value into consideration. Therefore, the Group provided for an impairment loss of US$1,694 to reduce the carrying value of
this investment to $nil as of December 31, 2015.
In September of 2014, the Group acquired 15% equity interests in Launcher, which
primarily engaged in launcher research and customization, for cash consideration of US$2,451. As the Group does not have significant influence over Launcher, the Group accounts for the equity investment using the cost. In January 2016, NQ Group
entered into an agreement to acquire additional 36% of Launchers equity interest, with total cash consideration of US$11,000 (equivalent to RMB72,000), accumulative 51% of Launchers equity interest was held by the Group. The Group begins
to consolidate Launchers financial statement from March, 2016. Please see Note 4 Business Combination for further information.
In April of 2015, the Group acquired 6% equity interests in Jinxin Huachuang Fund, which primarily engaged in the investment in various
entities, mainly public companies, for cash consideration of US$4,620 (equivalent to RMB30,000). Qingyun as a limited partner of Jinxin Huachuang Fund has minor interest and has no virtually influence over partnership operating and financial
policies. The Group accounts for the equity investment using cost method.
In July of 2015, the Group acquired 10% equity interests in
Aoyi, which primarily engaged in mobile game development and operation, for cash consideration of US$462 (equivalent to RMB3,000). As the Group does not have significant influence over Aoyi, the Group accounts for the equity investment using the
cost method.
In August of 2015, the Group acquired 4% equity interests in Shigan, which primarily engaged in an application that has the
function of sound and voice recognition and identification, mainly used for music instrument, for cash consideration of US$307 (equivalent to RMB2,000). As the Group does not have significant influence over Shigan, the Group accounts for the equity
investment using the cost method.
In April of 2016, the Group acquired 40% equity interest in Huiju, which primarily provides a platform
that helps patients make appointment for seeing doctors, for cash consideration of US$2,883 (equivalent to RMB20,000). As the equity interest is not
in-substance
common stock, the Group accounts for the equity
investment using the cost method.
In April of 2016, the Group acquired 28.57% equity interest in Linjia, which is primarily engaged in
providing community life service, such as grocery shopping and delivery, laundry service, car washing, house cleaning, baby-siting, etc. on O2O platform, for cash consideration of US$7,208 (equivalent to RMB50,000). As the equity interest is not
in-substance
common stock, the Group accounts for the equity investment using the cost method.
In July
of 2016, the Group through Showself acquired 25% equity interest in Ruijie, which is primarily engaged in performance management and film/television business on performer or online stars, for cash consideration of US$2,883 (equivalent to RMB20,000).
As the equity interest is not
in-substance
common stock, the Group accounts for the equity investment using the cost method.
In October of 2016, the Group, through Showself acquired 28.57% equity interest in Yieryi, which is primarily engaged in providing social
entertainment platform on mobile equipment that focuses on online stars performance live show, for cash consideration of US$5,766 (equivalent to RMB40,000). As the equity interest is not
in-substance
common
stock, the Group accounts for the equity investment using the cost method.
In December of 2016, the Group acquired 20.68% equity interest
in DoFun, which is primarily engaged in mobile advertising service contains preloading service and creating mutually beneficial opportunities using valuable digital services, for cash consideration of US$650. As the equity interest is not
in-substance
common stock, the Group accounts for the equity investment using the cost method.
F-42
The impairment charge is recorded if the carrying amount of the equity investment exceeds its
fair value and this condition is determined to be other-than-temporary. The Group performs an impairment test on cost method and equity method investments whenever events or changes in business circumstances indicate that an other-than-temporary
impairment has occurred, by considering current economic and market conditions, operating performance, development stages and technology development, and engaged an independent third-party valuation firm to estimate the fair value of certain cost
method investments, as appropriate. The Group recorded US$5,993, US$12,886 and US$ 3,901 in impairment charge to the carrying value of its investments under the cost method for the years ended December 31, 2014, 2015 and 2016.
8. PROPERTY AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Computer equipment
|
|
|
6,742
|
|
|
|
6,969
|
|
Leasehold improvements
|
|
|
2,353
|
|
|
|
2,256
|
|
Electronic equipment
|
|
|
455
|
|
|
|
509
|
|
Office equipment
|
|
|
2,062
|
|
|
|
1,929
|
|
Motor vehicles
|
|
|
255
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,867
|
|
|
|
11,901
|
|
Less: accumulated depreciation
|
|
|
(6,559
|
)
|
|
|
(8,172
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,308
|
|
|
|
3,729
|
|
|
|
|
|
|
|
|
|
|
The depreciation expense for property and equipment was US$2,352, US$3,204 and US$2,424 for the years ended
December 31, 2014, 2015 and 2016, respectively.
F-43
9. INTANGIBLE ASSETS, NET
The following table summarizes the Companys intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Items
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Loss
|
|
|
Net Carrying
Amount
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Computer software
|
|
|
5,560
|
|
|
|
(3,807
|
)
|
|
|
|
|
|
|
1,753
|
|
Domain name use right
|
|
|
1,550
|
|
|
|
(853
|
)
|
|
|
|
|
|
|
697
|
|
Customer relationship
|
|
|
18,322
|
|
|
|
(10,710
|
)
|
|
|
(1,413
|
)
|
|
|
6,199
|
|
Non-compete
agreement
|
|
|
1,122
|
|
|
|
(945
|
)
|
|
|
|
|
|
|
177
|
|
User base
|
|
|
4,685
|
|
|
|
(4,669
|
)
|
|
|
|
|
|
|
16
|
|
Technology
|
|
|
10,413
|
|
|
|
(6,843
|
)
|
|
|
(2,323
|
)
|
|
|
1,247
|
|
Game
|
|
|
10,894
|
|
|
|
(5,936
|
)
|
|
|
|
|
|
|
4,958
|
|
Licenses
|
|
|
2,148
|
|
|
|
(2,148
|
)
|
|
|
|
|
|
|
|
|
Trademark
|
|
|
1,933
|
|
|
|
(512
|
)
|
|
|
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
56,627
|
|
|
|
(36,423
|
)
|
|
|
(3,736
|
)
|
|
|
16,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Items
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Loss
|
|
|
Net Carrying
Amount
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Computer software
|
|
|
5,603
|
|
|
|
(2,967
|
)
|
|
|
|
|
|
|
2,636
|
|
Domain name use right
|
|
|
1,558
|
|
|
|
(702
|
)
|
|
|
|
|
|
|
856
|
|
Customer relationship
|
|
|
12,489
|
|
|
|
(7,377
|
)
|
|
|
|
|
|
|
5,112
|
|
Non-compete
agreement
|
|
|
1,316
|
|
|
|
(553
|
)
|
|
|
|
|
|
|
763
|
|
User base
|
|
|
5,005
|
|
|
|
(4,516
|
)
|
|
|
|
|
|
|
489
|
|
Technology
|
|
|
12,980
|
|
|
|
(6,269
|
)
|
|
|
|
|
|
|
6,711
|
|
Game
|
|
|
11,688
|
|
|
|
(2,183
|
)
|
|
|
|
|
|
|
9,505
|
|
Licenses
|
|
|
2,295
|
|
|
|
(1,810
|
)
|
|
|
|
|
|
|
485
|
|
Trademark
|
|
|
3,588
|
|
|
|
(627
|
)
|
|
|
|
|
|
|
2,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
56,522
|
|
|
|
(27,004
|
)
|
|
|
|
|
|
|
29,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense related to intangible assets with finite lives for the years ended December 31,
2014, 2015 and 2016 was US$11,855, US$12,326 and US$11,365, respectively. During 2015, intangible assets amounting to US$1,262 was included as part of the carrying value of NationSky in connection with the divestment of NationSky and US$298 of NQ
Shenzhens intangible assets was fully impaired.
The impairment loss of intangible assets for the year ended December 31, 2016
includes the full impairment on the carrying amount of intangible asset of Yipai, amounting to US$2,423, as a result of the divestment in 2016, and full impairment on the carrying amount of intangible assets of Ruifeng, amounting to US$104, as a
result of intended divestment which subsequently closed in 2017 (See Note 24). The Company performed qualitative analysis on the events or changes in circumstances that indicated the carrying amount of an asset may not be recoverable and thus is to
be evaluated for recoverability. Due to the current period operating loss combined with a history of operating losses, the intangible assets of Tianya, Huayong and Yinlong may not be recoverable. After the fair value assessment determined by income
approach, the impairment loss was recognized as the excess of the carrying amount over the assets fair value, amounting to US$3,632 in total. The Company did not notice that intangible assets of other subsidiaries might not be recoverable (see
Note 4).
Computer software is amortized over 5 years on average using straight-line method. Domain name (NQ.com) licensed from third
party is amortized over 10 years, the same as the term of the contract, under the straight-line method.
F-44
The acquired intangible assets from business combination are recognized and measured at fair
value with assistance from independent third-party appraisers and are amortized as expenses using the straight-line approach over the estimated economic useful lives as follows:
|
|
|
|
|
|
|
Estimated weighted average useful life
|
|
Customer relationships
|
|
|
4.2 years
|
|
Non-compete
agreement
|
|
|
2.2 years
|
|
User base
|
|
|
1.8 years
|
|
Technology
|
|
|
4.7 years
|
|
Game
|
|
|
2.9 years
|
|
Software
|
|
|
4.1 years
|
|
Trademark
|
|
|
10.0 years
|
|
License
|
|
|
2.8 years
|
|
The weighted-average amortization period for total net intangible assets of US$16,468, as of December 31,
2016, will be 3.43 years. As of December 31, 2016 estimated amortization expenses for future years were expected to be as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
US$
|
|
For the year ending December 31,
|
|
|
|
|
2017
|
|
|
5,941
|
|
2018
|
|
|
4,710
|
|
2019
|
|
|
3,048
|
|
2020
|
|
|
2,013
|
|
2021
|
|
|
290
|
|
2022 and thereafter
|
|
|
466
|
|
|
|
|
|
|
Total
|
|
|
16,468
|
|
|
|
|
|
|
10. GOODWILL
The changes in carrying value of goodwill for the years ended December 31, 2014, 2015, and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
|
|
Mobile
Games and
Advertising
|
|
|
Enterprise
Mobility
|
|
|
Security and
Others
|
|
|
Total
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Balance as of December 31, 2014
|
|
|
34,531
|
|
|
|
19,755
|
|
|
|
266,138
|
|
|
|
320,424
|
|
Increase in goodwill related to acquisition
|
|
|
20,757
|
|
|
|
726
|
|
|
|
|
|
|
|
21,483
|
|
Decrease in goodwill related to disposal
|
|
|
|
|
|
|
(2,033
|
)
|
|
|
|
|
|
|
(2,033
|
)
|
Impairment loss
|
|
|
|
|
|
|
(2,241
|
)
|
|
|
|
|
|
|
(2,241
|
)
|
Foreign currency translation adjustment
|
|
|
(1,992
|
)
|
|
|
(1,008
|
)
|
|
|
(15,353
|
)
|
|
|
(18,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
53,296
|
|
|
|
15,199
|
|
|
|
250,785
|
|
|
|
319,280
|
|
Increase in goodwill related to acquisition
|
|
|
|
|
|
|
|
|
|
|
20,088
|
|
|
|
20,088
|
|
Decrease in goodwill related to disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses
|
|
|
|
|
|
|
(8,012
|
)
|
|
|
(84,731
|
)
|
|
|
(92,743
|
)
|
Foreign currency translation adjustment
|
|
|
(2,503
|
)
|
|
|
(925
|
)
|
|
|
(17,141
|
)
|
|
|
(20,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
50,793
|
|
|
|
6,262
|
|
|
|
169,001
|
|
|
|
226,056
|
|
The Group tests goodwill for impairment at the reporting unit level on an annual basis as of November 1,
and between annual tests when an event occurs or circumstances change that could indicate the asset might be impaired. As of November 1, 2016, the Group tested impairment of goodwill at the level of reporting units, which comprise of mobile
games and advertising, enterprise mobility, and security and others.
F-45
The Group first assessed qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. For those reporting units where it is determined that its more likely than not that their fair values are less than the units carrying amounts, the Group will perform
the first step of a
two-step
quantitative goodwill impairment test. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair values, the Group will perform the
second step of the
two-step
quantitative goodwill impairment test.
In July 2015, the Group
divested 100% equity interests of NQ Shenzhen to a third party. In December 2015, the Group divested all of the equity interests of NationSky. In December 2016, the Group divested all of the equity interests of Yipai and entered into an agreement to
divest all the equity interest of Ruifeng. For details, please refer to Note 4Business Combination. The disposal of Yipai was completed in December 2016 and the disposal of Ruifeng was completed in the first quarter of 2017 (See
Note 24), as a result, goodwill impairment loss of US$56,421 and US$8,012 was recorded as of December 31, 2016, respectively.
In 2016,
the Group performed qualitative assessments for all reporting units. Based on the requirements of ASC
350-20-35-3C
through ASC
350-20-35-3G,
the Group evaluated all relevant factors, weighed all factors in their totality. As the financial performance of mobile
personal medical care, dynamic mobile wallpaper and mobile music search of Security and Others reporting unit and the enterprise mobility business of the Enterprise Mobility reporting unit were below original expectations, fair value of these
reporting units were indicated to be lower than its carrying value. For the Enterprise Mobility reporting unit and Security and Others reporting unit, where it was determined that it was more likely than not that its fair value was less than the
units carrying amount after performing the qualitative assessment, as a result, the Group performed the
two-step
quantitative goodwill impairment test for these two reporting units.
For the
two-step
goodwill impairment test, the Group estimated the fair value with either income
approach or asset approach for specific reporting unit components. With the income approach, the Group estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the best estimate of
future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing
revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any. Asset based approach is used in evaluating the fair value of some specific components which is deemed as the most prudent approach due
to the unpredictability of future cash flows.
The result of step one impairment test for the Enterprise Mobility reporting unit passed,
with its determined fair value 14% higher than the book value. As a result, the step two impairment test for the Enterprise Mobility reporting unit is unnecessary.
The result of step one impairment test for the Security and Others reporting unit failed, with its determined fair value lower than the book
value. And the result of step two impairment test resulting an impairment loss of US$28,310 was recorded for the year ended December 31, 2016.
The business of live mobile social video platform operated by Showself was included in the Security and Others reporting unit. Considering the
Group had entered into an agreement to divest all the equity interest of Showself in 2017, there would be additional goodwill impairment loss for the remaining portion of the reporting unit of security and others upon consummation of the disposal of
Showself (see Note 24, Subsequent Events).
F-46
11. FAIR VALUE MEASUREMENT
Recurring
The Group measured its
financial assets including cash, term-deposits, restricted cash, and equity investments in an investment company, and derivative liabilities at fair value on a recurring basis as of December 31, 2015 and 2016.
The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of
December 31, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement at reporting date using
(in thousands)
|
|
Asset Items
|
|
As of
December 31,
2016
|
|
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Term deposits
|
|
|
226,755
|
|
|
|
|
|
|
|
226,755
|
|
|
|
|
|
Equity investment in NQ Guotai (Note 7)
|
|
|
23,019
|
|
|
|
|
|
|
|
|
|
|
|
23,019
|
|
Equity investment in Taiyue Wutong Fund (Note 7)
|
|
|
2,767
|
|
|
|
|
|
|
|
|
|
|
|
2,767
|
|
Equity investment in Yuanxin Fund (Note 7)
|
|
|
28,831
|
|
|
|
|
|
|
|
|
|
|
|
28,831
|
|
Equity investment in Qingzhou Fund (Note 7)
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
282,080
|
|
|
|
|
|
|
|
226,755
|
|
|
|
55,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement at reporting date using
(in thousands)
|
|
Liability Items
|
|
As of
December 31,
2016
|
|
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Derivative liabilities, contingent interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement at reporting date using
(in thousands)
|
|
Asset Items
|
|
As of
December 31,
2015
|
|
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Term deposits
|
|
|
134,055
|
|
|
|
|
|
|
|
134,055
|
|
|
|
|
|
Restricted Cash
|
|
|
1,640
|
|
|
|
|
|
|
|
1,640
|
|
|
|
|
|
Equity investment in NQ Guotai
(Note 7)
|
|
|
18,068
|
|
|
|
|
|
|
|
|
|
|
|
18,068
|
|
Equity investment in Taiyue Wutong Fund (Note 7)
|
|
|
2,996
|
|
|
|
|
|
|
|
|
|
|
|
2,996
|
|
Equity investment in Yuanxin Fund (Note 7)
|
|
|
7,700
|
|
|
|
|
|
|
|
|
|
|
|
7,700
|
|
Equity investment in Qingzhou Fund (Note 7)
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
165,229
|
|
|
|
|
|
|
|
135,695
|
|
|
|
29,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
A summary of changes in fair value of Level 3 assets and liabilities for the years ended December 31,
2015 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NQ Guotai
|
|
|
Taiyue
Wutong Fund
|
|
|
Yuanxin
Fund
|
|
|
Qingzhou
Fund
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Equity investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2015
|
|
|
18,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital injection
|
|
|
|
|
|
|
3,080
|
|
|
|
7,700
|
|
|
|
770
|
|
Total gain/(loss) included in earnings from equity investment
|
|
|
388
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
Foreign exchange adjustment
|
|
|
(1,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
18,068
|
|
|
|
2,996
|
|
|
|
7,700
|
|
|
|
770
|
|
Capital injection
|
|
|
14,578
|
|
|
|
|
|
|
|
21,623
|
|
|
|
|
|
Total loss included in earnings from equity investment
|
|
|
(325
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
(13
|
)
|
Impairment loss
|
|
|
(8,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange adjustment
|
|
|
(1,000
|
)
|
|
|
(197
|
)
|
|
|
(492
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of December 31, 2016
|
|
|
23,019
|
|
|
|
2,767
|
|
|
|
28,831
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Items
|
|
Contingent Interest
|
|
|
|
US$
|
|
Derivative Liability of contingent interest
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
|
|
Recognized derivative liability, contingent interest
|
|
|
6,048
|
|
Fair value changes in derivative liability
|
|
|
1,157
|
|
|
|
|
|
|
Ending balance as of December 31, 2016
|
|
|
7,205
|
|
|
|
|
|
|
The Group utilized price of recent investment method to determine the fair value of NQ Guotai,Yuanxin Fund,
Qingzhou Fund and Taiyue Wutong Fund.
The Group adopted the Monte Carlo simulation Method (MCS) and binomial tree method to
estimate the probability, in determining the fair value of the derivative liability bifurcated from the convertible debt. The inputs to the model and major assumptions includes: spot price, risk free rate, dividend yield, time to redemption,
volatility, number of steps and trigger price.
Term deposits
The Companys term deposits include deposits with original maturities of more than three months but equal or less than one year. These
term deposits are classified within Level 2, because there generally were no quoted prices as of the reporting dates in active markets for identical time deposits and therefore, in order to determine their fair value, the Company had to use
observable inputs other than quoted prices in active markets for identical term deposits. The carrying amounts of term deposits approximate to their fair values due to their short-term maturities.
Restricted cash
The Companys
restricted cash include cash that is deposited in the bank but restricted for guarantee of certain business purpose under an agreement for 12 months and therefore not available for immediate and general use. This restricted cash is classified within
Level 2, because there generally were no quoted prices as of the reporting dates in active markets for identical time deposits and therefore, in order to determine their fair value, the Company had to use observable inputs other than quoted
prices in active markets for identical restricted cash. The carrying amounts of restricted cash approximate to their fair values due to short-term restricted.
Equity Investment in the Funds
The Group
uses equity method to account for equity investment in each of the NQ Guotai, Taiyue Wutong Fund, Yuanxin Fund, and Qingzhou Fund, (the Funds). The Funds used fair value method to account for investments conducted by the Funds. The fair
value of the equity investments conducted by the Funds represents level 3 valuations as the assumptions used in valuing the investments were not directly or indirectly observable in the market and involved a lot of management judgment..
F-48
Non-recurring
The Group measured certain financial assets, including equity method investments excluding investment in the investment company and cost method
investments, at fair value on a nonrecurring basis and recorded these assets at fair value only when impairment is recognized. The Groups
non-financial
assets, such as intangible assets, goodwill and
property and equipment, would be measured at fair value on a nonrecurring basis and recorded these assets at fair value only when impairment is recognized. These assets are considered Level 3 assets because the Group used
unobservable inputs to determine their fair values. Please refer to Note 7Equity Investment, Net, Note 9 Intangible assets and Note 10Goodwill.
The following are other financial instruments not measured at fair value in the balance sheets but for which the fair value is estimated for
disclosure purposes.
Short-term receivables and payables
Accounts receivable and certain other current assets are financial assets with carrying values that approximate to fair value due to their
short term nature. Short-term accounts payable and accrued liabilities are financial liabilities with carrying values that approximate fair value due to their short term nature. The Group estimated fair values of other short-term receivables and
payables using the discounted cash flow method. The Company classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.
Long-term payables and Other
non-current
assets
Long-term payables and other
non-current
assets are financial liabilities and assets with carrying
values that approximate fair value due to the change in fair value after considering the discount rate, being immaterial.
12. ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Salaries and social welfare payables
|
|
|
8,428
|
|
|
|
7,405
|
|
Taxes payables except for income taxes
|
|
|
1,728
|
|
|
|
313
|
|
Rental payables
|
|
|
378
|
|
|
|
334
|
|
Accrued legal and professional expenses
|
|
|
3,048
|
|
|
|
1,932
|
|
Accrued traveling and entertainment expenses
|
|
|
949
|
|
|
|
861
|
|
Accrued office related expense
|
|
|
3,023
|
|
|
|
2,157
|
|
Accrued interests payable in connection with convertible debts
|
|
|
3,231
|
|
|
|
5,458
|
|
Loan from the third parties
|
|
|
2,012
|
|
|
|
6,507
|
|
Others
|
|
|
1,864
|
|
|
|
4,264
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,661
|
|
|
|
29,231
|
|
|
|
|
|
|
|
|
|
|
F-49
13. SHARE-BASED COMPENSATION
2007 Share Plan and 2011 Share Plan
On June 7, 2007, the Board of Directors of the Company passed a resolution to adopt the 2007 Global Share Plan (the 2007 Share
Plan) that provides for the granting of options to selected employees, directors and
non-employee
consultants to acquire common shares of the Company at exercise prices determined by the Board or the
administrator appointed by the Board at the time of grant. Upon this resolution, the Board of Directors and shareholders authorized and reserved 10,000,000 common shares for the issuance under the 2007 Share Plan. On December 15, 2007, the
Board of Directors passed a resolution to increase the number of shares reserved for issuance under the Plan to 21,176,471 common shares. On April 26, 2010, December 15, 2010 and February 28, 2011, the Board of Director of the
Company passed resolutions to increase the number of shares reserved for issuance under the 2007 Share Plan to 26,415,442, 36,415,442 and 44,415,442 common shares, respectively. As of December 31, 2015 and 2016, no awards remain available for
future grants under the 2007 Share Plan.
On March 15, 2011, the Board of Directors of the Company passed a resolution to adopt the
2011 Share Incentive Plan (the 2011 Share Plan) that provides for the granting of options, restricted shares or restricted share units (collectively the Awards) to selected employees, directors, and
non-employee
consultants to acquire common shares of the Company. The exercise prices of the options are determined by the Board or the administrator appointed by the Board at the time of grant. Upon this
resolution, the Board of Directors and shareholders authorized and reserved 13,000,000 common shares for the issuance under the 2011 Share Plan. The Company may grant Awards that entitle holders up to 13 million shares (the Authorized
Grant Pool). For every year thereafter, starting in 2012, the Company may add up to a certain number of shares to the Authorized Grant Pool (the Annual Increase Amount). The Annual Increase Amount is defined as the number of shares
underlying all awards granted in the previous year that are still outstanding. As of December 31, 2014, 2015 and 2016, awards available for future grants under the 2011 Share Plan amounted to 11,512,160, 8,944,211 and 13,767,915 common shares
respectively.
Vesting of Awards
All
Companys Awards will be exercisable only if Award holder continues employment or
non-employee
consultant provides service through each vesting date. Granted Awards follow any of the following vesting
schedules below:
Schedule I:
1. 25% of the Awards will become vested on the first-year anniversary of the vesting commencement date;
2. 1/48 of the Awards will become vested each month on the same day of the month as the vesting commencement date over a three-year period
thereafter, until fully vested (4 years) or vesting terminates pursuant to terms of the 2007 Share Plan or 2011 Share Plan.
Schedule II:
1. 100% of the Awards will become vested on the first-year anniversary of the vesting commencement date.
Schedule III:
1. 100% of the
Awards will become vested when granted and not subject to any vesting terms.
Schedule IV:
1. 1/16 of the Awards will become vested each calendar quarter on the same day of the quarter as the vesting commencement date over a four-year
period thereafter, until fully vested (4 years) or vesting terminates pursuant to terms of 2007 Share Plan.
F-50
Schedule V:
1. 1/24 of the Awards will become vested each calendar quarter on the same day of the quarter as the vesting commencement date over a
six-year
period thereafter, until fully vested (6 years) or vesting terminates pursuant to terms of 2007 Share Plan.
Schedule VI:
1. 25% of the
Awards will become vested when granted and not subject to any vesting terms;
2. 3/48 of the Awards will become vested each quarter on the
same day of the quarter as the vesting commencement date over a three-year period thereafter, until fully vested (3 years) or vesting terminates pursuant to terms of 2011 Share Plan.
