Ben Axler Managing Partner October 2011

GlobalSources:MajorConcernswithoneoftheOldestChinaRTOs
GlobalSourcesLtd. Ticker:GSOL Exchange:Nasdaq Price:$7.00 52wkHigh:$12.78 52wkLow:$5.87 DilutedSh.o/s:35.5m MarketCap:$250m Cash:80m TotalDebt:141m Ent.Value:$310m ValuationLTM EV/Sales1.3x EV/EBITDA9.0x P/E10.0x P/Tang.Book2.5x Conclusion:StrongSell PriceTarget:$2.50 ResearchSummary
AcloserlookintoGlobalSources(GSOL)revealsnumerousquestionmarks aroundtheircompetitiveness,financialreportingandstrategies 1)Significantheadwindsfacingtheirbusinessandindustry: LeveragedtoadeclineinglobaltradeinAsiaand,particularly exportsinChina Increasingcompetitiononlineanddecliningprintbusiness Customerdissatisfactionwithabilitytopolicefraudcases 2)Financialreportingisopaque: UnexplainedchangeinaccountingstandardtoIFRSfromGAAP Nonstandardizedfinancialreportingandlimitedoperational metricsprovidedtoevaluatebusinessperformance SignificantturnoverattheCFOlevel(3CFOsin2years)andatthe executivemanagementandboardlevel Recentchangestotheauditoroverfeeissues 3)Unusualfinancialstrategies: Limitedinvestmentinoperatingbusinesses;significantallocationof capitaloutsidethebusiness,especiallytononcorerealestate Complicatedorganizationstructurewithover61subsidiariesand minimalreportedtaxexpenses Basedonourindependentresearch,weconcludeGSOLisastrongselland believeafairvalueforthesharepricetobe$2.50
Disclaimer
Use of the research produced by Spruce Point Capital Management, LLC is at your own risk. You should assume the author of this report holds positions in the securities of Global Sources Ltd. that will benefit from a drop in the price of the common stock. Following publication of the report, the author (including members, partners, affiliates, employees, and/or consultants) may transact in the securities of the company covered herein. The author of this report has obtained all information contained herein from sources believed to be accurate and reliable and has included references where available and practical. However, such information is presented as is, without warranty of any kind whether express or implied. The author of this report makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and the author does not undertake to update or supplement this report or any of the information contained herein. Spruce Point Capital Management, LLC is not a broker/dealer or financial advisor and nothing contained herein should be construed as an offer to or solicitation to buy or sell any investment or security mentioned in this report. You should do your own research and due diligence before making any investment decision with respect to securities covered herein, including, but not limited to, the suitability of any transaction to your risk tolerance and investment objectives and consult your own tax, financial and legal experts as warranted.

ReportpublishedinmemoriamBobbyKean19792011

1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

 Introduction
GlobalSourcesLtd.(Nasdaq:GSOL)isperhapstheoriginalandoldestexistingChinaRTOCompanyinthe USstockmarket.InMarch2000,GlobalSourcesexchanged100%ofitssharesfora95%stakeinFairchild (Bermuda)Ltd.,asubsidiaryspunofffromthenowbankruptFairchildCorp.Throughthisdeal,Global SourcesobtainedapubliclistingontheNasdaqinordertoprovideliquiditytoshareholdersandavenue forraisingadditionalsourceoffundsforexpansion. AcloserlookatGSOLsbusinessmodelrevealsindicationsofweakeningfundamentals,andsignificant customerdissatisfactionwiththeironlinemediaservices,whichistheirlargestandfastestgrowing revenuesource.Wealsofindanumberofunusualissueswiththeirfinancialreportingincludingalackof standardizedreportingmetrics,voluntarychangesinaccountingstandardsfromGAAPtoIFRS,changesin auditorsover"fees",andmultipleCFOandexecutivetransitions.Furthermore,webelievetheCompany hasanunusualfinancialstrategywhichhasfocusedonmisallocatingsignificantcapitaltorealestate purchases,attheexpenseofinternalinvestmenttoitscorebusinesses.Throughourresearch,weare unabletoexplainorjustifyanyofthesefinancialactions,andconcludetheCompanyisnotrunforthe benefitofpublicshareholders. WhatdoesGlobalSourcesdo? GlobalSourcesisabusinesstobusiness(B2B)mediaCompanythatprovidesinformationandintegrated marketingservicestoconnectbuyersandsellersforarangeofproducts,withaparticularfocusonthe GreaterChinamarket.TheCompanysrevenuesaregeneratedthroughoneofthreesegments: 1)PrintmediaPublicationanddistributionoftradeandproductcatalogues.Supplierspayforadvertising intrademagazinestopromotetheircompaniesproducts.Otherrevenueisderivedfrombuyersthat subscribetothetradepublicationsandsourcingresearchreports http://www.globalsources.com/SITE/MAGAZINES.HTM?pi_proj=10AWJP 2)OnlinemediaWebsiteallowingbuyerstofindproductsuppliers.Suppliersarechargedfeesforthe hostingandpresentationoftheirproducts.Otherrevenuesarederivedfrombanneradvertisingand distributionofadigitalemagazine http://www.globalsources.com/gsol/I/allmanufacturers/b/2000000003844/3000000149681/1.htm 3)TradeshowsandexhibitionsOrganizedshowstomatchbuyersandsuppliers.Revenuesareprimarily fromexhibitspacerentals,butalsofromadvertisingandsponsorshipfeesinshowguidesandother locationsinandaroundeventvenues http://tradeshow.globalsources.com/TRADESHOW/CSF/INDEX.HTM?source=GSOL

