Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)and on a going concern basis with the ownership interests of minority shareholders reported as noncontrolling interests.

Principles of consolidation

The consolidated financial statements of the Group include the financial statements of the Company and its controlled operating entities including that majority owned subsidiaries and the VIE.

All intercompany transactions and balances have been eliminated upon consolidation.

Long-term Investments

The Company's long-term investment only consists of cost method investment. In accordance with ASC subtopic 325-20 (“ASC 325-20”), Investments-Other: Cost Method Investments, for investments in an investee over which the Company does not have significant influence and which do not have readily determinable fair value, the Company carries the investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings that exceed the Company's share of earnings since its investment. 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 investee's cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in earnings equal to the excess of the investment's cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value then becomes the new cost basis of investment.

The Group held 0.1% equity interest in Vimicro Wuxi with a carrying amount of $2 as of December 31, 2012. The Group disposed 0.1% equity interest of Vimicro Wuxi in September 2013 for $8 to VMF Consulting Company. The Group beneficially held 18.03% equity interest in Vimicro Qingdao and held 12.03% equity interest in Visiondigi The investment in Vimicro Qingdao and Visiondigi were fully impaired as of December 31, 2012.

Use of estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Group's consolidated financial statements mainly include useful lives of property, equipment and software and other long-lived assets, recognition and measurement of deferred tax assets and uncertain tax positions, provision for doubtful accounts, write-down of inventories, share-based compensation expenses, estimated selling price for multiple element deliverables, impairment of long-lived assets and equity method investment. The actual results experienced by the Group may differ from management estimate.

Concentration of risks

The Group's operating results are significantly dependent on its ability to develop and market products. The Group faces rapid technology advancement which requires the Group to continually improve the performance, features and reliability of its products. Inability of the Group to successfully develop and market its products as a result of competition or other factors would have a material adverse effect on the Group's business, financial condition and results of operations.

The Group operates in two segments: video processor business and video surveillance solution business. Revenues from the video processor business and video surveillance solution business accounted for 75% and 25%, 32% and 68%, 15% and 85% of total revenue for the years ended December 31, 2012, 2013 and 2014, respectively.

The Group depends on a few key customers for the majority of its sales, and the loss of or a significant reduction in orders from any of these customers would have a material adverse impact on its operating results. For the years ended December 31, 2012, 2013 and 2014, the top ten customers accounted for 91%, 82% and 89% of total product revenue, respectively. The Group cannot assure that these customers will continue to purchase products from the Group.

The following table summarizes the customers who accounted for more than 10% of the total revenue of the Group for the years ended December 31, 2012, 2013 and 2014:

Customer P belongs to the video processor business and Customers S and Z belong to the video surveillance solution business for the years ended December 31, 2012, 2013 and 2014, respectively.

The Group relies on a few foundries for wafers and several companies for assembly and testing services for the existing products. The ability of each foundry to provide wafers is limited by the foundry's available capacity. Moreover, the price of wafers may fluctuate based on the available industry capacity. The Group does not have long-term supply contracts with any of these foundries or assembly and testing houses. Therefore, the Group cannot be certain that these foundries and assembly and testing houses will allocate sufficient capacity to satisfy its requirements. If the Group is not able to obtain the necessary foundry capacity and assembly and testing capacity to produce the required volume for its customers in a timely manner, both its relationships with the customers and operating results would be adversely affected.

Concentration of credit risks

Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. Deposits held with financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the Company may be unlikely to claim its deposits back in full. The Company continues to monitor the financial strength of the financial institutions. The Company had $25,694 in cash and cash equivalents and restricted cash as of December 31, 2014.

As of December 31, 2014, accounts receivables are typically unsecured and are derived from revenue earned from customers. The risk is mitigated by credit evaluations the Group performs on its customers' financial conditions and ongoing monitoring process of outstanding balances.

The following table summarizes the customers who accounted for more than 10% of the total accounts receivables as of December 31, 2013 and 2014:

Currency convertibility risks

The RMB is not freely convertible into foreign currency. The PRC State Administration for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.

Foreign currency exchange risks

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. Under the current policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies.