Schedule VII:
1. 1/24 of the
Awards will become vested each month on the same day of the month as the vesting commencement date over a
two-year
period thereafter, until fully vested (2 years) or vesting terminates pursuant to terms of
2011 Share Plan.
Schedule VIII:
1. 25% of the Awards will become vested on the first-year anniversary of the vesting commencement date;
2. 3/48 of the Awards will become vested each quarter on the same day of the quarter as the vesting commencement date over a three-year period
thereafter, until fully vested (4 years) or vesting terminates pursuant to terms of 2011 Share Plan.
Schedule IX:
1. 25% of the Awards will become vested when granted and not subject to any vesting terms;
2. 1/12 of the Awards will become vested each quarter on the same day of the quarter as the vesting commencement date over a three-year period
thereafter, until fully vested (3 years) or vesting terminates pursuant to terms of 2011 Share Plan.
Schedule X:
1. 50% of the Awards will become vested at the end of the first quarter of 2014;
2. 50% of the Awards will become vested at the end of the second quarter of 2014;
Schedule XI:
1. 50% of the
Awards will become vested when granted and not subject to any vesting terms;
2. 3/24 of the Awards will become vested each year on the
same day of the vesting commencement date over a four-year period thereafter, until fully vested (4 years) or vesting terminates pursuant to terms of 2011 Share Plan.
F-51
Schedule XII:
1. 25% of the Awards will become vested on each anniversary of the vesting commencement date over a four-year period thereafter, until fully
vested (4 years) pursuant to terms of 2011 Share Plan.
Other Share Awards
a.
|
Share Awards to
Co-Chief
Executive Officer
|
The Company
totally granted 19,000,000 restricted shares to the former Co-Chief Executive Officer
(Co-CEO)
of the Company
On May 1, 2015, the
Co-CEO
resigned from his position of the Company. The unvested restricted
shares subject to the service conditions were forfeited.
Compensation expense of US$3,291, US$(5,422) and US$ nil were recognized
relating to the 19,000,000 restricted shares for the years ended December 31, 2014, 2015 and 2016.
b.
|
Share Awards in connection with business acquisition
|
In May 2012, the Company granted
2,875,000 restricted shares to the selling shareholder of NationSky as a result of acquiring 55% equity interest in NationSky, of which 1,725,000 restricted shares are subject to a four-year service condition. 25% of 1,725,000 will vest on the first
anniversary of the acquisition date and 1/48 of 1,725,000 will vest each month over a three-year period thereafter. The remaining 1,150,000 restricted shares are subject to both service and performance conditions from year 2012 through year 2013 and
will vest immediate when the performance conditions are satisfied. In July 2013, the Company granted 3,705,882 restricted shares to the selling shareholder of NationSky as a result of acquiring the remaining 45% equity interest, all of which are
subject to both service and performance conditions from the year 2013 through the year 2014 and will vest immediate when the performance conditions are satisfied.
In December 2015, The Group divested 100% equity interests of NationSky. The unvested restricted shares of 1,725,000 subject to the service
conditions were forfeited.
In November 2012, the Company granted 18,519,971 restricted shares to the selling shareholder of FL Mobile and
Red, of which 6,173,324 restricted shares are subject to a four-year service condition. Every 25% of 6,173,324 rescheduled to vest at the end of each calendar year commencing from year of the acquisition over a four-year period. The remaining
12,346,647 restricted shares are subject to both performance and service conditions from year 2013 to year 2014 and will vest immediately when the performance conditions are satisfied. In 2013, the Company also granted 3,169,734 restricted shares,
which vested immediately, to FL Mobile to reward its outstanding performance in 2013.
In March 2013, the Company granted 2,020,365
restricted shares to the selling shareholder of Fanyue for acquiring 51% of the equity interest in Fanyue, of which 808,145 restricted shares are subject to a four-year service condition. Every 25% of 808,145 will vest at the end of each calendar
year commencing from year of the acquisition over a four-year period. The remaining 1,212,220 restricted shares are subject to both performance and service conditions from the year 2013 through year 2014 and will vest immediately when the
performance conditions are satisfied. In September 2013, the Company granted 2,296,930 restricted shares and a variable number of restricted shares up to the maximum of 15,365,703 to the selling shareholder of Fanyue as a result of acquiring the
remaining 49% equity interest, all of which are subject to both service and performance conditions from the year 2014 through the year 2015.
In September 2013, the Company granted 4,100,228 restricted shares and a variable number of restricted shares up to the maximum of 6,833,713
to the selling shareholders of Best Partners, of which 1,537,586 restricted shares are subject to a three-year service condition and will vest ratably over three-year period on each anniversary of the acquisition date. The remaining restricted
shares are subject to both service conditions and performance conditions and will vest immediately when the performance conditions are satisfied.
F-52
In October 2013, the Company granted 969,977 restricted shares and a variable number of
restricted shares up to the maximum of 2,781,696 to the selling shareholders of Ruifeng, of which 387,991 restricted shares are subject to a four-year service condition and will vest ratably over a four-year period on each anniversary of the
acquisition date. The remaining restricted shares are subject to both performance and service conditions from the year 2013 through the year 2015 and will vest immediately when the performance conditions are satisfied.
In November 2013, the Company granted 2,888,000 restricted shares to the selling shareholders of Yinlong due to achievement of performance
conditions and service conditions, which will vest ratably each fiscal quarter over a
two-year
period, commencing from the next fiscal quarter after performance conditions are satisfied. In May 2014, the
Company granted 428,570 restricted shares to the selling shareholders of Yinlong due to the achievement of performance conditions and service conditions and in connection with acquiring the remaining 45% of the equity interest in Yinlong, which
restricted shares will vest immediately when the performance and service conditions are satisfied.
In January 2014, the Company granted
948,510 restricted shares and a variable number of restricted shares up to the maximum of 3,252,030 restricted shares to the selling shareholders of Trustek for acquiring 100% of the equity interest in Trustek. These 4,200,540 restricted shares are
subject to both performance and service conditions from the year 2014 through year 2015 and will vest immediately when the performance and service conditions are satisfied.
In May 2014, the Company granted 1,614,290 restricted shares to the selling shareholders of Yipai for acquiring 70% of the equity interest in
Yipai. These 1,614,290 restricted shares are subject to both performance and service conditions from the year 2014 through year 2016 and vest immediately when the performance and service conditions are satisfied.
For restricted shares granted in connection with the above acquisition activities, the value of the restricted shares is determined on the
fair value of the acquisition date, on which all criteria for establishing the grant dates were satisfied. The value of restricted shares subject to service condition attached is recognized as the compensation expense using the graded-vesting
method. The value of restricted shares with performance conditions attached is recognized as compensation expense using the graded-vesting method only when the achievement of performance conditions becomes probable. The Company performs assessment
of probability on a quarterly basis and recognizes the compensation expenses on a prospective basis.
The Company recognized compensation
expenses of US$70,710, US$10,685 and US$1,286 for the years ended December 31, 2014, 2015 and 2016, respectively. The total unrecognized compensation expenses relating to these restricted shares amounted to US$80 as of December 31, 2016
and are expected to be recognized over a weighted-average period of 0.8 years as of December 31, 2016.
F-53
Summary of Share Option Activities
The following tables summarize the Groups share option activities for the years ended December 31, 2014, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted to Employees
|
|
Number of
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Outstanding as of December 31, 2013
|
|
|
27,390,791
|
|
|
|
1.20
|
|
|
|
7.80
|
|
|
|
47,769
|
|
Options granted
|
|
|
62,500
|
|
|
|
1.31
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(1,725,295
|
)
|
|
|
0.39
|
|
|
|
|
|
|
|
|
|
Options forfeited or cancelled
|
|
|
(2,124,020
|
)
|
|
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
23,603,976
|
|
|
|
1.21
|
|
|
|
6.77
|
|
|
|
|
|
Options granted
|
|
|
300,000
|
|
|
|
0.74
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(339,480
|
)
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
Options forfeited or cancelled
|
|
|
(1,320,303
|
)
|
|
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
22,244,193
|
|
|
|
1.21
|
|
|
|
5.76
|
|
|
|
|
|
Options granted
|
|
|
477,040
|
|
|
|
0.76
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(49,250
|
)
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
Options forfeited or cancelled
|
|
|
(62,570
|
)
|
|
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
22,609,413
|
|
|
|
1.20
|
|
|
|
4.85
|
|
|
|
|
|
Vested and exercisable as of December 31, 2014
|
|
|
16,777,799
|
|
|
|
1.14
|
|
|
|
6.52
|
|
|
|
|
|
Vested and exercisable as of December 31, 2015
|
|
|
19,881,566
|
|
|
|
1.17
|
|
|
|
5.67
|
|
|
|
|
|
Vested and exercisable as of December 31, 2016
|
|
|
21,997,390
|
|
|
|
1.20
|
|
|
|
4.76
|
|
|
|
|
|
F-54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted to
Non-Employees
|
|
Number of
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Outstanding as of December 31, 2013
|
|
|
2,968,750
|
|
|
|
1.04
|
|
|
|
8.30
|
|
|
|
5,639
|
|
Options exercised
|
|
|
(1,250,000
|
)
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
1,718,750
|
|
|
|
1.10
|
|
|
|
7.47
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
1,718,750
|
|
|
|
1.10
|
|
|
|
6.47
|
|
|
|
|
|
Options granted
|
|
|
500,000
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
2,218,750
|
|
|
|
1.01
|
|
|
|
4.31
|
|
|
|
|
|
Vested and exercisable as of December 31, 2014
|
|
|
990,104
|
|
|
|
1.08
|
|
|
|
7.40
|
|
|
|
|
|
Vested and exercisable as of December 31, 2015
|
|
|
1,493,229
|
|
|
|
1.08
|
|
|
|
6.40
|
|
|
|
|
|
Vested and exercisable as of December 31, 2016
|
|
|
1,703,646
|
|
|
|
1.30
|
|
|
|
5.57
|
|
|
|
|
|
F-55
The aggregate intrinsic value in the table above represents the difference between the
Companys closing stock price on the last trading day of each year end and the exercise price. The total intrinsic values of options exercised during the years ended December 31, 2014, 2015 and 2016 were US$5,129, US$127, and US$20
respectively.
Management is responsible for determining the fair value of options granted to employees and
non-employees
and considered a number of factors including valuations. As disclosed in Note 2(y), the Groups share-based compensation cost is measured at the fair value of the award as calculated under
the Binomial option-pricing models.
Assumptions used in the option-pricing model are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted to Employees
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
Average risk-free interest rate
|
|
|
3.09
|
%
|
|
|
1.89
|
%
|
|
|
1.62
|
%
|
Exercise Multiple
|
|
|
2.2
|
|
|
|
2.8
|
|
|
|
2.2
|
|
Expected Forfeiture Rate
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
Expected option life
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
Volatility rate
|
|
|
58
|
%
|
|
|
50
|
%
|
|
|
87.81
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Share price
|
|
$
|
1.31
|
|
|
$
|
0.74
|
|
|
$
|
0.77
|
|
|
|
|
|
Granted to
Non-Employees
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
Average risk-free interest rate
|
|
|
|
|
|
|
|
|
|
|
0.54
|
%
|
Exercise Multiple
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected Forfeiture Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected option life
|
|
|
|
|
|
|
|
|
|
|
0.5 year
|
|
Volatility rate
|
|
|
|
|
|
|
|
|
|
|
63.1
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Share price
|
|
|
|
|
|
|
|
|
|
|
0.65
|
|
The Company estimated the risk free rates based on the yield to maturity of China government bonds denominated
in US$ as at the option respective valuation dates. Exercise multiple is estimated as the ratio of fair value of stock over the exercise price as at the time the option is exercised, based on a consideration of research study regarding exercise
pattern based on historical statistical data. Multiples of 2 to 3 were used for the options granted in valuation analysis. Life of the stock options is the contract life of the option. Based on the option agreements, the contract life of the option
are 0.5 or 10 years from respective grant date. The expected volatility at the date of grant date and each option valuation date was estimated based on historical volatility of comparable companies for the period before the grant date with length
commensurate with the expected term of the options. The Group has no history or expectation of paying dividends on its common shares. The Group estimated the fair value of the common shares using the income approach or market approach when valuing
options granted before IPO while closing prices of the Companys publicly traded shares were adopted when valuing options granted in
post-IPO
period.
The Company recognizes share-based compensation expense net of an estimated forfeiture rate and therefore only recognizes compensation cost
for those shares expected to vest over the service period of the award. The estimation of the forfeiture rate is based primarily upon historical experience of employee turnover. The Group estimated the forfeiture rate to be 10.8% and 0% for share
options granted to employees and senior management, respectively, as of December 31, 2016.
The Company recorded options related
share-based compensation expenses of US$3,803, US$875 and US$419 for the years ended December 31, 2014, 2015 and 2016, respectively, attributed using graded-vesting method over the requisite service period. Total fair values of options vested
are US$6,208, US$3,465, and US$2,787 for employees and US$1,751, US$2,370, and US$303 for
non-employee
consultants during the years ended December 31, 2014, 2015 and 2016, respectively. Weighted average
grant date fair values per option during the years are US$0.6700, US$0.9240, and US$0.2520 for the years ended December 31, 2014, 2015 and 2016, respectively. The Group did not capitalize any of the share-based compensation expenses as part of
the cost of any asset for the years ended December 31, 2014, 2015 and 2016.
As of December 31, 2016, there was US$326
unrecognized compensation expenses related to
non-vested
options. The expenses are expected to be recognized over a weighted-average period of 2.1 years.
F-56
Summary of Restricted Share Activities
The following tables summarize the Groups restricted share activities for the years ended December 31, 2014, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average grant
date fair value
|
|
|
|
|
|
|
US$
|
|
Unvested as of December 31, 2014
|
|
|
44,010,208
|
|
|
|
2.3300
|
|
Granted
|
|
|
13,964,640
|
|
|
|
0.4963
|
|
Forfeited
|
|
|
29,532,000
|
|
|
|
2.4733
|
|
Vested
|
|
|
(21,772,325
|
)
|
|
|
1.2057
|
|
Unvested as of December 31, 2015
|
|
|
6,670,523
|
|
|
|
1.5261
|
|
Granted
|
|
|
14,844,394
|
|
|
|
0.6592
|
|
Forfeited
|
|
|
(1,497,680
|
)
|
|
|
1.2951
|
|
Vested
|
|
|
(19,071,488
|
)
|
|
|
0.8805
|
|
Unvested as of December 31, 2016
|
|
|
945,749
|
|
|
|
1.3054
|
|
The fair value of restricted shares was determined by the closing sale price of the shares as quoted on the
stock exchange market on the grant date. The total fair value of restricted shares vested during the years ended December 31, 2014, 2015 and 2016 were US$270,601, US$16,388 and US$13,703 respectively, based on the fair value of the respective
vesting dates.
The Group recognized restricted share related share-based compensation expenses of US$80,041, US$15,683 and US$12,188 for
the years ended December 31, 2014, 2015 and 2016, respectively. As of December 31, 2016, total unrecognized compensation expense relating to the unvested shares was US$349. The expense is expected to be recognized over a weighted average
period of 1.6 years using the graded-vesting attribution method. The Group did not capitalize any of the share-based compensation expenses as part of the cost of any asset for the years ended December 31, 2014, 2015 and 2016.
14. MEZZANINE EQUITY
In May 2014, the
Company entered into share purchase agreements with Bison Mobile Limited and other third party investors, pursuant to which Bison Mobile Limited agreed to purchase up to 3.75% of equity interest in FL Mobile Inc., and the Company has the right but
not the obligation to sell up to 2.13% of equity interest in FL Mobile Inc. to other third party investors. FL Mobile Inc. issued shares representing 4.94% of the equity interest to Bison Mobile Limited and other third party investors (collectively
the
non-controlling
shareholders) pursuant to the share purchase agreements entered into prior to December 31, 2014 for an aggregate consideration of US$21,603.
Under the share purchase agreements, the
non-controlling
shareholders will have the right to put their
equity interest in FL Mobile Inc. to the Company at a
pre-determined
price if FL Mobile Inc. fails to conduct a qualified listing, within twelve months after the closing date. The put option will expire within
three months after the first anniversary of the closing date. Since the occurrence of the put is not solely within the control of the Company, the Company classifies the
non-controlling
interest as mezzanine
equity instead of permanent equity in the Companys consolidated financial statements.
In 2015, FL Mobile Inc. failed to achieve a
qualified IPO and two of the
non-controlling
shareholders, Bison Mobile Limited and another
non-controlling
shareholder required the Company to redeem the equity
interests they hold. The original consideration of US$17,753 was repaid to them. They are entitled to the portion of the gain to be received from the FL divestment. As of December 31, 2016, all the remaining
non-controlling
shareholders, who hold 0.91% of equity interests, executed the redemption rights, the estimated redemption value of the remaining
non-controlling
interest was reclassified to liability as of December 31, 2016.
As of December 31, 2015 and 2016, the estimated redemption
value of the mezzanine equity was US$4,211 and US$ nil respectively pursuant to the share purchase agreements. For the years ended December 31, 2015 and 2016, the accretion charge was US$1,697 and $nil respectively, and was recorded as net
income attributable to the mezzanine classified
non-controlling
interest shareholders in the statements of comprehensive income. See Note 2 (q)-Mezzanine Equity.
F-57
15. TAXATION
(a) Transition from PRC Business Tax to PRC Value Added Tax
A Pilot Program for transition from the imposition of Business Tax to the imposition of VAT for revenues from certain industries was launched
in Shanghai on January 1, 2012. Effective from September 1, 2012, the Pilot Program was expanded from Shanghai to eight other cities and provinces in China, including Beijing. Advertising revenue and other revenue from technology
development and services became subject to the VAT on and after September 1, 2012 at a rate of 6%. Commencing June 1, 2014, the Pilot Program was expanded to telecommunication enterprises, and the VAT rate for value-added telecommunication
services is 6%.
(b) Business Tax and related Surcharges
Prior to the Pilot Program, the Groups operations in the PRC are subject to 3% or 5% Business Tax. Related surcharges are 12% of Business
Tax. Both Business Tax and the related surcharges are recognized when the revenue is earned.
After the Pilot Program, the Groups
mobile value added services operated by domestic subsidiaries became subject to the VAT on and after June 1, 2014 at a rate of 6%. Related surcharges are 12% of VAT. Both VAT and the related surcharges are recognized when the revenue is earned.
(c) Value Added Tax
Prior to
the Pilot Program, in addition to Business Tax and related surcharges, the Group was subject to VAT at a rate of 17% for enterprise mobility revenue derived from hardware sales.
After the Pilot Program, the Groups advertising revenue, revenues from technology development and services and revenue from value-added
telecommunication services are subject to 6% VAT. The Groups enterprise mobility revenues derived from hardware sales remain subject to VAT at a rate of 17%.
(d) Withholding income tax
The
Enterprise Income Tax Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIEs immediate holding
company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China. Such withholding income tax was exempted under the previous income tax law. On February 22, 2008, the Ministry of Finance and State
Administration of Taxation jointly issued a circular which stated that for FIEs, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors. Based on the interpretation of
the current tax laws, management believes that the Company and all its
non-PRC
subsidiaries are not considered as a resident enterprise in China for corporate income tax purposes, but it cannot be
certain that the relevant PRC tax authorities will agree with this determination.
As of December 31, 2015 and 2016, the Company did
not record any withholding tax on the retained earnings of its FIEs in the PRC as the Company intends to reinvest all earnings in China since 2008 to further expand its business in China, and its FIEs do not intend to declare dividends on the
retained earnings made since 2008 to their immediate foreign holding companies.
(e) Income taxes
The Companys provision for income taxes is subject to variability and could be adversely impacted by factors such as (1) earnings
being lower than anticipated in countries that have lower tax rates, (2) earnings being higher than anticipated in countries that have higher tax rates, and (3) expiration of or lapses in tax incentives. Further, as a result of certain of
ongoing employment and capital investment actions and commitments, income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Failure to meet these commitments could adversely impact the Companys
provision for income taxes.
F-58
The Company is subject to income taxes in China, Hong Kong, Korea, and the United States and is
subject to routine corporate income tax audits in these jurisdictions. Management believes that the Companys tax return positions are fully supported, but tax authorities may challenge certain positions, which may not be fully sustained.
Determining the income tax expense for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid upon resolution of audits could be different from the amounts previously
included in income tax expense and, therefore, could have an impact on tax provision, net income and cash flows. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the
outcome of tax audits cannot be predicted with certainty and the timing of the resolution and/or closure of audits is not certain. If any issues addressed in the Companys tax audits are resolved in a manner not consistent with
managements expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.
Cayman
Islands
Under the common tax laws of the Cayman Islands, the Company is not subject to tax on its income, or capital gains, in
addition, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.
Seychelles
Under the common tax laws of the Seychelles, the Company is not subject to tax on its income, or capital gains, in addition, upon payment of
dividends by the Company to its shareholders, no Seychelles withholding tax will be imposed.
Hong Kong
Entities incorporated in Hong Kong are subject to Hong Kong profit tax at a rate at 16.5% since the beginning of 2008.
United States
In the year of 2016, NQ US
applies cost-plus method to compute the taxable income and is subject to a graduated federal corporate income tax rate. The
mark-up
rate applied to total cost under cost-plus method and federal corporate
income tax rate for the year ended December 31, 2015 were 6% and 34%, respectively. NQ US paid income taxes of approximately US$2,435 for the year ended December 31, 2016.
Mainland China
On March 16, 2007,
the National Peoples Congress adopted the new Corporate Income Tax Law (the New CIT Law), which became effective from January 1, 2008 and replaced the previous separate income tax laws for domestic enterprises and
foreign-invested enterprises by adopting a uniform income tax rate of 25%. Preferential tax treatments continue to be granted to entities that are qualified as high and new technology enterprises strongly supported by the State, or
conducted business in encouraged sectors. An enterprise qualified as a high and new technology enterprise is entitled to a preferential income tax rate of 15%.
On August 3, 2005, the State Bureau of Taxation adopted the preferential tax treatments for the entities obtained the software enterprise
qualification, after the New CIT Law became effective, entities qualifying software enterprise continued to be entitled to 2 years tax exemption from the first profitable year followed by 3 years preferential tax rate of 12.5%.
F-59
In addition, under the New CIT Law, dividends, interests, rent, royalties and gains on transfers
of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a
non-resident
enterprise will be subject to withholding tax, unless such
non-resident
enterprises jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The withholding tax rate is 5% for the parent company in Hong
Kong if the parent company is the beneficial owner of the dividend and approved by the PRC tax authority to enjoy the preferential tax benefit. The withholding tax rate is 10% for the parent company incorporated in other countries which do not have
any tax treaty with the PRC. Such a withholding tax imposed on the dividend income received from the Companys PRC entities will reduce the Companys net income. On February 22, 2008, the Ministry of Finance and State Tax Bureau
jointly issued a circular which stated that for foreign invested enterprises, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors.
The high and new technology enterprises certificate under the New CIT Law is effective for a period of 3 years, during which the entity is
entitled to enjoy a preferential tax rate of 15%. Certain PRC subsidiaries, including Beijing Technology, obtained the high and new technology certificate and the related tax holiday has expired by the end of 2016 or will expire till 2018. An entity
could
re-apply
for the high and new technology enterprises when the prior certificate expires. Historically, all of the Companys subsidiaries and VIEs successfully
re-applied
for the certificates when the prior ones expired.
The software enterprise under the
NEW CIT Law is entitled to enjoy preferential income tax treatment of income tax exemption for the first two years when it became profitable, followed by three years preferential income tax rate of 12.5%. NQ Beijing, NQ Tongzhou, FL Mobile and Hetu
obtained the soft enterprise certificate and the related tax holiday has expired by the end of 2016 or will expire till 2019. Certain subsidiaries of VIE were qualified as software enterprises, and they did not become profitable as of
December 31, 2016.
The New CIT Law also provides that an enterprise established under the laws of foreign countries or regions but
whose de facto management body is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementation Rules of the New
CIT Law merely define the location of the de facto management body as the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties,
etc., of a
non-PRC
company is located. Based on a review of surrounding facts and circumstances, the Company does not believe that it is likely that its operations outside the PRC should be considered a
resident enterprise for PRC income tax purposes. However, due to limited guidance and implementation history of the New CIT Law, should the Company be treated as a resident enterprise for PRC income tax purposes, the Company will be subject to PRC
income tax on worldwide income at a uniform income tax rate of 25% retroactive to January 1, 2008.
For the years ended
December 31, 2014, 2015 and 2016, the Company did not have any material interest or penalties associated with tax positions nor did the Company have any significant unrecognized uncertain tax positions, and this analysis is not expected to
change significantly over the next 12 months.