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 GSOLclaimsover1millionactiveinternationalbuyersusetheirsitefrommorethan240countriesand territoriestoconnectwithsuppliers.InmainlandChina,theCompanyhasanetworkofmorethan40 officelocations(60globallocations)andacommunityofnearly3millionregisteredonlineusersand magazinereadersofitsChineselanguagemedia.GSOLdeliversinformationonover5.7millionproducts andmorethan262,000suppliersannuallythrough14onlinemarketplaces,13monthlyprintand18digital magazines,over90sourcingresearchreportsand73specializedtradeshowsayearacrossninecities. LTM 6/30/11 Revenues By Segment
2.5%

LTM 6/30/11 Revenues by Geography

0.3% 0.2% 3.0% 19.1%

34.4% 52.0%

77.4%

11.1%
China Rest of Asia Other US

Online Services Exhibitions

Print Services Misc.

Europe

Source:Companyfilings

GSOLsFundamentalsareWeakening IfwetakeacloserlookateachofGSOLsthreerevenuesegmentswecanbetterunderstandwhytheir foundationforgrowthmaybeweakening.TheCompanysfuturesuccessishighlydependentonexport growthfrommainlandChina.RecentChineseexportdatareleasedthismonthisshowingarapiddeclinein tradegrowthandtheChinesecustomsbureauhaswarnedofseverechallengesastheglobaloutlook dims.1Thetablebelowshowstherevenuetrendforeachofthethreesegments.

GSOL Revenue Segments US$ millions Online Services % growth Print Services % growth Total Media Services % growth Exhibitions % growth Misc. % growth Total Revenues % growth
Source: Company filings

2006 $64.4 20% 48.7 13% $113.1 117% 42.1 195% 1.3 152% $156.5 139%

2007 $75.9 18% 49.9 2% $125.8 11% 51.6 23% 4.6 267% $182.1 16%

2008 $94.5 24% 47.6 -5% $142.1 13% 58.2 13% 6.6 42% $206.9 14%

2009 $84.3 -11% 29.5 -38% $113.8 -20% 55.1 -5% 4.0 -39% $172.9 -16%

2010 $96.1 14% 26.1 -12% $122.2 7% 69.5 26% 5.0 25% $196.6 14%

6 Months Ended LTM 2010 2011 6/30/2011 $45.8 -14.1 -$59.9 -31.9 -2.4 -$94.2 -$57.1 25% 10.8 -23% $67.9 13% 33.5 5% 2.6 10% $104.3 11% $107.4 -22.9 -$130.2 -71.1 -5.2 -$206.7 --

http://www.bloomberg.com/news/2011-10-13/china-trade-surplus-drops-to-lowest-in-four-months-as-export-growth-slows.html

1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

 InthePrintServicessegment,revenueshavebeendecliningforeachofthepastthreeyears,primarily fromthesecularshiftoccurringtoonlinemediaadvertisingandtheintenselycompetitivepricing environment.Forthesixmonthsended2011comparedwith2010,thissegmentsrevenuehasdeclined by23%.Thetrendsareexpectedtocontinueinthissegmentinthefuture. OffsettingthedeclineinPrintServicessegment,OnlineMediaServicesrevenuegrew25%forthesix monthsended2011comparedwith2010asaresultofgreaterrevenuefromhostingonlinewebsitesand digitalmagazines.Weestimatealongtermgrowthrateforthissegmentat1015%. TheExhibitionsbusinesswasstartedin2003andafteraperiodofrapidgrowthappearstohavematured relativelyquicklyhavinggrownonly5%forthesixmonthsended2011comparedwith2010.Weestimate longtermgrowthmaybeconstrainedbythefrequencyandtypeofshowsthatcanbehostedinGSOLs currentmarkets.Theexhibitionbusinessisalsocompetitive;theCompanycompeteswithothers, includingHongKongTradeDevelopmentCompany(HKTDC),whichisgovernmentsubventedstatutory bodyandthelargesttradeshoworganizerinHongKongwithdeepfinancialresources.Thesuccessinthis segmenthasbeenhistoricallyheavilydependentuponshowsinChina.Additionalrevenuegrowthwill havetocomefromsuccessfullyenteringnewmarketssuchasIndiaandU.S. Takenasawhole,GSOLsmainpillarofgrowthrestsonitsabilitytoexecuteintheOnlineMediaServices segment.However,thisisnotwithoutitschallengesastheCompanyhasnumerouscompetitors,some withsignificantlymoreresourcessuchasAlibaba.com(PINK:ALBCF)andalsoHKTDC.Othernoteworthy competitorsincludeHCInternational(PINK:HCINF),ECVV.comaswellasavarietyofothercompetitors sincebarrierstoentryarelow.BelowisjustasampleofafewcompaniesofferingB2Bservicesonline.
Overview of Selected Competitors Company Alibaba HKTDC HC Int'l ECVV B2B China Tradett DIY Trade Global Market Tradekey Exports.cn Mainone Bridgat Globalsources Website http://www.alibaba.com/ http://www.hktdc.com/en-buyer/ http://www.hc360.com/ http://www.ecvv.com/ http://www.b2bchinasources.com/ http://www.tradett.com/ http://www.diytrade.com/ http://www.globalmarket.com http://www.tradekey.com/ http://www.exports.cn/ http://www.mainone.com http://www.bridgat.com/ http://www.globalsources.com/ Ownership Public Private Public Private Private Private Private Private Private Private Private Private Public Financial Resources High High Medium Unkown Unkown Unkown Unkown Unkown Unkown Unkown Unkown Unkown Medium Supplier Print / Verification Exhibitions Research x x x x x x x x x x x x x x

Source: Company information

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 ToassessGSOLsrelativepositionintheonlinespace,wevelookedattheirpagerankingusingpublic sourcessuchasAlexa.ThestatisticsindicatethatGSOLislosingsharetostrongrivalssuchasAlibabaand HCInternational.Bothsiteshavebeenpostingincreasingtrafficrankanddailyreachmetricsoverthepast fewyears,whileGSOLhaslargelyseenastagnationoftraffic. Traffic Rank Daily Reach

Source:Alexa.com

ItwouldcertainlybeeasiertoevaluateGSOLsonlinebusinessiftheydisclosedinformationsuchasnew customeradditions,customerchurn,revenueperaverageuser,numberofpayingmembers,customer acquisitioncosts,etc.However,GSOLisopaqueonthesemattersanddoesnotreportregularoperating metricsforinvestorstoevaluateitsongoingperformance. GlobalSourcesNotImmunetoProblemsPlaguingtheIndustry FraudhasbeenamajorissuefacingtheonlineprovidersofB2Btradeservices.Thestorytypicallygoesas follows.Anunscrupuloussuppliergainsaccesstoatradewebsiteandadvertisesaparticularproductand convincesabuyertopurchasestheirproduct.Thesellertheneitherdoesnotdelivertheproductor deliversaproductnotmeetingtheadvertisedspecificationsorisofinferiorquality. TheproblemhasbecomesorampantthatTheOfficeofU.S.TradeRepresentativenamedtheonlineChina B2B/B2CmarketsasaNotoriousMarket,andcallingformoreactionfromlocalauthoritiestocombat theissue.(http://www.ustr.gov/sites/default/files/Notorious%20Markets.pdf)TheindustryleaderAlibaba hadtoconfronttheissueheadlongbyissuingastatementthattheCompanywillvisitthefacilitiesofall payingmembersofitsChinaGoldSupplierprogramoverthecourseofayearaftermorethan2,300 vendorsusedAlibabaswebsitetodefraudbuyers,andabout100employeeswereresponsibleforletting sellerscreatebogusstorefronts(http://www.bloomberg.com/news/20110909/alibabacomtoauditall payingmemberstocombatfraud1.html).AlibabasGoldSupplierprogramforChineseexportersfellby morethan4,200inthequarterendedJunetoabout112,000,Alibabasaidlastmonth.Intheprevious threemonths,theCompanylostmorethan4,800GoldSuppliermembers.
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 B2BwebsiteslikeAlibabaandGSOLadvertisesuppliersasGoldmembersorsomeotherformof internallydevelopedrankingsystem.Thefactremainsthattheserankingsappeartobenothingmorethan marketinggimmicksthatthecustomerscanpayfortoreceivemorefavorablerankingsorprofile appearanceontheB2Bwebsite.Forexample,GSOLsaysontheirwebsitethattheyconduct3ormore visitsorcallstoasuppliercompanyandcheckbusinesslicensesaspartoftheirsupplierverification process.Aswecanallimagineandhavewitnessedinnumerouscases,theseprotectionmeasuresare easilycircumventedbyanymotivatedfraudster.Independentcreditchecksandprotectionsarelistedas optionalbyGSOLsuppliers(seehere:http://www.globalsources.com/SITE/QUALITY.HTM) WhenitcomestobuyingproductsonGSOLswebsite,themantrabuyerbewarecannotbestressedmore. ThecriticshavecertainlyexpressedtheirscathingopinionsoftheprotectionmeasurestheCompanyhas usedtocombatfraudulentsuppliers.Asimplewebsearchrevealsnumerouscustomercomplaintsfrom badexperiencesonGSOLswebsite,evenfromsupplierspurportedtoberankedhighly.
IhadabadexperiencegettingconnectedbyGlobalSources.comtoaChinesecompanyCATIC.ThecompanyCATIC hadnoneofthecapabilitieslistedonGlobalSources.comwhogavethetopratingasaverifiedsupplier.

http://www.ripoffreport.com/businessconsulting/globalsourcescom/globalsourcescomglobalsourc 3f6ee.htm Oneexceptionallydissatisfiedcustomerevenpostedhisownreportofhiscustomerexperienceonthe internetentitledGlobalSources:APiratesNestCoveringPirates http://www.angelfire.com/globalsources.com/Globalsoruces.com_bloody_pirates.pdf ThedissatisfactionwithGSOLswebsiteisnotlimitedtotheirinabilitytocurtailcasesoffraud.The reviewsonAlexa.comshowsapreponderanceof1starratingsofthesite,andpointtouserdissatisfaction withthewebsitesfunctionalityandpricing.

Ihaveanaccountatthissiteforoverayear.Customerserviceisrelativelyquicktorespondandprofessional. However,theuserinterfaceforsellersandmanufacturerstryingtolisttheirproductsandcreatecategoriesisoneof theworstdesignedIhadeverexperiencedandI'vedesignedandcreatedaboutthreedozenwebsitesinmycareer sofar.Tryingtoremoveaproductisanightmare.Theirproductcreationtoolsaresimplyverypoorlydesigned. Iusedthewebsite2years,butnotenoughbuyerscontactme.It'sveryexpensive.Iwillnotuseit. Basically,GlobalSourceschargesalotandofferslittle.Lookatthefollowing5starratingfromauseraboutGlobal Sources.Itisanexactcopyofamarketingstatementandsloganbyoneofitscompetitors.GlobalSourcescopiedit!

Source:http://www.alexa.com/siteinfo/globalsources.com#
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1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

 GlobalSourcesUnusualFinancialReporting GSOLhasthemostunusualfinancialpracticesofallthecompanieswehavelookedatovertheyears. Forstarters,letsconsidertheirrecentchangeinaccountingstandard.TheCompanyadoptedIFRS effectiveasof,andforthefiscalyearendedDecember31,2010.Fortheprevious10yearsasapubic company,GSOLreportedunderU.S.GAAP.Themovestrikesusasunusualgiventhattheadoptionis completelyvoluntary.Wevenotseenanycompaniesrecentlyundertakeavoluntaryswitchofstandards. Ourresearchindicates~8%ofUSlistedChinesecompanieswithmarketcapitalizationsbetween$100mto $1bnreportunderIFRS(Appendix1).Thetimeandcostinvolvedwithimplementingthechangearenot trivialandrequireanexperiencedanddedicatedinternalteamoffinanceprofessionalstoproperly oversee.TheCompanyhasnotannouncedanyexternalmanagementhiresinthefinancedepartment,nor havetherebeenadditionaldisclosuresofthestepstakentooverseeproperimplementation. Whatwehaveseenattheexecutivelevel,andattheCFOroleinparticular,atGSOLdoesnotinspire confidence.Forstarters,theCompanyhasswitchedCFOsthreetimessince2009.ThelongtimeCFO EddieHengannouncedhisretirementin2009,andwasreplacedbyacompanyoutsiderDavidGillian.We raiseacautionarypointthatMr.GillianthenlefttheCFOpositionandtheCompanyinlessthan1yearto pursuepersonalbusinessopportunities.EddieHengreturnedforabriefinterimperiod,andwasthen replacedbyanothercompanyinsider,ConnieLai,whohashadashorttenureofonly3yearsatthe Company.GiventherevolvingdoorattheCFOposition,andsomewhatcapriciouschangetoIFRS,wehave askepticalposturetowardsthefinancialreporting.Therecentexecutiveturnoverhasnotbeenlimitedto justtheCFOrole.Inthepastfewmonths,theCEO,CIO,andCOOhaveallbeenshuffledaround,and1 Boardmemberhasresigned.
ConnieLaiCFOAppointment http://www.sec.gov/Archives/edgar/data/1110650/000095016210000220/ex1.htm InterimCFOAppointment http://www.sec.gov/Archives/edgar/data/1110650/000092189510000854/ex1to6k04552_05242010.htm DavidGillianCFOAppointment http://www.sec.gov/Archives/edgar/data/1110650/000092189509002042/ex1to6k04552_07012009.htm NewCEOAppointment http://www.sec.gov/Archives/edgar/data/1110650/000114420411048288/v232761_ex1.htm CIOandCOOshuffle http://www.sec.gov/Archives/edgar/data/1110650/000114420411031990/v223942_ex1.htm BoardMemberRetires http://www.sec.gov/Archives/edgar/data/1110650/000114420411037110/v226785_ex1.htm

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1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

WhywouldGSOLconsiderachangetoIFRSinthefirstplace?Theanswerisnotentirelyclearbecausethe Companydoesnotdisclosetheirreasonforthechange.OnethingwedoknowisthatIFRSaccounting givesmanagementmoreleewayinchoosingaccountingmethodsthanGAAP.GAAPisamorerulesbased andrigidaccountingstandard.GSOLsbusinessiscertainlyinternational,whichcouldbeamotivating factor,butthereareplentyofinternationalcompanieswithUSlistingsthatconformtoUSGAAP,and wouldnotswitchtoIFRSunlessitweremandatoryinordertoavoidthetime,cost,andaggravation.GSOL hasplentyofU.S.shareholderstoo,sotheaccountingswitchraisesquestionmarks. ItsalsonoteworthythatGSOLswitchedauditorsnotlongagoin2008fromErnestandYoungtoPWC.The reasoncitedwascost.Elevatedauditfeescanbearedflagofproblemstocomeforacompany,say threerecentacademicstudiesthattogetherwarnaboutincreasedchancesoffraud,stockpricedeclines orfinancialrestatements.2GSOLsreportedauditfeesdoubledbetween2006and2007,andagainrose sharplyfrom2009to2010,eventhoughtheirunderlyingbusinesshardlychanged.Anevenmore interestingobservationisthatGSOLsfeesfortaxworkwereapaltry$2,000in2006,2007,and2009.For amere$2,000investment(yestwothousanddollars),GSOLhasreceivedtaxplanning,andadvicethathas allowedthemtopayanaverageeffectivetaxrateinthepast5yearsof3.22%.Thisisquiteastriking accomplishmentconsideringthatGSOListheonlycompanywecanfindincorporatedinBermuda,has61 subsidiariesin16differentjurisdictions,yetreportsdoingnearly80%ofitsbusinessinChina.Toanalyze justhowremarkabletheirtaxachievementsare,wevealsoincludedourbenchmarkingresultsin Appendix1.Theresultscertainlybegthequestion:IfGSOLhasidentifiedagreattaxstrategytopay consistentlylowtaxes,whyhasnteveryothercompanyfollowed?
$ in millions