This change in policy has resulted in an appreciation of the RMB against the U.S. dollar in recent years.

Majority of the Group's revenue, cost of revenue and most of operating expenses are denominated in RMB, while a portion of non-operating expenses are denominated in U.S. dollars and Hong Kong dollars, which is pegged to the U.S. dollar. The Group uses the U.S. dollar as the reporting currency for its financial statements. Fluctuations in exchange rates, primarily those involving the U.S. dollar, may affect the Group's costs and operating margins as well as its net loss/income and comprehensive loss/income reported in U.S. dollars.

Fair value measurements

ASC topic 820 (“ASC 820”),Fair value measurement and Disclosure defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

The Group's financial instruments include cash and cash equivalents, restricted cash, accounts receivable, other current assets, long-term investment, amounts due from/to related parties, accounts payable, customer advances and long-term bank loans. The carrying amounts of the Group's cash and cash equivalents, restricted cash, accounts receivable, amounts due from/to related parties, accounts payable, customer advances and accrued expenses and other current liabilities approximated their fair values as of the balance sheet dates due to the short maturity of those instruments. The carrying amounts of the Group's long-term investment approximated its fair values as of the balance sheet date due to the long maturity of this instrument. The fair value of long-term bank loans are estimated based on the discounted value of future contractual cash flows which approximates their carrying value due to the fact they are predominately stated at variable rates. These assets and liabilities, excluding cash and cash equivalents (which fall into level 1 of the fair value hierarchy), fall into level 2 of the fair value hierarchy.

There were no non-recurring and recurring fair value measurements as of December 31, 2013 and 2014.

Cash and cash equivalents

Cash and cash equivalents represent cash on hand and deposits that mature within three months placed with banks or other financial institutions, which are payable on demand.

Restricted cash

Restricted cash balances comprise cash in bank balances, which are restricted as to withdrawal or usage under the terms of certain contracts or under bank regulations.

Accounts receivable and provision for doubtful accounts

The carrying value of accounts receivable is stated at the amount the Group expects to collect. Provisions are made against accounts receivable to the extent that collection is considered to be doubtful. Many factors are considered in estimating the provision, including aging, customer credit, and current economic trends. The provision for doubtful accounts charged for the years ended December 31, 2012, 2013 and 2014 was $721, $21 and $3,700, respectively. Accounts receivable in the consolidated balance sheets are stated net of such provision, if any.

Inventories

Inventories are stated at the lower of cost or market. The cost is computed on a weighted-average basis. Cost of work in progress and finished goods are comprised of direct materials, direct labor and related manufacturing overhead based on normal operating capacity. Adjustments are made to write down excess or obsolete inventories to their estimated realizable values.

Property, equipment and software, net

Property, equipment and software are stated at cost less accumulated depreciation and impairment.

Property, equipment and software are depreciated over their estimated useful lives on a straight line basis. Estimated residual values are nil. The estimated useful lives are as follows:

Expenditures for maintenance and repairs are expensed as incurred.

The gain or loss on the disposal of property, equipment and software 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 loss/income.

All direct and indirect costs that are related to the construction of fixed assets and incurred before the assets are ready for their intended use are capitalized as construction in progress. Interest expense incurred for qualifying assets are capitalized in accordance with ASC 835-20, Capitalization of Interest.

Long-lived assets to be disposed of and discontinued operations

The Group accounts for a long-lived asset or disposal group to be sold in accordance with ASC 360-10, Property, Plant and Equipment: Overall (“ASC 360-10”) where such long-lived asset or disposal group is classified as held for sale in the period in which all six criteria are met: (1) a plan to sell the asset has been committed to by management; (2) the asset can be sold in its current condition; (3) an active plan has been initiated to find a buyer; (4) it is probable that the asset will be sold and the sale will be completed within one year and will qualify as a completed sale; (5) the sales price is reasonable relative to the asset's current fair value and the entity is actively marketing the asset; and (6) it is unlikely that the plan to sell the asset will be withdrawn or changed significantly.

A long-lived asset or disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell, and it is presented separately on the balance sheet. Long-lived assets reclassified as held for sale are not depreciated or amortized. The fair value less cost to sell of the long-lived asset or disposal group is evaluated at each end of reporting period. As of December 31, 2013 and 2014, there was no long-lived asset or disposal group classified as held for sale.

The Group follows ASC 205-20, Presentation of Financial Statements: Discontinued Operations in its accounting for a component of the Company that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the Company. Such component is reported as discontinued operations when the operations and cash flow of the components have been or will be eliminated from the Group as a result of disposal and the Group will not have any significant involvement in the operation of the component after the disposal. In the period in which a component has been disposed of or classified as held for sale, the results of operations, including any gain or loss after tax recognized in accordance with ASC 360-10, less applicable income taxes, for the periods presented are reclassified into line items of income separately from net income (loss) from continuing operations before extraordinary items (if applicable), in the consolidated statements of comprehensive loss/income.

Land use rights

Land use rights include prepayments towards acquisition and land use rights acquired. Land use rights acquired are stated at cost less accumulated amortization and impairment loss. Land use rights are amortized on a straight-line basis over their useful lives of up to 50 years.

Golf memberships

The Company holds two lifetime golf memberships with a total carrying amount of $370 and $369 at December 31, 2013 and 2014, respectively, recorded as other non-current assets. Lifetime golf memberships have an indefinite useful life and are not amortized, instead, they are tested for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired. No impairment charges were recognized for the periods presented.

Product warranty

The Group provides warranty on its product sales for a period generally ranging from one to five years from the time of final acceptance or goods delivery. The Company provides for the expected cost of product warranties at the time that revenue is recognized based on an assessment of past warranty experience and specific circumstances.

Impairment of long-lived assets

Impairment of property, equipment and software and land use rights

The Group evaluates its property, equipment and software and land use rights or asset group whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of property, equipment and software and land use rights may not be fully recoverable. When these events occur, the Group determines whether there is impairment by comparing the carrying amount of the assets or asset group to future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets or asset group, the Group recognizes an impairment loss based on the excess of the carrying amount of the asset group over its fair value, generally based upon discounted cash flows.

Impairment of investment in an equity investee

The Group reviews its investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the investment. In making this determination, the Company reviews several factors to determine whether the losses are other-than-temporary, including but not limited to: (i) the length of time the investment was in an unrealized loss position, (ii) the extent to which fair value was less than cost, (iii) the financial condition and near term prospects of the issuer, and (iv) the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The determination of fair value of the investment involves considering factors such as current economic and market conditions, the operating performance of the companies including current earnings trends and forecasted cash flows, and other company and industry specific information.

Revenue recognition

The Group recognizes revenue from the sales of products and rendering of services when the earnings process has been completed and all revenue recognition criteria has been met persuasive evidence for an arrangement exists, delivery of products and/or services and transfer of title has occurred, the selling price is both fixed and determinable and collectability is reasonably assured, as prescribed by ASC 605, Revenue recognition (“ASC 605”).

Video processors

Video processor revenue derives from PC and embedded notebook camera video processors, image sensors, and other products. Revenues related to video processors are generally recorded net of business taxes and related surcharges provided all revenue recognition criteria have been met.

The Company uses distributors for sales of video processors. The Company enters into generally short term arrangements with its distributors, which on rare occasions may include certain obligations of the Company such as acceptance or price protection clauses. The distributors make full payment prior to shipping or enjoy credit terms from 30 to 90 days. The Company does not have a history of providing refunds, discounts or other price concessions in connection with price protection clauses that the Company may provide to a distributor. The Company believes that such provisions are within the control of the Company and expects any benefits provided to the distributor to be insignificant. As such, the Company believes that it is able to reasonably estimate price concessions as remote, such that the price is fixed and determinable and revenue is recognized upon delivery of the product. When the Company provides an acceptance provision to a distributor, revenue is not recognized until acceptance has been received. The Company does not have any other post shipment obligations.

The cost of video processor revenue primarily consists of costs associated with the fabrication of wafers, assembly, testing and shipping of video processors, amortization of costs associated with production masks and tooling and costs of third-party image sensors that the Group sells to its customers.

