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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ASIA ONLINE, LTD.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7379 77-0501319
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
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16/F, ONE INTERNATIONAL FINANCE CENTRE
NO. 1 HARBOUR VIEW STREET
CENTRAL, HONG KONG
+852 2152 1888
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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THE CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 658-7581
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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MICHAEL L. PLATT, ESQ. DOUGLAS TANNER, ESQ.
BRANDON J. FIELDS, ESQ. BING SONG, ESQ.
KEVIN M. GALLIGAN, ESQ. MILBANK, TWEED, HADLEY & MCCLOY LLP
PAUL E. GROSS, ESQ. 3007 ALEXANDRA HOUSE
COOLEY GODWARD LLP 16 CHATER ROAD, CENTRAL, HONG KONG
2595 CANYON BOULEVARD, SUITE 250 +852 2971 4888
BOULDER, CO 80302-6737
(303) 546-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock, $.001 par value................... $100,000,000 $ 26,400
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(1) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
[ ] Shares
Asia Online, Ltd.
[LOGO]
Common Stock
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shares of common stock are initially being offered in the
United States and Canada by the U.S. underwriters and shares are initially
being concurrently offered outside the United States and Canada by the
international managers. The offering price and underwriting discounts and
commissions for both offerings are identical.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "AONL."
The U.S. underwriters and international managers have an option to purchase
on a pro rata basis up to additional shares to cover over-allotments.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
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UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS ASIA ONLINE
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Per Share...................................... $ $ $
Total.......................................... $ $ $
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Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
The date of this prospectus is , 2000.
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[INSIDE COVER]
[Artwork and Description attached separately]
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY................... 1
RISK FACTORS......................... 6
CAUTIONARY NOTE ON FORWARD-LOOKING
STATEMENTS......................... 18
USE OF PROCEEDS...................... 19
DIVIDEND POLICY...................... 19
DILUTION............................. 20
CAPITALIZATION....................... 21
SELECTED CONSOLIDATED FINANCIAL
DATA............................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 24
BUSINESS............................. 33
MANAGEMENT........................... 52
PRINCIPAL STOCKHOLDERS............... 62
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................... 66
DESCRIPTION OF CAPITAL STOCK......... 70
SHARES ELIGIBLE FOR FUTURE SALE...... 74
UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS.......... 75
UNDERWRITING......................... 78
NOTICE TO CANADIAN RESIDENTS......... 82
LEGAL MATTERS........................ 83
EXPERTS.............................. 83
WHERE YOU CAN FIND ADDITIONAL
INFORMATION........................ 84
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS......................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER
AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that may be important to you. You should read
the entire prospectus carefully in evaluating an investment in our shares.
ASIA ONLINE, LTD.
OUR BUSINESS
We provide Internet-related services focusing primarily on the needs of
small and medium-sized enterprises in the Asia-Pacific region. We offer our
customers a single source of cost-efficient, reliable Internet solutions,
including:
- Internet access ranging from narrow-band dial-up to dedicated high-speed
broadband, global roaming, prepaid Internet access cards, and a unified
messaging system including fax and telephone based email;
- Web hosting including shared and dedicated hosting and co-location
services using our 10 data centers and leased capacity from third-party
data centers; and
- Professional services including web solutions (consisting of web design,
web content translation and eCommerce), systems integration, enhanced
communications services, and application service provisioning.
We offer our web solutions to companies in North America, capitalizing on
our cost competitiveness in providing such services as our operations are based
in Asia, where labor and infrastructure costs are generally lower.
As a provider of outsourced Internet solutions, we provide a single source
for the services, professionals, and infrastructure that enable our customers to
reach new customers, increase revenues, reduce operating costs and operate
regionally and internationally.
Since our inception in late 1998, we have grown to provide Internet-related
services to over 60,000 business and consumer customers primarily located
throughout the Asia-Pacific region from our operations in Australia, New
Zealand, Hong Kong, Malaysia, the Philippines, Canada and the United States. Our
pro forma revenues for the year ended December 31, 1999 were $27.1 million, and
for the six months ended June 30, 2000 were $17.1 million.