GSOL Audit and Tax Analysis 2006 $0.427 0.000 0.002 0.283 $0.712 $113.097 0.63% $30.43 $0.586 1.93%

2007 $1.211 0.000 0.002 0.192 $1.405 $125.818 1.12% $26.35 $0.747 2.83%

2008 $0.694 0.000 0.076 0.000 $0.770 $142.129 0.54% $28.80 $1.184 4.11%

2009 $0.777 0.000 0.002 0.000 $0.779 $113.775 0.69% $15.41 $0.498 3.23%

2010 $0.959 0.142 0.027 0.000 $1.128 $122.203 0.92% $27.30 $1.117 4.09%

5 Yr Average $0.814 0.028 0.022 0.095 $0.959 $123.404 0.78% $25.66 $0.826 3.22%

Audit Fees Audit-related Fees Tax Fees Other Fees Total Fees Revenues % of sales Profits Before Tax Income Taxes Paid Effective Tax Rate
Source: Company filings

Lastly,wenotethattherecentauditopinionwassignedfromPWCsSingaporeoffice,whichagainraises eyebrowsconsideringGSOListheonlyChineselistedcompanywecouldidentifythatisauditedfromthis location.PWCcertainlyhasbranchofficesinChina;bothofGSOLsclosestpeers,AlibabaandHC international,areauditedfromthePWCHongKongoffice. PWCAccountantChange http://www.sec.gov/Archives/edgar/data/1110650/000095016208000361/ex_1.htm ListofSubsidiaries http://www.sec.gov/Archives/edgar/data/1110650/000095016211000146/exhibit8_1.htm

2

Corporate audit fees up? Beware of trouble ahead: http://www.reuters.com/article/2011/10/10/accounting-audit-fees-idUSN1E79806W20111010

1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

 OurconcernsoverGSOLfinancialreportingdoesnotstophere.Turningourattentiontothepresentation oftheincomestatement,wehavefoundsomethingsounusualthatweveneverseeninourentire investingcareerspanningdecades.GSOLdoesnotreportanyinformationonitscostofsalesdirectly relatedtorevenues,andhencenopresentationofitsconsolidatedgrossprofit.Itisinconceivabletous thatGSOLdoesnotpresentcoststhataredirectlyrelatedtogeneratingrevenuesforeachofitsreported revenuesegments.Asaresult,investorscannoteasilyascertainthecontributionmarginfromeachoftheir businesses.

Furthermore,theoperatingexpenseslinesareambiguousandconfusing.Takeforexamplethe communityexpenselinewhichappearstobeanamalgamationofexpensesrelatedtoeachoftheir revenuesegments.TheCompanysdescriptionofcommunityexpensesisnotedbelow. Communitycostsconsistofthecostsincurredforservicingourbuyercommunityandformarketingour productsandservicestotheglobalbuyercommunity.Communitycostsalsoincludecostsrelatingtoour trademagazinepublishingbusinessandmarketinginsertsbusiness,specificallyprinting,paper,bulk circulation,magazinesubscriptionpromotions,promotionsforouronlineservices,customerservicescosts andtheeventspecificpromotionscostsincurredforpromotingtheChinaSourcingFairseventsandthe technicalconferences,exhibitionsandseminarstothebuyercommunity.Theeventspecificpromotion costsincurredforeventsareexpensedduringtheeventmonthsintheyearinwhichtheexpensesare incurred.GlobalSources20FAnnualReport Wecoulddrilldownevenfurtherbutwhybelaborthemainpoint:GSOLsfinancialreportsshouldbe viewedwithextremecautiongiventherecentandunexplainedaccountingstandardchange,highCFO turnover,changeinauditors,andhighlyunusualpresentationofitsincomestatement.
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 GlobalSourcesUnusualFinancialStrategy GSOLsfinancialstrategyappearstoindicateatacitdecisionnottoinvestintheoperatingbusiness,but ratherfilterthecashflowoutoftheCompanyandintononcoreassets.Thetablebelowsummarizesthe Companyssourcesandusesofoperatingcashflowoverthepastfiveyears.

GSOL Sources and Uses of Cash
$ in millions

Cash Sources Cash Generated Equity From Operations Raise 2004 2005 2006 2007 2008 2009 2010 YTD 2011 Total
Source: Company filings

Cash Uses Property Acquisitions $19.0 0.0 0.0 7.0 46.3 0.0 0.0 51.0 $123.3 Capex $2.1 7.3 4.9 4.3 5.2 1.4 2.5 NA $27.7 Stock Tenders $0.0 0.0 0.0 0.0 50.0 0.0 100.0 0.0 $150.0 Business Acquisitions $0.0 0.0 0.0 3.1 0.0 0.0 0.8 4.0 $7.9