Composition of income tax expense
The following table presents the components of income (loss) before provision for income taxed generated by domestic or foreign operations for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Loss from foreign entities*
|
|
|
(112,056
|
)
|
|
|
(20,975
|
)
|
|
|
(97,133
|
)
|
Income/(loss) from PRC entities
|
|
|
38,962
|
|
|
|
29,701
|
|
|
|
(36,913
|
)
|
(Loss)/income before income tax expenses
|
|
|
(73,094
|
)
|
|
|
8,726
|
|
|
|
(134,046
|
)
|
*
|
Foreign income before provision for income taxes is defined as income generated from operations located outside of the PRC including HK and Taiwan.
|
F-60
The current and deferred portions of income tax expense included in the Groups consolidated
statements of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Current income tax expense
|
|
|
(5,560
|
)
|
|
|
(12,045
|
)
|
|
|
(3,809
|
)
|
Deferred tax benefit
|
|
|
42
|
|
|
|
2,802
|
|
|
|
4,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) /benefit
|
|
|
(5,518
|
)
|
|
|
(9,243
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense of foreign entities
|
|
|
(412
|
)
|
|
|
(239
|
)
|
|
|
(100
|
)
|
Income tax (expense)/benefit of PRC entities
|
|
|
(5,106
|
)
|
|
|
(9,004
|
)
|
|
|
543
|
|
Reconciliation between the PRC statutory CIT rate of 25% for 2014, 2015 and 2016 and the Companys
effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
Statutory EIT rate
|
|
|
(25.0
|
)%
|
|
|
(25.0
|
)%
|
|
|
(25.0
|
)%
|
Effect of tax holidays
|
|
|
(13.6
|
)%
|
|
|
17.7
|
%
|
|
|
(15.6
|
)%
|
Effect of
tax-exempt
for parent company incorporated in
Cayman Islands
|
|
|
37.5
|
%
|
|
|
(76.7
|
)%
|
|
|
19.1
|
%
|
Effect of change in valuation allowance
|
|
|
5.4
|
%
|
|
|
(3.3
|
)%
|
|
|
4.0
|
%
|
Foreign withholding tax expense*
|
|
|
0.2
|
%
|
|
|
(1.6
|
)%
|
|
|
0.5
|
%
|
Effect of permanent difference from US entity using cost-plus method
|
|
|
0.4
|
%
|
|
|
(2.3
|
)%
|
|
|
0.4
|
%
|
Effect of permanent difference from taxable capital gain due to business acquisition under common
control
|
|
|
|
|
|
|
|
|
|
|
|
|
Other permanent
book-tax
differences
|
|
|
2.7
|
%
|
|
|
(14.7
|
)%
|
|
|
16.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
7.6
|
%
|
|
|
(105.9
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
According to the American Depositary Receipt (ADR) arrangements between the Company and Deutsche Bank Trust (DB) in February 2011, the Company will have the right to receive series of
reimbursements after the closing of Initial Public Offering (IPO) over the five-year term as a return of using DBs services. In May 2016, the arrangement was renewed and will supersede any and all prior agreements. Total
reimbursements are recognized evenly over the contract term in other income. The other income recognized in the year ended December 31, 2016 amounted to US$2,107. The Company bears the 30% US tax on this US source income, which was withheld by
Deutsche Bank upon payments.
|
The combined effects of the income tax expense exemption and reduction available to us are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Tax holiday effect
|
|
|
(9,975
|
)
|
|
|
(1,549
|
)
|
|
|
(20,891
|
)
|
Per share effect, basic
|
|
|
(0.025
|
)
|
|
|
(0.003
|
)
|
|
|
(0.042
|
)
|
Per share effect, diluted
|
|
|
(0.025
|
)
|
|
|
(0.003
|
)
|
|
|
(0.042
|
)
|
F-61
Deferred income tax
Deferred income tax was measured using the enacted income tax rates for the periods in which they are expected to be reversed. Significant
components of the Groups deferred income tax assets and liabilities consist of as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Deferred income tax assets, current
|
|
|
|
|
|
|
|
|
Accruals
|
|
|
804
|
|
|
|
295
|
|
Other differences
|
|
|
1,839
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
Total current deferred income tax assets
|
|
|
2,643
|
|
|
|
2,905
|
|
Less: Valuation allowance
|
|
|
(1,697
|
)
|
|
|
(2,509
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred income tax assets*
|
|
|
946
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets,
non-current
|
|
|
|
|
|
|
|
|
Investment
|
|
|
423
|
|
|
|
1,735
|
|
Net operating loss carry forwards
|
|
|
5,796
|
|
|
|
8,635
|
|
|
|
|
|
|
|
|
|
|
Total
non-current
deferred income tax
assets
|
|
|
6,219
|
|
|
|
10,370
|
|
Less: Valuation allowance,
non-current
|
|
|
(5,251
|
)
|
|
|
(8,882
|
)
|
|
|
|
|
|
|
|
|
|
Net
non-current
deferred income tax
assets*
|
|
|
968
|
|
|
|
1,488
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities,
non-current
|
|
|
|
|
|
|
|
|
Intangible assets from business combination
|
|
|
4,678
|
|
|
|
2,237
|
|
Unrealized investment income
|
|
|
2,301
|
|
|
|
1,739
|
|
|
|
|
|
|
|
|
|
|
Total
non-current
deferred income tax
liabilities
|
|
|
6,979
|
|
|
|
3,976
|
|
|
|
|
|
|
|
|
|
|
*
|
Deferred income tax assets are evaluated on the basis of each operating entity. For any entities which are not to be expected to generate enough taxable income in the future, the Group took full allowance against the
net deferred tax assets. For entities in profit in the year of 2016, the Group assesses the likelihood that the Group will recover the deferred tax assets from future taxable income. The total current deferred income tax assets were resulted from
deductible advertising expenses, bad debt provision, and accruals. The total
non-current
deferred income tax assets were resulted from long-term investment impairment and net operating losses.
|
Movement of valuation allowance
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Balance at beginning of the year
|
|
|
7,868
|
|
|
|
6,948
|
|
Current year addition
|
|
|
869
|
|
|
|
6,148
|
|
Current year reversal
|
|
|
(1,789
|
)
|
|
|
(1,705
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
|
6,948
|
|
|
|
11,391
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Group had net operating losses of approximately US$169,724, primarily
derived from entities in the PRC and Hong Kong, which can be carried forward after certain reconciliation per tax regulation to offset future net profit for income tax purposes. The PRC net operating loss will expire beginning January 1, 2018;
and the Hong Kong net operating loss can be carried forward without an expiration date. In general, the PRC tax authorities have up to five years to conduct examinations of the tax filings. Accordingly, the PRC subsidiaries tax years 2012
through 2016 remain open to examination by the PRC tax authorities.
F-62
16. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per share indicated for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for loss per share
|
|
|
(76,738
|
)
|
|
|
(1,303
|
)
|
|
|
(127,593
|
)
|
Numerator for diluted loss per share
|
|
|
(76,738
|
)
|
|
|
(1,303
|
)
|
|
|
(127,593
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-basic
|
|
|
403,443,828
|
|
|
|
466,691,632
|
|
|
|
492,939,263
|
|
Dilutive effect of stock options and unvested restricted shares*
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding, diluted
|
|
|
403,443,828
|
|
|
|
466,691,632
|
|
|
|
492,939,263
|
|
Basic net loss per Class A and Class B common share***
|
|
|
(0.1902
|
)
|
|
|
(0.0028
|
)
|
|
|
(0.2588
|
)
|
Diluted net loss per Class A and Class B common share***
|
|
|
(0.1902
|
)
|
|
|
(0.0028
|
)
|
|
|
(0.2588
|
)
|
Basic net loss per ADS**
|
|
|
(0.9510
|
)
|
|
|
(0.0140
|
)
|
|
|
(1.2940
|
)
|
Diluted net loss per ADS**
|
|
|
(0.9510
|
)
|
|
|
(0.0140
|
)
|
|
|
(1.2940
|
)
|
*
|
The potential dilutive securities that were not included in the calculation of dilutive net loss per share in those periods where their inclusion would be anti-dilutive include share options and restricted shares of
27,694,086, 9,325,104, and 5,678,630 respectively, for the years ended December 31, 2014, 2015 and 2016.
|
**
|
Each ADS represents five Class A common shares. The net loss per ADS for the years ended December 31, 2014, 2015 and 2016 were calculated using the same conversion ratio assuming the ADSs existed during these
periods, any differences in the five-times ratio were due to rounding.
|
***
|
Since Class A common shares and Class B common shares share identical characteristics (Note 18), only one EPS is presented for both classes.
|
33,678,210, 33,678,210 and 71,296,438 common shares resulting from the assumed conversions of Convertible Notes (Note 17) were excluded from
the calculation of diluted net loss per share for the years ended December 31, 2014, 2015 and 2016, as their effect is anti-dilutive.
F-63
17. CONVERTIBLE DEBT
In October 2013, the Company issued US$172,500 in aggregate principle amount of 4.00% Convertible Senior Notes due October 15, 2018 (the
Notes) at par. The Notes may be converted, under certain circumstances, based on an initial conversion rate of 39.0472 American depository shares (ADSs) per US$1,000 principal amount of the Notes (which represents an initial
conversion price of US$25.61 per ADS).
The Notes are the Companys general unsecured obligations that rank (1) senior in right
of payment to all of the Companys indebtedness that is expressly subordinated in right of payment to the Notes, (2) equal in right of payment with all of the Companys liabilities that are not so subordinated, (3) effectively
junior to any of the Companys secured indebtedness to the extent of the value of the assets securing such indebtedness, and (4) structurally junior to all indebtedness and other liabilities of the Companys subsidiaries and
consolidated affiliated entities.
Accounting for Convertible Senior Notes and issuance cost are summarized as follows:
The Company has accounted for the Notes in accordance with ASC
470-20,
as a single instrument as a
non-current
liability. The Notes are initially carried at the gross cash received at the issuance date.
The net proceeds the Company received from the issuance of the Notes were US$166,395. The Company will pay cash interest at an annual rate of
4.00% on the Notes, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2014.
Debt issuance costs were US$6,834, which comprises of underwriter fees, professional fees paid to accounting and legal consultants and other
miscellaneous expenses occurred specifically for the debts. Debt issuance costs were initially capitalized as deferred charges in other
non-current
assets and are amortized as interest expenses over the period
of three years from the inception date of the Notes to the first redemption date, using the effective interest method.
The interest
expense included in the consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Interest expense at an annual rate of 4.00%
|
|
|
6,900
|
|
|
|
5,175
|
|
Amortization of debt issuance costs
|
|
|
2,339
|
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
9,239
|
|
|
|
7,014
|
|
|
|
|
|
|
|
|
|
|
The Company has repurchased an aggregate principal amount of US$172,500 of all the outstanding Notes upon
exercise of the put option by holders of the Notes. The repurchase price equals to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, October 15, 2016. The balance of the Notes as
of December 31, 2016 is zero.
Convertible Notes issued in October 2016
In October 2016, Pursuant to an agreement between the Company and Zhongzhi
Hi-Tech
Overseas Investment
Ltd. (Zhongzhi
Hi-Tech),
the Company issued an aggregated principal amount of US$220,000 of convertible note with an interest of 8.0% per annum to Zhongzhi
Hi-tech.
The convertible note will mature in October 2018 (the 2018 Notes). The 2018 Notes will be convertible, at the Holders option, to the Companys American depositary
shares (ADSs), each representing five Class A common shares of the Company, at a conversion price of US$6.00 per ADS at any time prior to the close of business on the second Business Day immediately preceding the Maturity Date,
October 1, 2018.
At the same time, RPL and Dr. Shi entered into an agreement with Zhongzhi
Hi-Tech,
that RPL and Dr. Shi jointly agreed to pay Zhongzhi
Hi-Tech
additional guaranteed minimum interests of 2.0% of the principal amount of the 2018 Notes
(additional interest). In addition, unless the 2018 Notes is duly converted into Conversion ADSs in accordance with the terms and conditions set forth in the 2018 Notes therein, RPL and Dr. Shi agree to, jointly and severally,
guarantee and pay to Zhongzhi
Hi-Tech
an additional accrued interests equal to two point five percent (2.50%) per annum of the principal amount outstanding under the 2018 Notes, from the date hereof until the
Maturity Date if no conversation exercised (contingent interest).
F-64
The main terms of the Notes and corresponding assessment of the accounting treatments are
summarized as follows:
Additional interest expense.
According to the agreement among RPL, Dr. Shi and Zhongzhi
Hi-tech,
RPL and Dr. Shi jointly agreed to pay Zhongzhi
Hi-Tech
an additional guaranteed minimum interests of 2.0% of the principal amount of the 2018 Notes.
In accordance with US GAAP, the 2% interest that will be paid by RPL and Dr. Shi are viewed as part of the Companys financing
costs for the 2018 Notes because the substance of the transaction is the payment of an expense of the Company through contributions by the significant stockholder, the 2% interest should be reflected as an expense in the Companys financial
statements with a corresponding credit to contributed
(paid-in)
capital.
Contingent interest
feature.
According to the agreement among RPL, unless the 2018 Notes is duly converted into ADSs in accordance with the terms and conditions set forth in the 2018 Notes therein, RPL and Dr. Shi agree to, jointly and severally, guarantee and
pay to Zhongzhi
Hi-Tech
an additional accrued interests equal to two point five percent (2.50%) per annum of the principal amount outstanding under the 2018 Notes, from the date hereof until the maturity date.