OUR MARKET OPPORTUNITY
Small and medium-sized businesses in the Asia-Pacific region, our primary
target customer base, are demanding expanded Internet services to reach new
customers, increase revenues, reduce operating costs, and operate regionally and
internationally.
We believe the following will continue to expand our market opportunity:
- Growth of small and medium-sized businesses Internet solutions market;
- Growing trend toward outsourcing and demand for single source Internet
communications solutions;
- Lack of focus on the small and medium-sized business market by large
Internet service providers;
- More favorable regulatory environment;
- Fragmented Internet service market and inconsistent service quality; and
- Cost competitiveness for web solutions services.
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OUR STRATEGY
Our goal is to be the premier provider of Internet solutions to small and
medium-sized businesses in the Asia-Pacific region. Key elements of our strategy
are to:
- Expand our market presence through acquisitions, start-up organizations
and organic growth throughout the Asia-Pacific region;
- Integrate operations to leverage economies of scale, reduce costs, and
provide consistent and professionally managed customer support services;
- Be a single source of Internet solutions to meet our customers' evolving
business needs and build strong, long-term customer relationships;
- Develop strategic relationships with technology companies to enable us to
offer leading edge Internet solutions;
- Build and enhance our unified brand globally;
- Expand and upgrade our network and data center infrastructure on a
"just-in-time" basis; and
- Continue to attract and retain highly qualified and professional
personnel.
CORPORATE INFORMATION
As of June 30, 2000 we had acquired 15 businesses. Two additional
acquisitions are currently pending subject to closure. We regularly evaluate
potential acquisition candidates, are currently holding preliminary discussions
with a number of such candidates, and are in active negotiations with a number
of other candidates. If after due diligence and negotiation, such companies can
be acquired on a basis considered fair to Asia Online and our stockholders, we
may proceed with the acquisitions.
We were incorporated in Delaware in December 1998 under the name Conrad
ISP, Inc. In April 1999, we changed our name to Asia Online, Ltd. Our principal
executive office is located at 16/F One International Finance Center, No 1
Harbour View Street, Central, Hong Kong.
The corporate office telephone number is +852 2152 1888. The Asia Online,
Ltd. homepage is located at www.AsiaOnlineLtd.com. This is a textual reference
only. The information on our web site or any other web site does not constitute
a part of this prospectus.
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As used in this prospectus, references to "us," "we," "our," "our company"
and "Asia Online" are to Asia Online, Ltd.
As used in this prospectus, references to "$" shall mean United States
dollars.
Unless otherwise indicated, all references in this prospectus to the number
of outstanding shares of our common stock:
- give effect to the mandatory conversion of our Series A, B-1, B-2 and C
preferred stock into common stock upon the consummation of this offering;
and
- do not include the number of shares that we will issue if the United
States underwriters and international managers exercise their
over-allotment option.
In addition, the information in this prospectus assumes that the initial
public offering price will be $ per share, the mid-point of the estimated
offering price range set forth on the cover of this prospectus.
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THE OFFERING
This offering consists of the United States offering and the international
offering, each of which is described below. A total of shares will be
offered (plus shares subject to the United States underwriters' and
international managers' over-allotment option).
United States offering..... An offering in the United States and Canada of
shares.
International offering..... An offering outside the United States and Canada of
shares at the same time as the United States
offering.
Common stock to be
outstanding after this
offering................. shares or shares if the United States
underwriters and international managers exercise
their over-allotment option in full. This does not
include stock options and warrants outstanding to
purchase an aggregate of shares of our common
stock at a weighted average exercise price of
$ per share.
Use of proceeds............ We intend to use the net proceeds from this
offering for general corporate purposes, including
start-ups or acquisitions in our target markets, to
purchase certain minority interest holdings in our
Australian subsidiaries, to further expand our
professional services, sales and marketing
capabilities, product development, capital
expenditures, and working capital. See "Use of
Proceeds."
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SUMMARY CONSOLIDATED FINANCIAL DATA AND
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The tables below summarize:
- our historical consolidated financial data for the period from our
inception, December 8, 1998, to December 31, 1998, for the year ended
December 31, 1999 and for the six months ended June 30, 1999 and June 30,
2000; and
- our combined pro forma financial data for the year ended December 31,
1999 and for the six months ended June 30, 2000.
