Note 4 - Acquisitions

12 Months Ended

Dec. 31, 2011

Business Combination Disclosure [Text Block]

4.   Acquisitions

In order to further diversify the channels of the Company’s adverting and marketing campaign services, achieve an entry into Fujian province, a base of fast growing small to medium enterprises, and expand the Company’s market opportunities from these enterprises, which are looking to domestically expand their businesses through franchises, dealerships and merchants in China, the Company acquired a 100% equity interest and a 51% equity interest in Quanzhou Zhi Yuan and Quanzhou Tian Xi Shun He, respectively. In order to establish the distinct brands in each of the Company’s targeted customer segment and achieved more diversified operational synergies of the Company’s internet advertising and marketing business, the Company acquired a 51% equity interest in Sou Yi Lian Mei, an established internet advertising and marketing services provider for merchant and franchise enterprises and organizations primarily involved in small office/home office ("SOHO") and emerging business, through its web portal, www.sooe.cn. As described in Note 1, the acquisition of a 100% equity interest in Quanzhou Zhi Yuan, the acquisition of a 51% equity interest in Quanzhou Tian Xi Shun He and the acquisition of a 51% equity interest in Sou Yi Lian Mei, was consummated on January 4, 2011, February 23, 2011and December 20, 2011, respectively.

Each acquisition was accounted for using the acquisition method of accounting in accordance with ASC Topic 805 “Business Combinations”, and accordingly the acquired assets and liabilities were recorded at their fair values on the dates of acquisitions and the results of their operations have been included in the Company’s results of operations since the dates of their acquisitions.

The income approach is applied for identifiable intangible assets (except software technologies) and noncontrolling interests’ valuation, based on a five-year financial projection and using the discounted cash flow method to calculate the present value of the future economic benefits. Key inputs used for such valuation include: weighted average cost of capital (“WPCC”), discount rate, and terminal growth rate. The income approach explicitly recognizes that the current value of an asset is premised upon the expected receipt of future economic benefits focusing on the income producing capability of a business or an asset.   It measures the current value of a business or asset by calculating the present value of its future economic benefits such as earnings, cost savings, tax deduction, and proceeds from disposition.  Indications of value are developed by discounting these benefits to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation, and risk associated with the particular investment which reflects both current return requirements of the market and specific investment. The discount rate selected is generally based on rates of return available from alternative investments of similar type and quality as of each assessment date. The Cost approach is applied for software technologies valuation based on the estimated replacement cost of the software technologies. The Monte Carlo simulation is applied for the valuation of contingent consideration receivables.  Contingent consideration receivables arose from certain “make good” provisions stipulated in the acquisition agreements with the sellers, which were that if audited pretax profit or after tax profit for the required further years increases by less than certain amount or percentage while compared to audited pretax profit or after tax profit of the prior year, the sellers need to compensate the Company in cash for the difference between target pretax profit or after tax profit and actual result achieved then.

Goodwill recognized from these transactions mainly represented the expected operational synergies upon acquisition of these subsidiaries and intangibles not qualifying for separate recognition.  Goodwill is nondeductible for income tax purpose in the tax jurisdiction of these acquisition transactions incurred.

Acquisition of Quanzhou Zhi Yuan

The following table summarizes the assignment of fair value to identifiable assets and liabilities assumed as of January 4, 2011 (the acquisition date of Quanzhou Zhi Yuan):

	Fair Value			Amortization Period
	US$(’000)			(Years)
Cash and cash equivalents	$	11
Accounts receivables		17
Property and equipment, net		57
Other current liabilities		(13	)
Deferred tax liabilities		(196	)
Acquired intangible assets:
Trade Name		113		Indefinite
Contract Backlog		18			0.7
Customer Relationship		547			8
Non-Compete Agreement		106			5
Goodwill:
Assembled Workforce		20
Other unidentifiable intangibles		708
		728
Total Value	$	1,388
Purchase price	$	1,440
Contingent consideration receivable		(52	)
Total amount to be allocated	$	1,388

Acquisition of Quanzhou Tian Xi Shun He

The following table summarized the assignment of fair value to identifiable assets and liabilities assumed as of February 23, 2011 (the acquisition date of Quanzhou Tian Xi Shun He):

	Fair Value			Amortization Period
	US$(’000)			(Years)
Cash and cash equivalents	$	12
Accounts receivables and other receivables		55
Property and equipment, net		41
Other current liabilities		(34	)
Deferred tax liabilities		(289	)
Acquired intangible assets:
Trade Name		182		Indefinite
Contract Backlog		170			0.6
Customer Relationship		722			9
Non-Compete Agreement		83			5
Goodwill:
Assembled Workforce		23
Other unidentifiable intangibles		1,143
		1,166
Total Value		2,108
Purchase price		1,138
Fair value of non-controlling interest		1,034
Contingent consideration receivable		(64	)
Total amount to be allocated		2,108

Acquisition of Sou Yi Lian Mei

The following table summarized the assignment of fair value to identifiable assets and liabilities assumed as of December 20, 2011 (the acquisition date of Sou Yi Lian Mei):

	Fair Value			Amortization Period
	US$(’000)			(Years)
Cash and cash equivalents	$	310
Receivables and prepayments		1,957
Other current assets		23
Property and equipment, net		33
Other current liabilities		(2,140	)
Deferred tax liabilities		(1,266	)
Acquired intangible assets:
Domain Name		1,512		Indefinite
Customer Relationship		2,085			5
Non-Compete Agreement		1,148			6
Software technologies		321			5
Goodwill:
Assembled Workforce		42
Other unidentifiable intangibles		8,963
		9,005
Total Value		12,988
Purchase price		8,078
Fair value of non-controlling interest		5,021
Contingent consideration receivable		(111	)
Total amount to be allocated		12,988

The operating results of these acquirees are only included from the date of their respective acquisition dates. For the year ended December 31, 2011, the financial performance of the acquirees reported in the Company’s consolidated statements of income and comprehensive income includes sales of approximately US$1,474,000 and net income before allocation to noncontrolling interests of approximately US$441,000.

The following unaudited pro-forma financial results for the year ended December 31, 2011 and 2010, combines the historical operating results of the Company with those of Quanzhou Zhi Yuan, Quanzhou Tian Xi Shun He and Sou Yi Lian Mei in the aggregate, as if these acquisitions had been completed as of the beginning of the reporting periods, and also includes the adjustments for the business combination effect of the amortization charges from acquired intangible assets and the related tax effects. (Amounts in thousands, except for per share data):

	Year ended December 31,
	2011		2010
Revenue	$	35,659	$	47,717
Net income before allocation to the noncontrolling interests	$	4,508	$	17,556
Earnings per share-Basic	$	0.19	$	0.99
Earnings per share-Diluted	$	0.19	$	0.84

The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations.