2.	Variable Interest Entities

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its Variable Interest Entities (“VIEs”).

Risks in Relation to the VIE Structure

The Ministry of Commerce of PRC (“MOFCOM”) 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 MOFCOM 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 the Company’s 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 Foreign Investment Enterprise (“FIE”).

Under the Draft, VIEs that are controlled via contractual arrangement would be deemed as FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that falls under restricted to foreign investment or prohibited from foreign investment, 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 VIEs will be treated as FIEs and any operation in the industry category falls under restricted to foreign investment or prohibited from foreign investment, 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 industries restricted to foreign investment or prohibited from foreign investment 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 Company's conduct of certain of its operations and businesses through the VIEs 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 Company's 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 Company's business operations, and have a material adverse impact on the Company's cash flows, financial position and operating performance. The Company's management considers the possibility of such a finding by PRC regulatory authorities to be remote.

These contractual arrangements

may

not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company

may

conflict and the Company

may

fail to resolve such conflicts; the shareholders

may

believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders

may

otherwise act in bad faith. If any of the foregoing were to happen, the Company

may

have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings

may

cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts

may

not be enforceable in China if PRC government authorities or courts take a view that such contracts 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 VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.

The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.

The significant terms of the VIE Agreements are summarized below:

Exclusive Business Cooperation Agreements:

Pursuant to the Exclusive Business Cooperation Agreements entered into by and between Rise King WFOE and each of the PRC Operating Entities, Rise King WFOE has the exclusive right to provide to the PRC Operating Entities complete technical support, business support and related consulting services during the term of these agreements, which includes but is not limited to technical services, business consultations, equipment or property leasing, marketing consultancy system integration, product research and development, and system maintenance. In exchange for such services, each PRC Operating Entity has agreed to pay a service fee to Rise King WFOE equal to

100%

of the net income of each PRC Operating Entity. Adjustments

may

be made upon approval by Rise King WFOE based on services rendered by Rise King WFOE and operational needs of the PRC Operating Entities. The payment shall be made on a monthly basis, if at year end, after an audit of the financial statements of any PRC Operating Entities, there is determined to be any shortfall in the payment of

100%

of the annual net income, such PRC Operating Entity shall pay such shortfall to Rise King WFOE. Each agreement has a

ten

-year term. The term of these agreements

may

be extended if confirmed in writing by Rise King WFOE, prior to the expiration of the term. The extended term shall be determined by Rise King WFOE, and the PRC Operating Entities shall accept such extended term unconditionally.

Exclusive Option Agreements:

Under the Exclusive Option Agreements entered into by and among Rise King WFOE, each of the PRC Shareholders irrevocably granted to Rise King WFOE or its designated person an exclusive option to purchase, to the extent permitted by PRC law, a portion or all of their respective equity interest in any PRC Operating Entities for a purchase price of RMB

10,

or a purchase price to be adjusted to be in compliance with applicable PRC laws and regulations. Rise King WFOE, or its designated person, has the sole discretion to decide when to exercise the option, whether in part or in full. Each of these agreements has a

ten

-year term, subject to renewal at the election of Rise King WFOE.

Equity Pledge Agreements:

Under the Equity Pledge Agreements entered into by and among Rise King WFOE, the PRC Operating Entities and each of the PRC Shareholders, the PRC Shareholders pledged all of their equity interests in the PRC Operating Entities to guarantee the PRC Operating Entities’ performance of its obligations under the Exclusive Business Cooperation Agreements. If the PRC Operating Entities or any of the PRC Shareholders breaches its/his/her respective contractual obligations under these agreements, or upon the occurrence of

one

of the events regarded as an event of default under each such agreement, Rise King WFOE, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interests. The PRC Shareholders of the PRC Operating Entities agreed not to dispose of the pledged equity interests or take any actions that would prejudice Rise King WFOE's interest, and to notify Rise King WFOE of any events or upon receipt of any notices which

may

affect Rise King WFOE's interest in the pledge. Each of the equity pledge agreements will be valid until all the payments related to the services provided by Rise King WFOE to the PRC Operating Entities due under the Exclusive Business Cooperation Agreements have been fulfilled. Therefore, the equity pledge agreements shall only be terminated when the payments related to the

ten

-year Exclusive Business Cooperation Agreement are paid in full and the WFOE does not intend to extend the term of the Exclusive Business Cooperation Agreement.

Irrevocable Powers of Attorney:

The PRC Shareholders have each executed an irrevocable power of attorney to appoint Rise King WFOE as their exclusive attorneys-in-fact to vote on their behalf on all PRC Operating Entities matters requiring shareholder approval. The term of each power of attorney is valid so long as such shareholder is a shareholder of the respective PRC Operating Entity.

As a result of these VIE Agreements, the Company through its wholly-owned subsidiary, Rise King WFOE, was granted with unconstrained decision making rights and power over key strategic and operational functions that would significantly impact the PRC Operating Entities or the VIEs’ economic performance, which includes, but is not limited to, the development and execution of the overall business strategy; important and material decision making; decision making for merger and acquisition targets and execution of merger and acquisition plans; business partnership strategy development and execution; government liaison; operation management and review; and human resources recruitment and compensation and incentive strategy development and execution. Rise King WFOE also provides comprehensive services to the VIEs for their daily operations, such as operational technical support, office automation technical support, accounting support, general administration support and technical support for products and services. As a result of the Exclusive Business Cooperation Agreements, the Equity Pledge Agreements and the Exclusive Option Agreements, the Company will bear all of the VIEs’ operating costs in exchange for

100%

of the net income of the VIEs. Under these agreements, the Company has the absolute and exclusive right to enjoy economic benefits similar to equity ownership through the VIE Agreements with our PRC Operating Entities and their shareholders.

Summarized below is the information related to the consolidated VIEs’ assets and liabilities as of

December

31,

2016

and

2015,

respectively:

	As of December 31,
	2016		2015
	US$(’000)		US$(’000)
Assets
Current assets:
Cash and cash equivalents	$	2,915	$	4,942
Term deposit		3,056		3,265
Accounts receivable, net		3,315		2,492
Other receivables, net		71		1,712
Prepayment and deposit to suppliers		4,710		5,841
Due from related parties, net		197		24
Other current assets		-		27
Assets classified as held for sale (1)		-		1,882
Total current assets		14,264		20,185

Long-term investments		43		1,113
Property and equipment, net		286		503
Intangible assets, net		5,468		5,630
Prepayment for purchasing of software technology		-		1,024
Goodwill		4,970		4,396
Deferred tax assets-non current		1,241		1,249
Total Assets	$	26,272	$	34,100

Liabilities
Current liabilities:
Short-term bank loan	$	721	$	-
Accounts payable		83		88
Advances from customers		1,388		1,304
Accrued payroll and other accruals		256		309
Due to Control Group		10		11
Payable for purchasing of software technology		411		-
Taxes payable		2,480		2,733
Other payables		162		67
Liabilities classified as held for sale (1)		-		913
Total current liabilities		5,511		5,425

Deferred tax Liabilities-non current		-		118
Total Liabilities	$	5,511	$	5,543

Commitments and contingencies		-		129

All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s consolidated statements of operations and comprehensive loss for the years ended

December

31,

2016

and

2015,

respectively:

	Year Ended December 31,
	2016		2015
	US$(’000)		US$(’000)

Revenues	$	34,643	$	31,902
Cost of revenues		26,916		24,655
Total operating expenses (including impairment and other losses of long-lived assets and goodwill, impairment loss on long-term investments and gain on deconsolidation of VIEs)		9,167		13,387
Loss from discontinued operations (2)		59		1,465
Net loss before allocation to noncontrolling interests		1,627		6,016

(1)

In the

fourth

quarter of

2015,

in order to obtain sufficient working capital to continue the expansion of the Company’s core business, which is Internet advertising, precision marketing and the related technical and data services, the Company decided to sell its

51%

equity interest in Beijing Chuang Fu Tia Xia,

one

of the Company’s operating VIEs, which is primarily engaged in providing Internet advertising and marketing services through

one

of the Company’s advertising portal,

www.liansuo.com (“liansuo.com”). At the time when the Company committed a plan to sell liansuo.com, the Company did not consider the sale of liansuo.com is a strategic shift that had (or would have) a major effect on the Company’s operations and financial results, as it was not a significant portion of the Company’s Internet advertising and data service business segment, therefore, not qualifying for presentation as a discontinued operation. As a result, in accordance with ASC Topic

360:

“Property, Plant and Equipment”, the Company classified the assets and liabilities related to the disposal group as held for sale in the consolidated balance sheet as of

December

31,

2015,

but did not included its results of operations in discontinued operations. For financial reporting purpose, the Company reassesses the status of its assets and liabilities classified as held for sale on a quarterly basis in accordance with ASC Topic

360

basis on which, the Company concluded that its disposal group no longer met all the criteria for the classification as held for sale during the

fourth

quarter of

2016.

Therefore, the Company reclassified the assets and liabilities related to the disposal group as held and used in accordance with ASC

360

44.

The Company terminated its plan to sell liansuo.com in

February

2017,

subsequently.

(2)

To focus all the Company’s resources on its core business as described above, in the

fourth

quarter of

2015,

the Company decided to exit its bank kiosk advertising and offline brand management and sales channel building business segments. The Company does not consider the exit from its bank kiosk advertising business qualifying for presentation as a discontinued operation, as its effect on the Company’s operations and financial results was and would be insignificant. Therefore, in accordance with ASC Topic

205:

“Presentation of Financial Statements”, only the results of operations of brand management and sales channel building were reported in discontinued operations as a separate component in the consolidated statements of operations and comprehensive loss for all periods presented.