Our historical statement of operations data for the period from our
inception, December 8, 1998, to December 31, 1998 and for the year ended
December 31, 1999 are derived from our audited consolidated financial
statements. Our statement of operations data for the six months ended June 30,
1999 and for the six months ended June 30, 2000 and our balance sheet data as of
June 30, 2000 are derived from our unaudited interim financial statements and,
in the opinion of our management, include all material adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of
the results of operations and financial condition. Operating results for the six
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the full year.
The pro forma statement of operations data for the year ended December 31,
1999 and the six months ended June 30, 2000 and the pro forma balance sheet data
as of December 31, 1999 and as of June 30, 2000 give effect to our acquisition
of 15 businesses between February 1999 and June 2000, and also give effect to
two pending acquisitions. The pro forma statement of operations and balance
sheet data also give effect to the conversion of all of our outstanding
convertible preferred stock into common stock upon the consummation of this
offering. The pro forma financial data for the year ended December 31, 1999 and
the six months ended June 30, 2000 are not necessarily indicative of the results
that would have occurred if the acquisitions had been consummated as of January
1, 1999 and are not intended to indicate expected results for any future period.
The summary consolidated and combined pro forma financial data shown below
should be read together with our audited consolidated financial statements, our
unaudited interim financial statements, our unaudited pro forma condensed
combined financial statements, our acquired companies' financial statements and
related notes, and other financial information including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which appear elsewhere in this prospectus.
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HISTORICAL PRO FORMA
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PERIOD FROM (UNAUDITED) (UNAUDITED)
DECEMBER 8, SIX MONTHS ENDED (UNAUDITED) SIX MONTHS
1998 TO YEAR ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ------------------ DECEMBER 31, JUNE 30,
1998 1999 1999 2000 1999 2000
------------ ------------ ------- -------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.................... -- $ 7,092 $ 1,841 $ 14,388 $ 27,090 $ 17,077
Total operating costs and
expenses........................ -- 20,212 6,359 37,149 60,648 45,867
Loss from operations.............. -- (13,120) (4,518) (22,761) (33,558) (28,790)
Net loss attributable to common
stockholders.................... -- (12,507) (4,517) (20,177) (33,378) (27,440)
Net loss per share attributable to
common stockholders, basic and
diluted......................... -- $ (5.53) $ (2.57) $ (6.01)
Shares used in computing net loss
per share attributable to common
stockholders, basic and
diluted......................... -- 2,262 1,758 3,357
Pro forma net loss per share
attributable to common
stockholders, basic and
diluted......................... -- $ (0.93) $ (0.70) $ (2.03) $ (0.89)
Shares used in computing pro forma
net loss per share attributable
to common stockholders, basic
and diluted..................... -- 13,385 28,643 16,467 30,959
OTHER FINANCIAL DATA:
Net cash used in operating
activities...................... -- $ (6,290) $(1,950) $(10,715)
Net cash used in investing
activities...................... -- (19,527) (3,877) (40,349)
Net cash provided by financing
activities...................... -- 43,029 11,234 97,163
EBITDA(1)......................... -- (7,477) (3,033) (12,132)
Amortization...................... -- 2,964 567 5,628
Non-cash stock compensation
charges......................... -- 1,769 521 3,512
Capital expenditure............... -- $ 2,351 $ 222 $ 9,760
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AS OF JUNE 30, 2000
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HISTORICAL PRO FORMA
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 84,635 $ 68,209
Working capital............................................. 81,471 65,059
Total assets................................................ 142,615 157,435
Long-term obligations, net of current portion............... 855 855
Minority interest in consolidated subsidiaries.............. 4,213 1,378
Convertible preferred stock................................. 143,566 --
Total stockholders' (deficit)/equity........................ $(20,600) $140,553
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(1) "EBITDA" represents earnings or loss from operations before interest, taxes,
depreciation, amortization and non-cash compensation charges. Although
EBITDA is a measure commonly used in our industry, it should not be
considered an alternative to net earnings, when determined in accordance
with generally accepted accounting principles, or GAAP, or as an alternative
to cash flows from operating activities, determined in accordance with GAAP.