In accordance with ASC
815-15-25-1,
the contingent interest feature meets the definition of derivative and is indexed to the value of the Companys
ADSs, which is not related to the economic characteristics of the debt host. Additionally, in accordance with
ASC815-10-15-74,
this feature is not eligible for the exception used for a conversion option because the contingent interest feature, if freestanding, would not be classified in the Companys stockholders equity as its required to be settled in
cash. Accordingly, the 2.5% contingent interest feature is considered an embedded derivative that should be bifurcated from the host 2018 Notes and measured at fair value. The fair value measurement should consider the volatility of the
Companys stock price and likelihood the unit price would exceed the conversion price which is US$6. Its measured in subsequent periods at fair value with changes in fair value recognized in earnings.
Profit Sharing Arrangement.
In the event that the transaction price of the converted ADS which is sold by Zhongzhi
Hi-Tech
is higher than US$6.90 per ADS (the Benchmark Price), for each ADS sold, Zhongzhi
Hi-Tech
agrees to share with RPL fifty percent (50%) of the portion of
the transaction price in excess of the Benchmark Price in a form agreed upon by Zhongzhi
Hi-Tech
and RPL. Zhongzhi
Hi-Tech
shall provide its full ADS account information
to RPL quarterly or as reasonably requested by RPL.
The profit sharing that will be entitled to RPL/Dr. Shi is viewed as share-based
compensation with performance condition, according to
718-10-30
Performance Conditions. On the issuance date of the 2018 Notes and December 31, 2016, the
probability of the Companys price per ADS at any day before October 3, 2018 being above US$6 is 45.02% and 34.5%, respectively. Since the profit sharing will only occur if the transaction price per ADS is above Benchmark Price, which is
US$6.9, the probability will be even lower than 45.02% and 34.5%. Therefore, its not probable that the performance condition will be achieved as of October 3, 2016 or December 31, 2016. The Company didnt record any compensation
cost accordingly.
Conversion.
The conversion rate is initially 166.6667 ADSs per US$1,000 principal amount, which represents
a conversion price of approximately US$6.00 per ADS. The 2018 Notes are convertible at any time prior to maturity.
In accordance with ASC
815-10-15-83,
the conversion option meets the definition of a derivative instrument. However, bifurcation of conversion option
from the debt host is not required because the conversion option meets ASC 815 scope exception, as the conversion option is considered indexed to the Companys own stock and classified in stockholders equity.
There was no beneficial conversion feature attributable to the 2018 Notes as the set conversion price of the 2018 Notes was greater than the
fair value of the ADS price at the date of issuance.
Accounting for additional interest, issuance cost, contingent interest feature
and the 2018 Notes are summarized as follows:
RPL and Dr. Shi will pay cash interest at an annual rate of 2.00% on the 2018
Notes, payable semi-annually in arrears on April 3 and October 3 of each year, beginning on October 3, 2016. The Company records the 2.00% as an expense in the financial statements with a corresponding credit to contributed
(paid-in)
capital.
Debt issuance costs were US$8,580, which were professional fees paid to financial
service occurred specifically for the debts. In accordance with Accounting Standards Update
2015-03,
the debt issuance cost related to a recognized debt liability should be presented in the balance sheet as a
direct deduction from the carrying amount of the debt liability, consistent with debt discounts. Additionally, in accordance with ASC
835-30-45-3,
Amortization of discount or premium shall be reported as interest expense in the case of liabilities or as interest
income in the case of assets. Amortization of debt issuance costs also shall be reported as interest expense. Therefore, the Company should recorded the issuance cost as direct deduction from the face amount of the 2018 Notes, and recorded the
amortization of the debt issuance costs as interest expenses.
F-65
The Company engaged an appraiser to perform fair value measurement of the embedded derivative
(2.50% contingent interest feature). According to the appraisal report, the possibility of conversion (or the possibility of the Companys price per ADS is above US$6.00) is 45.02% and 34.50% as of issuance date and December 31, 2016,
respectively. Therefore, the fair value of the embedded derivative, which is recorded as derivative liability in the financial statements, as of issuance date and December 31, 2016, were US$6,048 and US$7,205, respectively. Because of the fair
value change of the embedded derivative liability, the Company recognized a loss from fair value change US$ 1,157 in the financial statements.
The Company has accounted for the 2018 Notes in accordance with ASC
470-20,
as a single instrument as
a
non-current
liability. The net proceeds the Company received from the issuance of the Notes were US$220,000. Because the issuance cost and the fair value of derivative liability on the issue date should be
recorded as an adjustment of the carrying amount of the 2018 Notes, the carrying amount of the 2018 Notes was US$205,372 and US$207,040 on the issuance date and as of December 31,2016, respectively..
The total amount of the adjustment to the carrying amount of the 2018 Notes is US$14,628 on the issuance date, and it will be amortized as
interest expenses over the period of 2 years from the issuance date of the 2018 Notes to the maturity date, using the effective interest method.
The Company will pay cash interest at an annual rate of 8.00% on the 2018 Notes, payable semi-annually in arrears on April 3 and
October 3 of each year, beginning on April 3, 2017.
The interest expense included in the consolidated statements of operations
is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Interest expense at an annual rate of 8.00%
|
|
|
|
|
|
|
4,400
|
|
Additional interest expense at an annual rate of 2.00%
|
|
|
|
|
|
|
1,100
|
|
Amortization of adjustment to the carrying amount
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
|
|
|
|
7,167
|
|
|
|
|
|
|
|
|
|
|
F-66
18. COMMON SHARES
On May 5, 2011, the Company completed its IPO of a total of 7,750,000 ADS with a gross proceed of US$89,125 and the Variation of Capital
described above was effective as of the same date. Immediately following the closing of the IPO, the Company had 38,750,000 outstanding Class A common shares represented by 7,750,000 ADSs and all of the Companys 114,637,272 outstanding
Preferred Shares were converted into Class B common shares immediately as of the same date.
Holders of Class A common shares
and Class B common shares have the same rights except for the following:
(a) Holders of Class A common shares are entitled to
one vote per share, while holders of Class B common shares are entitled to ten votes per share.
(b) Each Class B common share is
convertible into one Class A common share at any time by the holder thereof. Class A common shares are not convertible into Class B common shares under any circumstances.
(c) Upon any transfer of Class B common shares by a holder thereof to any person or entity which is not an affiliate of such holder and
which is not any of the founders or any affiliates of the founders of the Company, such Class B common shares shall be automatically and immediately converted into equal number of Class A common shares.
The common shares reserved for issuance upon exercise of the share-based awards were 86,562,934, 89,281,910 and 94,568,835 for years ended
December 31, 2014, 2015 and 2016, respectively.
19. TREASURY STOCK
On November 25, 2012, the board of directors authorized the Company to repurchase up to an aggregate of US$20,000 of the Companys
shares. Effective as of June 30, 2013, the board of directors authorized expanding the share repurchase plan from US$20,000 to US$35,000 and extending the plan for another six months until May 26, 2014. Under the modified share repurchase
plan, the Company may repurchase up to US$35,000 worth of its outstanding ADSs over the period from November 26, 2012 through May 26, 2014. As of May 26, 2014, the Company repurchased 6,738,245 common shares on the open market with an
aggregate price of approximately US$12,440.
On December 23, 2014, the board of directors authorized the Company to repurchase up to
an aggregate of US$80,000 of the Companys shares over the next 12 months. As of December 31, 2014, the Company repurchased 12,885,235 common shares under this authorization on the open market with an aggregate price of approximately
US$11,312. The repurchase plan under this authorization was terminated on December 23, 2015.
During 2014, the Company repurchased
14,977,235 common shares on the open market with an aggregate price of approximately US$15,726. 2,468,830 common shares were
re-issued
from treasury stock.
During 2015, the Company repurchased 1,319,995 common shares on the open market with an aggregate price of approximately US$1,303. In
addition, 4,578,560 common shares were
re-issued
from treasury stock for share based compensation.
During 2016, no repurchase of common stock on the open market. In addition, 3,224,205 common shares were
re-issued
from treasury stock for shared based compensation.
20. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss solely comes from foreign currency translation, the balance of which reflected on the Consolidated Balance
Sheets as of December 31, 2015 and 2016 are US$25,854 and US$49,647, respectively.
21. SEGMENT INFORMATION
The Groups chief operating decision maker (CODM) has been identified as Chairman of the Board and Chief Executive Officer who
review financial information of the operating segments based on US GAAP amounts when making decisions about allocating resources and assessing performance of the Group.
F-67
To optimize the management of operations, the Companys CODM categorizes consumer mobile
security, mobile games, advertising, live mobile social video platform and other services into Consumer segment and reviews the operating performance at net income (loss) level. Enterprise mobility, which mainly includes hardware sales and
technology and software development, constitutes of Enterprise segment by itself. Its operating performance is also reviewed by the Companys CODM on net income (loss) level.
The following table presents summary information by segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
2016
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile value added services
|
|
|
199,816
|
|
|
|
|
|
|
|
199,816
|
|
Advertising services
|
|
|
103,295
|
|
|
|
|
|
|
|
103,295
|
|
Enterprise mobility
|
|
|
|
|
|
|
2,249
|
|
|
|
2,249
|
|
Other services
|
|
|
689
|
|
|
|
53
|
|
|
|
742
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise mobility
|
|
|
|
|
|
|
36,948
|
|
|
|
36,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues
|
|
|
303,800
|
|
|
|
39,250
|
|
|
|
343,050
|
|
Cost of revenues
|
|
|
(221,813
|
)
|
|
|
(39,256
|
)
|
|
|
(261,069
|
)
|
Gross profit (loss)
|
|
|
81,987
|
|
|
|
(6
|
)
|
|
|
81,981
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(17,535
|
)
|
|
|
(2,445
|
)
|
|
|
(19,980
|
)
|
General and administrative expenses
|
|
|
(50,073
|
)
|
|
|
(2,480
|
)
|
|
|
(52,553
|
)
|
Research and development expenses
|
|
|
(17,145
|
)
|
|
|
(5,214
|
)
|
|
|
(22,359
|
)
|
Impairment loss of goodwill and intangible assets
|
|
|
(90,785
|
)
|
|
|
(8,117
|
)
|
|
|
(98,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(175,538
|
)
|
|
|
(18,256
|
)
|
|
|
(193,794
|
)
|
Loss from operations
|
|
|
(93,551
|
)
|
|
|
(18,262
|
)
|
|
|
(111,813
|
)
|
Interest expense
|
|
|
(10,905
|
)
|
|
|
(112
|
)
|
|
|
(11,017
|
)
|
Realized loss on disposal of a subsidiary
|
|
|
(2,963
|
)
|
|
|
|
|
|
|
(2,963
|
)
|
Impairment loss on investments
|
|
|
(12,203
|
)
|
|
|
|
|
|
|
(12,203
|
)
|
Foreign currency exchange gain/(loss)
|
|
|
119
|
|
|
|
(131
|
)
|
|
|
(12
|
)
|
Realized gain on investments
|
|
|
1,241
|
|
|
|
|
|
|
|
1,241
|
|
Changes in fair value of derivative liability
|
|
|
(1,157
|
)
|
|
|
|
|
|
|
(1,157
|
)
|
Other income/(expense), net
|
|
|
3,894
|
|
|
|
(16
|
)
|
|
|
3,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(115,525
|
)
|
|
|
(18,521
|
)
|
|
|
(134,046
|
)
|
Income tax benefit/(expense)
|
|
|
701
|
|
|
|
(258
|
)
|
|
|
443
|
|
Net loss
|
|
|
(114,824
|
)
|
|
|
(18,779
|
)
|
|
|
(133,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
2015
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile value added services
|
|
|
139,588
|
|
|
|
|
|
|
|
139,588
|
|
Advertising services
|
|
|
71,721
|
|
|
|
|
|
|
|
71,721
|
|
Enterprise mobility
|
|
|
|
|
|
|
27,416
|
|
|
|
27,416
|
|
Other services
|
|
|
5,352
|
|
|
|
|
|
|
|
5,352
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise mobility
|
|
|
|
|
|
|
162,614
|
|
|
|
162,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues
|
|
|
216,661
|
|
|
|
190,030
|
|
|
|
406,691
|
|
Cost of revenues
|
|
|
(147,544
|
)
|
|
|
(171,808
|
)
|
|
|
(319,352
|
)
|
Gross profit
|
|
|
69,117
|
|
|
|
18,222
|
|
|
|
87,339
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(19,698
|
)
|
|
|
(7,054
|
)
|
|
|
(26,752
|
)
|
General and administrative expenses
|
|
|
(60,843
|
)
|
|
|
(4,615
|
)
|
|
|
(65,458
|
)
|
Research and development expenses
|
|
|
(16,031
|
)
|
|
|
(12,989
|
)
|
|
|
(29,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(96,572
|
)
|
|
|
(24,658
|
)
|
|
|
(121,230
|
)
|
Loss from operations
|
|
|
(27,455
|
)
|
|
|
(6,436
|
)
|
|
|
(33,891
|
)
|
Interest expense
|
|
|
(4,001
|
)
|
|
|
(661
|
)
|
|
|
(4,662
|
)
|
Realized gain on disposal of a subsidiary (Note A)
|
|
|
|
|
|
|
56,211
|
|
|
|
56,211
|
|
Realized gain on
available-for-sale
investments
|
|
|
1,435
|
|
|
|
|
|
|
|
1,435
|
|
Impairment loss on investments
|
|
|
(12,913
|
)
|
|
|
(2,539
|
)
|
|
|
(15,452
|
)
|
Foreign currency exchange loss
|
|
|
(1,693
|
)
|
|
|
|
|
|
|
(1,693
|
)
|
Other income, net
|
|
|
3,776
|
|
|
|
3,002
|
|
|
|
6,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before income taxes
|
|
|
(40,851
|
)
|
|
|
49,577
|
|
|
|
8,726
|
|
Income tax expense
|
|
|
(9,072
|
)
|
|
|
(171
|
)
|
|
|
(9,243
|
)
|
Net (loss)/income
|
|
|
(49,923
|
)
|
|
|
49,406
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note A: The realized gain on disposal of a subsidiary that belonged to the enterprise segment but held by consumer segment was
reclassified from consumer segment to enterprise segment.