Video Surveillance Solutions

The video surveillance solutions are generally comprised of hardware with essential software and separate installation. The hardware and software components generally include a digital video recorder, camera, server, personal computers and the proprietary software of ViSS with other third party software that supports the operating system. The Company's software products are bundled together with hardware products so that the software components and non-software components function together to deliver the products' essential functionality. The Company markets and sells an integrated platform for a unified surveillance, storage and management solution. If the hardware does not contain the software, the video surveillance solution cannot be separately marketed and sold to customers. Therefore, the video surveillance solutions are excluded from being accounted for under software revenue recognition guidance. In addition, the Company also provides installation services, which includes software testing and equipment set up for the monitoring room. The successful completion of the Company's obligations under these arrangements is often subject to delivery acceptance, satisfactory testing and approval of such products and services. These sales arrangements do not include any general rights of return provisions.

The hardware, software and installation in video surveillance solutions arrangements are considered multiple accounting units in accordance with ASC 605. The total arrangement consideration is allocated to the individual deliverables on the basis of their relative selling price.

The relative selling price method is based on the selling price of vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or management's estimated selling price (“ESP”) if neither VSOE nor TPE is available for the delivered items. The Company uses the estimated selling price for each deliverable as neither VSOE nor TPE is available from the Company's relatively short history engaged in the video  surveillance solutions business. The objective of ESP is to determine the price at which the Company would transact a sale if the deliverable were sold on a stand-alone basis.

The Company determines ESP for a deliverable based on the cost plus an estimated profit margin while considering multiple factors including, but not limited to, market conditions, competitive landscape, cost, gross margin objectives and pricing practices. For the hardware and the third-party software component, the Company purchases these items from third party suppliers. In reference to available market information on the price of hardware and third party software and with the Company's consideration of margins in negotiating the pricing, the Company establishes ESP for hardware and the third-party software component. In connection with the installation service component, ESP is based on internal costs structure and margin with respect to labor costs and market information.

For surveillance and security hardware with bundled software, revenue is recognized when customer acceptance is obtained, which occurs when the customer acknowledges receipt of goods and the delivered hardware with bundled software meet vendor-specific criteria. For installation services, the Group recognizes revenue after obtaining acceptance of the related services.

To the extent that arrangements contain extended payment terms for which the Company does not have a history of successfully collecting under, revenue is recognized as payments from the customers become due, if all other revenue recognition criteria have been met. Payments received from customers in advance of shipment are initially recorded as advances from customers and recorded as revenue after all the revenue recognition criteria have been met.

The cost of video surveillance solutions revenue includes the cost of hardware and software, installation and other services and warranty cost. These costs are capitalized as inventory costs until the related revenue is recognized.

The Group also sells hardware with bundled software without installation services and software on a standalone basis. Revenue for these arrangements is recognized when customer acceptance is obtained, which occurs when the customer acknowledges receipt of goods and the hardware with bundled software meet vendor-specific criteria. Standalone software sales were insignificant for the periods presented.

The Company combines a group of contracts and accounts for them as one arrangement if these contracts are entered into at or near the same time with the same customer or related parties.

Warranty obligation is provided based on the estimated future warranty payment when the underlying revenue is recognized.

Research and development costs

Research and development costs include the cost incurred for the development of the business prior to the establishment of technological feasibility. Maintenance cost incurred after the establishment of technological feasibility is charged to expense as incurred.

Government grants

Government grants received from PRC government agencies are recognized as deferred government grants and offset against the corresponding expenses as and when they are incurred for the specific research and development projects or general operation purpose for which these grants are received. The Group had received grants from authorities in the PRC mostly for its surveillance related research and development activities. Such grants amounted to $13.3 million, $9.0 million and $29.6 million in 2012, 2013 and 2014, respectively.

Advertising costs

Advertising costs are charged to expense as incurred. Advertising costs were $301, $365 and $685 for the years ended December 31, 2012, 2013 and 2014, respectively, and have been including in selling and marketing expense.

Income taxes

Current income taxes are provided on the basis of income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for tax purposes, in accordance with the regulations of the relevant tax jurisdictions.

Deferred income taxes are provided for using the liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from net operating loss carry-forwards, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the consolidated statements of comprehensive loss/income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

The Group adopted the provisions of ASC 740, Income Taxes (“ASC 740”) to clarify the accounting for uncertainty in income taxes. In accordance with the provisions of ASC 740, the Group recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Company estimates its liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Company's estimates. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of comprehensive loss/income

Foreign currency transactions and translation

The functional and reporting currency of the Company is the United States dollar (“USD”). Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency using exchange rates in effect at the balance sheet date. These exchange gains and losses are recognized in the consolidated statements of comprehensive loss/income.

The financial information of the Group's subsidiaries and VIE are maintained in its local currency. Those entities that use a different functional currency other than USD are translated into USD using the applicable exchange rates quoted by the People's Bank of China at balance sheet date for assets and liabilities, historical exchange rates are used for equity amounts and average exchange rates are used for revenues, expenses, gains, and losses. Translation adjustments resulting from translation of these consolidated financial statements are reflected as foreign currency translation adjustment in accumulated other comprehensive income/loss in the consolidated statements of shareholders' equity.

Share-based compensation

The Company applies ASC 718, Compensation-Stock Compensation (“ASC 718”). Pursuant to ASC 718, the Company recognizes share-based compensation over the requisite service period and performance condition for any share option and restricted share grants based on the fair values of share option and restricted share on the dates of grant. For the options that were repriced during the year ended December 31, 2012, in accordance with ASC 718, the Company recognized additional compensation cost for the excess of fair value of the modified share options issued over the fair value of the original share options at the date of the modification for all the original share options vested as of the modification date. The compensation cost due to the incremental fair value of the modified awards and the remaining balance of the unrecognized compensation cost for the unvested share options are recognized over the remaining requisite service periods of the modified awards. The Company does not receive any tax benefits or deductions from awards exercised.

The Company has elected to recognize share-based compensation expense using the straight-line method for all employee equity awards granted with graded vesting based on service conditions, and the Company measures the cost of employee services received in exchange for share-based compensation expense at the grant date fair value of the award. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from initial estimates. Share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest. The fair value of share options is determined using the Black- Scholes option pricing model method.

The Company accounts for share-based awards issued to non-employees in accordance with the provisions of ASC 718 and ASC 505-50, Equity: Equity-Based Payments to Non-Employees (“ASC 505-50”). The measurement date is the performance completion date due to a lack of performance commitment. Under ASC 505-50, the Company uses the Black-Scholes option pricing model method to measure the value of options granted to non-employees at each reporting date to determine the appropriate charge to share-based compensation.

Employee social security and welfare benefit plans

All full-time Chinese employees of the Company's PRC subsidiaries participate in a PRC government-mandated employee social security plans, including pension benefits, work-related injury benefits, maternity insurance, medical insurance, unemployment insurance, housing and other welfare benefits, organized and administered by relevant government authorities. The premiums and welfare benefit contributions that are borne by these entities are calculated based on percentages of the total salary of employees, subject to certain ceilings and are paid to the respective labor and social welfare authorities. The PRC government is responsible for the welfare benefit for the retired employees. The Group has no obligation for post retirement or other welfare benefits beyond the contribution.

The welfare benefits expenses were $3,700, $3,863 and $4,358 for the years ended December 31, 2012, 2013 and 2014, respectively.

Profit appropriation

In accordance with the laws applicable to China's Foreign Investment Enterprises, those of the Company's China-based subsidiaries that are considered under PRC law to be a wholly foreign-owned enterprise and prohibited from distributed their statutory reserve and are required to make appropriations from after-tax profit to non-distributable reserve funds. Each of the Company's PRC subsidiaries should set aside at least 10% of its annual net profit, after recouping prior years' losses, determined under PRC GAAP to a statutory reserve fund before distributions to investors.The appropriation of the net profit to the statutory reserve fund must be made annually until the accumulated reserve fund has reached 50% of registered capital of the respective company.