$22.4 20.5 36.7 60.6 37.9 30.1 46.9 NA $255.2

$0.0 40.5 0.0 0.0 0.0 0.0 0.0 0.0 $40.5

TheoneclearconclusionfromthistableisthatGSOLhasinvestedverylittletogrowtheircorebusiness viaacquisitionsorinvestmentincapitalexpenditures,butratherviewssharerepurchasesandproperty acquisitionsasthemostattractivereturnonitscapital. Twostocktenderswerecompletedin2008and2010.Thefirsttenderwasfor$50mat$8.00/shareand thesecondfor$100mat$9.00/share.ThesepricesserveashandyhighwatermarksforwhatGSOLsstock mayeverbeworth. ThemorefascinatingobservationisthatGSOLhasreportedacquiringnearly$125mofproperty acquisitionssince2004andjustrecentlyannouncedtheirlargestacquisitioneverof$51mforpropertyin Shanghaitosupportfuturegrowth.Therecenttransactionisallcash,andnobankfinancingwasusedin thetransaction.Despitethematerialityofthistransaction(representingover20%ofGSOLsassets),none ofthepurchaseandsalecontractsforthisdealhavebeenfiled,orforanyoftheirpropertytransaction since2004. GSOLAnnouncesPurchaseofShanghaiOffice http://www.sec.gov/Archives/edgar/data/1110650/000114420411045465/v231687_ex1.htm Accordingtothepressrelease,thelocationisclosetoShanghaiHongqiaoAirport,aregional transportationhubandmetrostations.Additionally,weknowthatthelocationisinChangningDistrictand theCompanypaidRMB326mfor6,668squaremeters,whichisequivalentto48,890RMBpersquare meter,or$700persquarefoot.
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1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

Source:http://map.baidu.com/?newmap=1&s=s%26wd%3D%25E9%2595%25BF%25E5%25AE%2581%25E5%258C%25BA%26c%3D2184&fr=alat0

TothosewhoarenotfamiliarwithChangningDistrict,itisthepartofShanghaithatspansthewestpartof thecity.HongqiaoAirportisonitswestedge.Threecitybeltways,theInnerLoop,theMiddleLoopand theOuterLoop,runthroughitandnaturallyfurtherdefinethelandinChangningdistrictbasedonits locationsrelativetothebeltways.Notsurprisingly,thelandwithintheInnerLoophasthehighestvalue andthelandoutsideoftheOuterLoopisthecheapest.GSOLsdescriptionoftherealestatepurchaseputs themostlikelylocationoutsidetheOuterLoop,whereHongqiaoAirportis.Thesecondlikelylocationis betweentheOuterLoopandtheMiddleLoop. Chinasrealestatesalesarenosecret.Soufun.coma(Nasdaq:SFUN)keepsmanyrealestaterecords.

Source:http://office.sh.soufun.com/SearchOffice/ci%C9%CF%BA%A3di%B3%A4%C4%FE/sa1%2C4ps10nu1/

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1991Broadway,27thFloor*NewYork,NY10023*ph.2125791176 www.sprucepointcap.com

 SoufunshowsalltheofficespacecurrentlyonsaleintheChangningDistrict,onlyfourofthemthetop twolistingsaresponsoredlistingsanddonotbelongtothedistrict.Nobuildingislistedoutsideofthe OuterLoop.TheonlyonepropertybetweentheOuterLoopandtheMiddleLoopisofferedatRMB27,000 persquaremeter.Themostexpensiveone,whichislocatedwithintheInnerLoop,isofferedat RMB45,000persquaremeter,lowerthanthepricepaidbyGSOLandinamuchmoredesirablelocation. TheinformationprovidedbytheCompanyontherealestatetransactionisnotconsistentwithour knowledgeoftheShanghairealestatemarketandmoreinformationneedstobedisclosedbythe Company. Alistofalloftheirpropertyacquisitionshasbeenprovidedinthetablebelow

$ in million Date Location August 2011 China June 2008 Hong Kong May 2008 China April 2007 China June 2004 China Owned Real Estate Leased Real Estate Total Square Footage
Source: Company Filings

Region Shanghai Southmark Shenzen Shenzen Shenzen

SqFt 71,774 22,874 68,507 20,875 96,875 280,905 109,977 390,882

Price US$mm $51.0 11.9 34.4 7.0 19.0 $123.3

Price / Sqft $711 520 502 335 196 $439

GivenourforegoingdiscussionaboutGSOLsbusinessfundamentals,andobservationsthattheircapital allocationdoesnotfavorinternalinvestment,howcanwebeconfidentthatthispropertyacquisitionis trulytosupportfuturegrowth? HowcanGSOLsmanagementactuallydefendpayingpeakpricesforapropertyinShanghaiwhentheir businessmodelisnotonethatevendependsonowningrealestateasacoreasset,andthereare indicationsthatpropertypricesarebeginningtodecline?3Afterall,letsrecallthattheirthreebusinesses areprintandonlineadvertising,aswellasorganizingtradeshowexhibitions.Theexhibitionsarecertainly notbeingheldonthesecommercialproperties,andmanagementevendisclosesthattheyincurvenue rentalchargesforhostingtheconferences.Besides,theirconferencesaremostlyheldinShanghaiand globallyatlocationssuchasMiami,Dubai,andJohannesburg.Therefore,wecanruleoutthatthe propertyisactuallybeingusedforlegitimatepurposesrelatedtotheirexhibitionbusiness.Doesthe Companyneedownalmost300,000squarefeetofpropertytorunaB2Bwebsiteandtradepublication business?Wethinktheansweriscertainlyno.
3

China Housing Prices Inch Lower: http://online.wsj.com/article/SB10001424052970203388804576618023919803638.html