F-69
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
2014
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile value added services
|
|
|
106,103
|
|
|
|
|
|
|
|
106,103
|
|
Advertising services
|
|
|
72,903
|
|
|
|
|
|
|
|
72,903
|
|
Enterprise mobility
|
|
|
|
|
|
|
16,035
|
|
|
|
16,035
|
|
Other services
|
|
|
4,641
|
|
|
|
|
|
|
|
4,641
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise mobility
|
|
|
|
|
|
|
132,642
|
|
|
|
132,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues
|
|
|
183,647
|
|
|
|
148,677
|
|
|
|
332,324
|
|
Cost of revenues
|
|
|
(92,172
|
)
|
|
|
(134,479
|
)
|
|
|
(226,651
|
)
|
Gross profit
|
|
|
91,475
|
|
|
|
14,198
|
|
|
|
105,673
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(25,307
|
)
|
|
|
(4,655
|
)
|
|
|
(29,962
|
)
|
General and administrative expenses
|
|
|
(126,491
|
)
|
|
|
(4,510
|
)
|
|
|
(131,001
|
)
|
Research and development expenses
|
|
|
(17,905
|
)
|
|
|
(7,760
|
)
|
|
|
(25,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(169,703
|
)
|
|
|
(16,925
|
)
|
|
|
(186,628
|
)
|
Loss from operations
|
|
|
(78,228
|
)
|
|
|
(2,727
|
)
|
|
|
(80,955
|
)
|
Interest (expense)/income, net
|
|
|
(5,382
|
)
|
|
|
22
|
|
|
|
(5,360
|
)
|
Realized gain on
available-for-sale
investments
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Impairment loss on investments
|
|
|
(5,967
|
)
|
|
|
|
|
|
|
(5,967
|
)
|
Foreign currency exchange loss
|
|
|
(391
|
)
|
|
|
|
|
|
|
(391
|
)
|
Other income, net
|
|
|
18,389
|
|
|
|
1,125
|
|
|
|
19,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(71,514
|
)
|
|
|
(1,580
|
)
|
|
|
(73,094
|
)
|
Income tax (expense)/benefit
|
|
|
(5,766
|
)
|
|
|
248
|
|
|
|
(5,518
|
)
|
Net loss
|
|
|
(77,280
|
)
|
|
|
(1,332
|
)
|
|
|
(78,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-70
The major assets by segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Cash and cash equivalents
|
|
|
89,165
|
|
|
|
2,232
|
|
|
|
91,397
|
|
Term deposit
|
|
|
226,755
|
|
|
|
|
|
|
|
226,755
|
|
Accounts and notes receivable, net
|
|
|
121,317
|
|
|
|
5,931
|
|
|
|
127,248
|
|
Fixed assets, net
|
|
|
3,403
|
|
|
|
326
|
|
|
|
3,729
|
|
Intangible assets, net
|
|
|
14,778
|
|
|
|
1,690
|
|
|
|
16,468
|
|
Goodwill
|
|
|
219,794
|
|
|
|
6,262
|
|
|
|
226,056
|
|
Total assets
|
|
|
838,782
|
|
|
|
14,846
|
|
|
|
853,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Cash and cash equivalents
|
|
|
115,296
|
|
|
|
3,276
|
|
|
|
118,572
|
|
Term deposit
|
|
|
134,055
|
|
|
|
|
|
|
|
134,055
|
|
Restricted cash
|
|
|
|
|
|
|
1,640
|
|
|
|
1,640
|
|
Accounts and notes receivable, net
|
|
|
79,282
|
|
|
|
8,235
|
|
|
|
87,517
|
|
Fixed assets, net
|
|
|
4,719
|
|
|
|
589
|
|
|
|
5,308
|
|
Intangible assets, net
|
|
|
26,196
|
|
|
|
3,322
|
|
|
|
29,518
|
|
Goodwill
|
|
|
304,081
|
|
|
|
15,199
|
|
|
|
319,280
|
|
Total assets
|
|
|
776,215
|
|
|
|
25,927
|
|
|
|
802,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014
|
|
|
|
Consumer
|
|
|
Enterprise
|
|
|
Consolidated
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Cash and cash equivalents
|
|
|
151,621
|
|
|
|
1,363
|
|
|
|
152,984
|
|
Term deposit
|
|
|
116,284
|
|
|
|
|
|
|
|
116,284
|
|
Restricted cash
|
|
|
|
|
|
|
3,767
|
|
|
|
3,767
|
|
Accounts receivable, net
|
|
|
62,340
|
|
|
|
26,351
|
|
|
|
88,691
|
|
Fixed assets, net
|
|
|
5,008
|
|
|
|
976
|
|
|
|
5,984
|
|
Intangible assets, net
|
|
|
28,416
|
|
|
|
5,474
|
|
|
|
33,890
|
|
Goodwill
|
|
|
300,669
|
|
|
|
19,755
|
|
|
|
320,424
|
|
Total assets
|
|
|
769,595
|
|
|
|
64,213
|
|
|
|
833,808
|
|
The following table set forth revenues by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC*
|
|
|
289,976
|
|
|
|
368,475
|
|
|
|
298,746
|
|
Overseas*
|
|
|
42,348
|
|
|
|
38,216
|
|
|
|
44,304
|
|
*
|
Revenue by region is based on whether the revenue is generated from the market.
|
The following
table set forth long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
|
396,595
|
|
|
|
405,533
|
|
|
|
353,658
|
|
Overseas
|
|
|
16,928
|
|
|
|
10,309
|
|
|
|
4,272
|
|
F-71
22. RELATED PARTY TRANSACTIONS
The table below sets forth related parties having transactions for the years ended December 31, 2014, 2015 and 2016, or balances as of
December 31, 2015 and 2016 with the Group.
|
|
|
Company name
|
|
Relationship with the Group
|
Hesine Technologies International Worldwide Inc. (Hissage)
|
|
An equity investee of the Group
|
|
|
Beijing Hesine Ruizhi Technology Co., Ltd. (Hesine Ruizhi)
|
|
An equity investee of the Group
|
|
|
RPL Holdings Limited (RPL)
|
|
The Companys parent company
|
Beijing Wangnuo Xingyun Technology Co., Ltd. (Wangnuo Xingyun)
|
|
A company over which one of the Companys senior management has significant
influence
|
Symbol Media (HK) Limited (Symbol)
|
|
An equity investee of the Group
|
Zhijian Fengyun (Beijing) Technology Co., Ltd. (Zhijian)
|
|
An equity investee of the Group
|
|
|
Showself (Beijing) Co., Ltd. (Showself)
|
|
An equity investee of the Group before May 15, 2014, and subsequently a subsidiary of the
Group
|
Inmotion Technologies Co., Ltd. (Inmotion)
|
|
A company over which one of the Companys senior management has significant influence
before December 2014
|
Shanghai Launcher Software Technology Co. (Launcher)
|
|
An equity investee of the Group before February 29,2016 and subsequently a subsidiary of
the Group
|
Asia Smart Media Inc. (Asia Smart)
|
|
An equity investee of the Group
|
Beijing Yuanxin Technology Co., Ltd. (Yuanxin)
|
|
A company over which one of the Companys senior management has significant
influence
|
Beijing Linjia Technology Co., Ltd. (Linjia)
|
|
An equity investee of the Group
|
Tianjin Yieryi Technology Co., Ltd. (Yieryi)
|
|
An equity investee of the Group
|
DoFun Ltd. (DoFun)
|
|
An equity investee of the Group
|
Details of major related party balances as of December 31, 2015 and 2016 and main transactions for the
years ended December 31, 2014, 2015 and 2016 are as follows:
(1) Amount due from related parties
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Nature and Company
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Loan guaranteed by RPL
(a)
|
|
|
372
|
|
|
|
342
|
|
Interest-free loans to Hissage
|
|
|
791
|
|
|
|
779
|
|
Prepayment to Zhijian
|
|
|
185
|
|
|
|
|
|
Interest-free loans to Launcher
|
|
|
228
|
|
|
|
|
|
Interest-free loans to Asia Smart
(e)
|
|
|
2,000
|
|
|
|
|
|
Interest-free loans to Hesine Ruizhi
|
|
|
|
|
|
|
280
|
|
Receivable from Yuanxin
|
|
|
|
|
|
|
7
|
|
Receivable from Linjia
|
|
|
|
|
|
|
14
|
|
F-72
(2) Amount due to related parties
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Nature and Company
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
Accounts payable due to Zhijian
|
|
|
5
|
|
|
|
5
|
|
Deposit by Wangnuo Xingyun
|
|
|
|
|
|
|
62
|
|
Accounts payable to Launcher
|
|
|
39
|
|
|
|
|
|
Consideration payable of acquiring Yieryi
|
|
|
|
|
|
|
1,442
|
|
Receipt in advance from Wangnuo Xingyun
|
|
|
|
|
|
|
729
|
|
Consideration payable of acquiring DoFun
|
|
|
|
|
|
|
650
|
|
(3) Main transactions with related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
Nature and Company
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Commission revenue and enterprise product revenue recognized from Wangnuo Xingyun
(b)
|
|
|
5,362
|
|
|
|
1,533
|
|
|
|
1,152
|
|
Operating Lease to Hissage
|
|
|
63
|
|
|
|
|
|
|
|
|
|
Advertising revenue recognized from Showself
(c)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Advertising expense recognized from InMotion
(d)
|
|
|
163
|
|
|
|
|
|
|
|
|
|
Cost related to Launcher
|
|
|
|
|
|
|
123
|
|
|
|
|
|
Advertising revenue recognized from Linjia
(f)
|
|
|
|
|
|
|
|
|
|
|
742
|
|
Revenue recognized from Yuanxin
|
|
|
|
|
|
|
|
|
|
|
45
|
|
(a)
|
Prior to 2014, the Group made interest-free housing loans to 19 employees with original amount of approximately US$1,010. In 2014, the Group made interest-free housing loans of US$49 (RMB300). The total housing loans
are guaranteed by RPL. These loans are repaid with a fixed amount each month over the term of contracts, which are usually five, ten or fifteen years. The Group discounted the future repayments of the loans at a rate the Company would charge to an
employee as if the employee were to get a loan from a third-party and recorded separately as current and
non-current
portion. As of December 31, 2016, housing loans recorded as other current assets and
other
non-current
assets were US$57 and US$285, respectively.
|
(b)
|
In 2014, the Group recognized commission revenue and enterprise product revenue from Wangnuo Xingyun. The total receivables from Wangnuo Xingyun due to hardware procurement and commission fees were paid off completely
as of December 31, 2014. As of December 31, 2014, the Group received US$6,537 deposit from Wangnuo Xingyun for the purpose of purchasing enterprise products, which was repaid to Wangnuo Xingyun in 2015. The Group recognized US$1,533 and
US$1,152 enterprise product revenue from Wangnuo Xingyun for the year ended December 31, 2015 and 2016, respectively.
|
(c)
|
The Group promoted mobile applications developed by Showself through Wanpu Century and recognized advertising revenue before the acquisition date, sequentially eliminated upon consolidation.
|
(d)
|
In 2014, the Group entered into an agreement with Inmotion to purchase their sensor controlled vehicles for market promotion. No related party transaction recorded with Inmotion in the year of 2015 and 2016.
|
(e)
|
In 2015, the Group made interest-free loan to Asia Smart amounting to US$2,000 as financial support to Asia Smart. 100% provision was made as of December 31, 2016.
|
(f)
|
In 2016, the Group recognized advertising revenue of US$742 from Linjia through Wanpu Century.
|
F-73
23. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The
Group has entered into various operating lease agreements principally for its office spaces in Mainland China and the United States expiring in various dates through 2017 to 2021. Rental expenses under operating leases for the years ended
December 31, 2014, 2015 and 2016 were US$4,449 US$6,236, and US$5,390 respectively.