In accordance with the China Company Laws, the Company's China-based subsidiary is considered under PRC law to be domestically funded enterprises, as well as the Company's VIE should set aside at least 10% of its net profit, after recouping prior years' losses, determined under PRC GAAP to a statutory reserve fund before distributions to investors. The appropriation of the net profit to the statutory reserve fund must be made annually until the accumulated reserve fund has reached 50% of VIE's registered capital. The PRC subsidiaries and VIE did not appropriate statutory reserve fund during the years ended December 31, 2012, 2013 because of their losses. The Group has made profit appropriations of $1.3 million to these funds for the year ended December 31, 2014.

For the years ended December 31, 2013 and 2014, the total appropriation was $2,782 and $4,068, respectively.

Segment reporting

In accordance with ASC 280, Segment Reporting (“ASC 280”), segment reporting is determined based on how the Group's chief operating decision maker reviews operating results to make decisions about allocating resources and assessing performance for the Group. The Group operates in two principal business segments, namely video processor and video surveillance solution. The Group does not allocate any assets to the two segments as management does not use this information to measure the performance of the reportable segments.

(Loss)/income per share

The Group computes (loss)/income per share in accordance with ASC 260, Earning Per share (“ASC 260”). Basic net (loss)/income per share is computed by dividing net (loss)/income by the weighted-average number of ordinary shares outstanding during the year. Diluted net (loss)/income per share is computed by dividing net (loss)/income by the weighted-average number of ordinary shares outstanding and, if dilutive, the potential ordinary shares outstanding during the year.

The dilutive effect of outstanding stock options and restricted shares is reflected in diluted earnings per share by application of the treasury stock method for stock option and unvested shares. Potentially dilutive securities have been excluded from the computation of diluted (loss)/income per share if their effects would be anti-dilutive.

The following table sets forth the computation of basic and diluted (loss)/income attributable to ordinary shareholders per share:

Outstanding share options and non-vested restricted shares as of December 31 2013 were excluded from the computation of dilutive loss per share for the year ended December 31 2013 because of its anti-dilutive effect. For the year ended December 31, 2012, 24,544,023 share options and non-vested restricted shares were excluded from the calculation of dilutive earnings per share because of their anti-dilutive effect. For the year ended December 31, 2014, 14,640,968 share options and non-vested restricted shares were excluded from the calculation of dilutive earnings per share because of their anti-dilutive effect. The dilutive effects of the options and non-vested restricted shares are calculated using the treasury stock method.

Comprehensive (loss)/income

Comprehensive (loss)/income is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive loss be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Company's comprehensive (loss)/income includes net (loss)/income and foreign currency translation adjustments, deferred income received from disposal of a subsidiary and unrealized gain on marketable equity securities are presented in the consolidated statement of comprehensive income/(loss).

Leases

In accordance with ASC 840, Leases (“ASC 840”), leases for a lessee are classified at the inception date as either a capital lease or an operating lease. The Company assesses a lease to be a capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property's estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. The capital lease obligation reflects the present value of future rental payments, discounted at the appropriate interest rates. The cost of the asset is amortized over the lease term. The cost of the asset under capital lease is amortized as set out under the property, equipment and software (Note 8).

Operating lease expenses are recognized to the consolidated statements of comprehensive loss/income on a straight-line basis over the applicable lease term. The Group normalizes rental expense on operating leases that involve rent concessions.

Noncontrolling interests

Noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiary which is attributable, directly or indirectly, to the noncontrolling shareholder. Currently, the noncontrolling interests in the Company's consolidated financial statements consist primarily of noncontrolling interests for Tianjin SAMC.

Treasury stock

The Company accounted for those shares repurchased as treasury stock at cost in accordance with ASC 505-30, Treasury Stock, and shows them separately in the shareholders' equity as the Company believed that these shares are no longer outstanding and are held. Treasury stock is accounted for under the cost method.

Recent accounting pronouncements

In April 2014, The FASB issued Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal that “represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results.” The standard is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. Entities may “early adopt” the guidance for new disposals. The Group is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In May 2014, The FASB is amending the FASB Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers, to supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the amendments supersede some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Group is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In June 2014, under ASC 718, Compensation—Stock Compensation, the FASB issued Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. These amendments apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. For all entities, the amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Group is currently evaluating the impact on its consolidated financial statements of adopting this guidance. .

In August 2014, the FASB issued Presentation of Financial Statements – Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.