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 LetsnowexaminethepropertyquestionfromadifferentperspectivebylookingattheCompanys workforce.ThetablebelowsummarizesGSOLshistoricalemployeecompositioninthepastthreeyears.
Global Sources Employees and Independent Contractors
2008 Independent Contractors 2,656 442 61 32 91 77 69 0 4 66 3,498 2009 Independent Full-time Contractors 10 2,142 30 373 49 49 8 36 67 93 75 63 67 63 10 0 6 4 37 66 359 2,889 2010 Independent Contractors 2,365 394 67 18 83 69 65 0 1 82 3,144

Function Full-time Sales 33 Content Development 63 HR and Admin 48 Corp. Marketing 8 80 Community Development IT 82 Corp Accounts 82 Office of the CEO, COO 8 Legal and Secretarial 6 Conf & Trade Show 42 Total 452 Source: Company filings

Total 2,689 505 109 40 171 159 151 8 10 108 3,950

Total 2,152 403 98 44 160 138 130 10 10 103 3,248

Full-time 41 23 47 7 60 73 64 13 6 39 373

Total 2,406 417 114 25 143 142 129 13 7 121 3,517

Thetwomoststrikingobservationsare:1)Almost90%oftheworkforceisclassifiedasindependent contractorswithalmost70%oftheworkforcebeingindependentsalesstaffand;2)Totalheadcountisstill downbyalmost450peoplefromtheendof2008to2010,whichagaincallsintoquestionwhywould GSOLspend$51monitsrecentpropertypurchase. Whoaretheseindependentcontractors?AccordingtoCompanydisclosures,GSOLusessixmainsales representativecompaniesinmainlandChinawhichareresponsibleforapproximately71%oftotal revenuesfortheyearendedDecember31,2010.Salesrepresentativesarelocatedin60citiesworldwide, with44oftheselocationsinGreaterChina.Sowhathasusconcernedwithallofthis?First,itappearsthat theirpropertyacquisitionshavebeenconcentratedinShenzen,whichaccountsforover65%oftheirreal estatesquarefootage.Thisappearsinconsistentwithagloballydispersedsalesforce.Secondly,we assumethathavinganoutsourcedsalesforceisdesignedtoreducefixedcostsandprovideaddedlabor flexibility.Therefore,owningrealestateappearsinconsistentwiththisstrategyvisvisthealternativeof leasingofficespace,whichifstructuredproperlycanallowthemacheaperandmoreflexiblesolution. Attemptstocontactmanagementforanswerstotheirvexingfinancialreportingandmoreinformationon theirpropertypurchaseshavesofargoneunanswered.
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 ConclusionandPriceTarget GlobalSourcesdoesnotappeartobeabusinessthatisrunforthebenefitofpublicshareholders.The financialstrategiesundertakenbytheCompanydonotappeartransparentandservetheprospectsof maximizingshareholdervalue.Furthermore,thereareindicationsthattheirunderlyingbusinessesare matureandfacingsignificantheadwinds,whichmayexplaintherecentexecutiveturnover.TheCompany hasdeterminedthatinvestinginChineserealestateisinthebestinterestofshareholders,despitethefact thattheirbusinessmodeldoesnotappeartojustifyitfrommultipleperspectives.Wearealsoconcerned bytheirrecent$51macquisitionofShanghaipropertyatpeakpricesfornocompellingreason.A complicatedorganizationalstructureandopaquefinancialreportingaddsfurtherdoubtinourmindsover thereliabilityofthefinancials.Wearriveata$2.50pricetarget,themidpointofourrange,bygivingfull credittothecashonthebalancesheet,anddiscountingthevalueoftherealestate,givenourconcernson thelegitimacyofthetransactionsandtheilliquidity.Weapplyagenerous2x3xmultipletoathrougha cycleEBITDAtovaluetheoperatingbusiness,whichwedeemtobelowgrowth,operatinginahighly competitiveenvironment,anddifficulttoevaluateduetolimitationsonfinancialdisclosure.
$ in millions Reported $80 $123 $30 $233 Multiple Range 1.00x -1.00x 0.50x -0.70x 2.00x -3.00x Estimated Value Low -High $80 -$80 62 -86 60 -90 $202 -$256 ($141) -- ($141) $61 -$115 35.5 -35.5 $1.70 -$3.25

Cash Real Estate at Cost Opco EBITDA Total Value Book Value of Liabilities Equity Value Diluted Shares o/s Value Per Share