The future obligations for operating leases as
of December 31, 2016 are as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
US$
|
|
For the year ending
|
|
|
|
|
2017
|
|
|
3,837
|
|
2018
|
|
|
2,320
|
|
2019
|
|
|
1,870
|
|
2020
|
|
|
1,262
|
|
2021
|
|
|
839
|
|
|
|
|
|
|
Total minimum payment required
|
|
|
10,128
|
|
|
|
|
|
|
Contingencies
On October 25, 2013, a putative shareholder class action lawsuit against the Company, Kostuk v. NQ Mobile, Inc., et al., Civil Action
No. 13 CIV 12712 (D. Mass.), was filed in the United States District Court for the District of Massachusetts. Shortly thereafter, six more putative shareholder class action suits against the Company and certain current and former directors and
officers of the Company were filed in the United States District Court for the Southern District of New York: Ho v. NQ Mobile, Inc., et al., Civil Action No. 13 CIV 7608 (S.D.N.Y.) (filed on October 28, 2013); Ghauri v. NQ Mobile, Inc., et
al., Civil Action No. 13 CIV 7637 (S.D.N.Y.) (filed on October 29, 2013); Pang v. NQ Mobile, Inc., et al., Civil Action No. 13 CIV 7685 (S.D.N.Y.) (filed on October 30, 2013); Hiller v. NQ Mobile, Inc., et al., Civil Action
No. 13 CIV 7713 (S.D.N.Y.) (filed on October 30, 2013); Gangaramani v. NQ Mobile, Inc., et al., Civil Action No. 13 CIV 7858. (S.D.N.Y.) (filed on November 5, 2013); Martin v. NQ Mobile, Inc., et al., Civil Action No. 13 CIV
8125 (S.D.N.Y.) (filed on November 14, 2013). On December 2, 2013, another putative shareholder class action suit against the Company and certain current and former directors and officers of the Company, Hsieh v. NQ Mobile, Inc., et al.,
Civil Action No. 13 CIV 1048 (E.D. Tex.), was filed in the United States District Court for the Eastern District of Texas. On January 6, 2014, Kostuk v. NQ Mobile, Inc., et al., Civil Action No. 13 CIV 12712 (D. Mass.), was
voluntarily dismissed by the plaintiff. On April 9, 2014, the United States District Court for the Southern District of New York consolidated the six putative shareholder class action suits filed in that court under the caption, In re NQ
Mobile, Inc. Securities Litigation, Civil Action No. 13 CIV 7608 (S.D.N.Y.) (In re NQ Mobile, Inc. Securities Litigation), and appointed a lead plaintiff. On May 13, 2014, Hsieh v. NQ Mobile, Inc., et al., Civil Action
No. 13 CIV 1048 (E.D. Tex.), was transferred from the U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Southern District of New York and was accepted by the Southern District of New York as related to the
consolidated putative shareholder class action, In re NQ Mobile, Inc. Securities Litigation.
On July 21, 2014, the lead plaintiff in
In re NQ Mobile, Inc. Securities Litigation filed a Consolidated Class Action Complaint (the Consolidated Complaint) against the Company, former
co-chief
executive officer Henry Yu Lin, former
co-chief
executive officer Omar Sharif Khan, chief operating officer and acting chief financial officer Vincent Wenyong Shi, former chief financial officer Suhai Ji, former chief financial officer Kian Bin Teo
(collectively the NQ Defendants), and the Companys former auditors PricewaterhouseCoopers ZhongTian LLP and its affiliate, PricewaterhouseCoopers International Limited. Similar to the previously filed complaints, the Consolidated
Complaint alleges that various press releases, financial statements and other related disclosures made by the Company during the alleged class period contained material misstatements and omissions, in violation of the federal securities laws, and
that such press releases, financial statements and other related disclosures artificially inflated the value of the Companys ADSs. The Consolidated Complaint states that the lead plaintiff seeks to represent a class of persons who allegedly
suffered damages as a result of their trading activities related to the Companys ADSs from March 6, 2013 to July 3, 2014, and, similar to previous complaints filed in the putative class actions, alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78(b) and 78t(a), and Rule
10b-5
promulgated thereunder, 17 C.F.R. §
240.10b-5
(2013).
F-74
On March 3, 2015, the Company notified the court that the lead plaintiff and the NQ
Defendants had reached an agreement in principle to settle the claims against the NQ Defendants for $5.1 million, subject to court approval. On November 17, 2015, the court preliminarily approved the proposed settlement. On March 11,
2016, after holding a settlement fairness hearing, the court approved the proposed settlement and issued a final order and judgment approving the settlement and dismissing the case with prejudice. This settlement will not have a material impact on
the Companys financial statements as the settlement amount, except for applicable deductibles, is covered by insurance.
On
August 14, 2015, a putative shareholder class action lawsuit, Finocchiaro v. NQ Mobile, Inc., et al., Civil Action No. 15 CIV 06385 (S.D.N.Y.), was filed in the United States District Court for the Southern District of New York against the
company and certain of former and current officers. On September 3, 2015, plaintiffs filed a First Amended Complaint. On November 20, 2015, plaintiffs filed a Second Amended Complaint against the Company, the former
co-chief
executive officer Omar Sharif Khan and vice president of capital markets Matthew Mathison. The Second Amended Complaint alleges that various press releases and other disclosures made by the Company during
the alleged class period contained material misstatements and omissions, in violation of the federal securities laws, and artificially inflated the value of the Companys ADSs. The Second Amended Complaint states that the plaintiffs seek to
represent a class of persons who allegedly suffered damages as a result of their trading activities related to the Companys ADSs from November 1, 2013 to May 15, 2015, and alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. §§ 78(b) and 78t(a), and Rule
10b-5
promulgated thereunder, 17 C.F.R. §
240.10b-5.
On January 19, 2016, the Company, Khan and Mathison submitted a letter to the court pursuant to the presiding judges individual
practices to identify the bases for our anticipated motions to dismiss, or alternatively, to strike the Second Amended Complaint, and to request a
pre-motion
conference. On January 20, 2016, Khan
submitted a supplemental letter to the court. On January 26, 2016, plaintiffs submitted a letter to the court responding to the letters submitted by the Company, Mathison and Khan, in which plaintiffs sought leave to amend the Second Amended
Complaint. On February 16, 2016, the court issued a ruling that plaintiffs should promptly file, if they can consistent with Federal Rule of Civil Procedure 11, a Third Amended Complaint and then comply with the notice and lead plaintiff
provisions of the Private Securities Litigation Reform Act. On March 3, 2016, plaintiffs filed a Third Amended Complaint.
On
May 27, 2016, Daniel Finocchiaro filed a motion to appoint himself to serve as lead plaintiff and approve his selection of lead counsel. On June 10, 2016, the Company and individual defendants submitted a letter to the court to identify
the bases for defendants opposition to Daniel Finocchiaros motion for appointment as lead plaintiff and approval of selection of lead counsel. On December 1, 2016, the court denied Finocchiaros motion for appointment as lead
plaintiff and approval of selection of lead counsel, but allowed for other plaintiffs to move for appointment as lead plaintiff and seek appointment of lead counsel, if they choose to do so. On January 30, 2017, Julien Bourdaillet filed a
motion for appointment as lead plaintiff, which remains pending before the court. The action remains in its preliminary stages. The Company believes the case is without merit and intend to defend the action vigorously.
In October 2013, Beijing NQ Technology Co., Ltd. filed an application to Beijing No. 1 Intermediate Peoples Court against Muddy
Waters LLC, which issued reports containing various allegations against the Company. The Company withdraw the application in September 2015.
The Company records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred
and the amount of loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency
both probable and reasonably estimable. Such an estimate cannot be made for pending legal proceedings. The Company discloses the amount of the accrual if it is material.
When a loss contingency is not both probable and estimable, the Company does not record an accrued liability but discloses the nature and the
amount of the claim, if material. However, if the loss (or an additional loss in excess of the accrual) is at least reasonably possible, then the Company discloses an estimate of the loss or range of loss, if such estimate can be made and material,
or states that such estimate is immaterial if it can be estimated but immaterial, or discloses that an estimate cannot be made. The assessments of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is
estimable, often involve complex judgments about future events. Management is often unable to estimate the loss or a range of loss, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages,
or (iii) there is a lack of clear or consistent interpretation of laws specific to the industry-specific complaints among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of
such matters, including eventual loss, fine, penalty or business impact, if any.
F-75
24. SUBSEQUENT EVENTS
(a) Disposal of a subsidiary
In
December 2016 and January 2017, the Group entered into agreements with a third party to divest all of the equity interest of Ruifeng. The divestment closed in March 2017, as the control power has been transferred as well as Business Registration has
been completed.
(b) Investment
In January of 2017, the Group entered into agreements with original shareholders of Launcher to invest RMB 25,450 to exchange 9.38% of the
non-controlling
equity interests. After the additional investment, the Group will hold 60.38% of the equity interest.
(c) Potential Impact from Divestments of FL Mobile and Showself:
As disclosed in Note 1(b), the Company entered into definitive agreements to sell FL Mobile and Showselfs live social video business
(Showself), which both represent a significant portion of the Groups operations. The proposed divestments did not qualify as held for sale pursuant to ASC
205-20
as of December 31, 2016.
However, since these divestments would have a significant effect on the future operating results or would cause the financial information reported currently to not necessarily be indicative of future operating results, the following key financial
data is quantified for better understanding of the impact of these divestments: The total net revenues, net income attributable to NQ Mobile, and its
non-controlling
interests from FL Mobile for the year ended
December 31, 2016 was US$175,529, US$32,363 and US$12,560, respectively. The total net revenues, net income attributable to NQ Mobile, and its
non-controlling
interests from Showself for the year ended
December 31, 2016 was US$110,699, US$9,535 and US$4,593, respectively.
In addition, as Showself consists one of the components
within the Security and Others reporting unit, in accordance with ASC
350-20-40-7,
when only a portion of goodwill is allocated
to a business to be disposed of, the goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment. Therefore, there may be additional impairment loss for the remaining portion of the Security and Others
reporting unit upon consummation of the divestment of Showself. A
pro-forma
additional impairment loss was computed as if the Showself had been sold on November 1, 2016. The
pro-forma
amount of additional goodwill impairment loss expected to be recognized if Showself were disposed on November 1, 2016 amounted to US$82,300 (Unaudited).
Pro-forma
investment gain from the disposal of FL Mobile and Showself was calculated as if both
businesses were sold on December 31, 2016. The
pro-forma
amount of investment gain expected to be recognized if both FL Mobile and Showself were disposed on December 31, 2016 is US$317,000
(Unaudited).
(d) Stock Purchase Option and Agreement
In March of 2017, the Group entered into an option agreement with Tongfang Investment Fund Series SPC (the Investor), an affiliate
of Tsinghua Tongfang. The agreement gives the Investor an option to subscribe for US$100,000 value of class A common shares of the Company at the price of US$1.05 per share, or US$5.25 per ADS. The Investor has three months after the date of the
full payment of the purchase price for the 63% equity interests in FL Mobile in order to exercise the option.
In March of 2017, the Group
also announced that the proposed investment of US$101,000 from management is expected to take place within three months following the consummation of the sale of FL Mobile. This management purchase is for the purchase of up to a maximum of
96,000,000 class A common shares of the Company for a maximum aggregate consideration of approximately US$100,800 in cash, representing a purchase price of US$1.05 per share, or US$5.25 per ADS.
25. RESTRICTED NET ASSETS
Relevant PRC
statutory laws and regulations permit payments of dividends by the Companys PRC subsidiaries, VIE and VIEs subsidiaries only from their retained earnings, if any, determined in accordance with PRC GAAP. In addition, the Companys
subsidiary, VIE and VIEs subsidiaries in China are required to make annual appropriations of 10% of
after-tax
profit to general reserve fund or statutory surplus fund. As a result of these PRC laws and
regulations, the Companys PRC subsidiary, VIE and VIEs subsidiaries are restricted in their abilities to transfer net assets to the Company in the form of dividends, loans or advances. Total restricted net assets of the Companys
PRC subsidiary, VIE and VIEs subsidiaries were US$108,870 or 23% of the Companys total consolidated net assets as of December 31, 2016. Even though the Company currently does not require any such dividends, loans or advances from
the PRC subsidiaries, VIE and VIEs subsidiaries for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries and VIEs due to changes in business conditions, to fund
future acquisitions and developments, or merely declare and pay dividends to or distributions to the Companys shareholders.
F-76