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 Appendix1
Analysis of Auditing and Accounting Standards for U.S. Listed Chinese Companies
US$ millions Equity Market Cap. $mm $1,000 $916 $836 $825 $734 $671 $688 $625 $583 $560 $543 $475 $460 $430 $430 $425 $390 $378 $340 $309 $299 $296 $270 $267 $260 $250 $250 $230 $220 $210 $206 $187 $186 $180 $175 $170 $170 $170 $150 $150 $146 $130 $125 $117 $110 $105 $105 $100 $100 $100 $1,000 $674 $453 $341 $170 $110 $100 Country of Incorporation Cayman Cayman Cayman Cayman Cayman Cayman Cayman Cayman Cayman Cayman US Cayman Cayman Cayman Cayman Cayman Cayman Cayman Cayman BVI Cayman US US Cayman Cayman Cayman Bermuda BVI Cayman Cayman Cayman Cayman Cayman US Cayman Cayman Cayman Cayman US Cayman US Cayman BVI BVI US Cayman Cayman Cayman Cayman Cayman 2010 Effective Tax Rate 27.6% 10.8% 25.0% 21.2% 20.5% 9.7% 9.6% 16.5% NM 9.6% 11.0% 15.0% 29.4% 6.7% 36.6% 12.0% NM 37.5% NM 11.2% 7.8% 18.8% 6.7% 13.8% 25.7% 21.1% 4.1% 21.2% 23.3% 23.0% NM 10.2% NM 42.0% 8.8% 18.8% 22.4% NM 34.9% NM 20.3% 18.0% 18.0% 25.2% NM 12.1% NM 28.1% 18.8% 26.1% 42.0% 29.4% 25.0% 19.0% 11.0% 8.8% 4.1% 2010 Audit+ Related Fees $1.34 $0.83 $1.05 $1.47 $0.38 $1.00 $0.81 $0.85 NA $1.53 $2.05 $1.50 $0.50 $0.62 $1.56 $0.54 $0.90 NA $1.60 $0.55 $1.18 $0.86 $0.71 $1.07 $0.78 $0.67 $1.10 NA $0.80 $0.73 $1.61 NA NA NA $1.41 $0.81 $1.22 NA $1.00 $1.03 $0.47 $0.70 $0.51 $0.28 $1.28 $0.74 $1.50 $1.00 $0.80 $1.27 $2.05 $1.53 $1.27 $0.99 $0.72 $0.51 $0.28 Property / Buildings as % of Assets 1.2% 4.1% 0.0% 13.0% 2.6% 0.0% 0.0% 11.9% 0.5% 1.8% 0.1% 12.4% 0.0% 2.0% 0.2% 0.0% 0.0% 0.0% 0.0% 9.0% 0.0% 13.2% 33.6% 0.0% 9.6% 7.7% 47.6% 18.7% 0.0% 0.0% 0.0% 0.0% 0.0% 2.5% 0.6% 6.7% 0.0% 0.0% 24.5% 0.0% 13.4% 5.0% 0.7% 2.4% 26.2% 7.7% 0.0% 10.6% 22.3% 3.3% 47.6% 19.4% 9.6% 6.3% 0.0% 0.0% 0.0%

Company Home Inns Spreadtrum eLong WuXi PharmaTech China Lodging Tal Education China Real Estate Info AutoNavi 21Vianet Group PerfectWorld Asia Info-Linkage Ambo Education Noah Holding China Kanghui E-House China RDA Microelectronics E-Commerce Dangdang Jiayuan iSoftStone Hollysys Automation VanceInfo Tech. Synutra Zhongpin HiSoft China Blood Cord 3S Bio Global Sources China Zenix Auto China Digital TV 7 Days Inn Bitauto Phoenix New Media Taomee Holdings China XD Plastics Xueda Education Country Style Cooking SouFun NeQin Mobile ChinaCast AirMedia Group China Biologic Acorn Int'l Camelot Info Systems China Gerui Feihe Int'l Global Education & Tech. Vision China Lentuo China Nuokang Syswin Inc Maximum Top 10 Percentile Top 25 Percentile Average Bottom 25 Percentile Bottom 10 Percentile Minimum
Source: Public Filings

Industry Hotels Semiconducters Online Services Medical R&D Hotels Private Education Online Services Navigation Services Computer Services Gaming IT Services Private Education Financial Services Medical Devices Real Estate Services Semiconducters Online Services Online Services IT Services Industrial/Automation IT Services Food Processing Food Processing IT Services Medical Services Medical R&D Online services/media Auto Manufacturing Software Hotels Online Services Broadcasting Media/Enterntainment Industrials Private Education Restaurants Online Services Software Private Education Digital Media Medical R&D Retail/Media IT Services Industrials/Steel Food Processing Private Education Media/advertising Auto Dealerships Medical R&D Real Estate Services

Ticker HMIN SPRD LONG WX HTHT XRS CRIC AMAP VNET PWRD ASIA AMBO NOAH KH EJ RDA DANG DATE ISS HOLI VIT SYUT HOGS HSFT CO SSRX GSOL ZX STV SVN BITA FENG TAOM CXDC XUE CCSC SFUN NQ CAST AMCN CBPO ATV CIS CHOP ADY GEDU VISN LAS NKBP SYSW

Auditor PWC Deloitte EY Deloitte Deloitte Deloitte Deloitte Deloitte EY PWC Deloitte PWC Deloitte EY Deloitte PWC EY PWC Deloitte BDO Deloitte Deloitte BDO Deloitte KPMG EY PWC Deloitte Deloitte KPMG EY PWC Deloitte KPMG Deloitte Deloitte EY PWC Deloitte Deloitte KPMG Deloitte Deloitte UHY Deloitte PWC Deloitte EY EY PWC

Audit Location Shanghai Shanghai Beijing Shanghai Shanghai Beijing Shanghai Beijing Shanghai Beijing Beijing Beijing Shanghai Shanghai Shanghai Shanghai Beijing Beijing Beijing Hong Kong Beijing Shanghai Shenzen Beijing Hong Kong Beijing Singapore Hong Kong Beijing Hong Kong Beijing Beijing Shanghai Hong Kong Beijing Shanghai Shenzen Beijing Beijing Beijing Hong Kong Shanghai Beijing Hong Kong Beijing Beijing Hong Kong Shanghai Shanghai Beijing

Reporting Standard GAAP IFRS x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x % of Total IFRS GAAP 92% 8%

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