In addition, the measure of EBITDA we use may not compare to other similarly
titled measures used by other companies.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding whether to invest in shares of our common stock. The risks described
below are not the only ones facing our company. Additional risks not presently
known to us or that are currently deemed immaterial may also impair our business
in the future. The trading price of our common stock may decline due to any of
these risks and you may lose part or all of your investment.
RISKS RELATING TO OUR BUSINESS
RELIANCE ON OUR LIMITED OPERATING HISTORY TO EVALUATE OUR BUSINESS AND
PROSPECTS IS DIFFICULT AND MAY RESULT IN INACCURATE PROJECTIONS OF OUR FUTURE
PROSPECTS.
We were incorporated in December 1998, and made our first acquisition in
February 1999. Although a number of the operating companies we have acquired
have been in operation for some time, Asia Online itself has a limited history
of operations. Because of our limited operating history, it is difficult to
evaluate our business and our prospects. To date, our growth has been largely
through acquisitions rather than organic growth of our existing business. Our
historical financial information is of limited value in projecting our future
operating results because of our limited operating history and the emerging
nature of the market for products and services we plan to introduce in the
future, such as collaborative extranets, managed security services and expanded
applications service provisioning. Moreover, companies in an early stage of
development like us frequently encounter enhanced risks and unexpected expenses
and difficulties. Therefore, our past results and rate of growth may not be
meaningful and you should not rely on them as an indication of future
performance.
WE MAY NOT BE SUCCESSFUL IN CHANGING OUR FOCUS FROM INTERNET ACCESS TO
PROVIDING HOSTING AND PROFESSIONAL SERVICES.
We plan to derive the majority of our business from providing value-added
services, such as web hosting and professional services, to small and
medium-sized businesses in the Asia-Pacific region. While our revenues to date
have principally been generated from providing Internet access, our business
model is enhanced by generating revenues from value-added services. We cannot
predict whether demand for our Internet solutions such as web hosting, web
solutions and systems integration in the Asia-Pacific region and North America
will be sufficient to permit us to focus our business on value-added services.
WE HAVE A HISTORY OF LOSSES. WE EXPECT TO INCUR SIGNIFICANT LOSSES IN THE
FUTURE AS WE EXPAND OUR OPERATIONS AND WE MAY NEVER ACHIEVE PROFITABILITY.
We had net losses of $12.5 million in 1999 and $20.2 million for the six
months ended June 30, 2000. We have never been profitable and we expect to
remain unprofitable for the foreseeable future. We plan to continue to incur
significant expenses and to generate negative operating cash flow as we acquire
or start-up additional Internet solutions providers in our target markets, grow
our professional services, sales and marketing and product development
organizations and develop new services. In order to achieve profitability, we
must, among other things, develop and successfully market services that are
commercially accepted by Asia-Pacific small and medium-sized businesses. If we
are unable to increase our revenues to cover our operating costs and acquisition
expenditures, we will continue to experience negative cash flow.
WE ARE LIKELY TO NEED TO OBTAIN FUTURE CAPITAL, AND OUR INABILITY TO DO SO
COULD SIGNIFICANTLY HARM OUR BUSINESS AND OUR ABILITY TO FULFILL OUR BUSINESS
STRATEGY.
To date, we have not been able to fund our operations from cash generated
by our business and do not expect to be able to do so for the foreseeable
future. To date, we have had to fund our operations primarily from the proceeds
from the sale of equity securities. In the future, we expect that we will need
to raise additional financing in order to successfully pursue our business
strategy, including: acquiring or starting new businesses in our target markets,
supporting expansion, developing new and enhanced products
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and services, responding to competitive pressures and taking advantage of
unanticipated opportunities. We may need to raise additional funds by selling
debt or equity securities, by entering into strategic relationships or through
other arrangements. We may be unable to raise any additional funds on reasonable
terms when they are needed. If we are unable to raise additional capital on
favorable terms as and when we need it, we may be unable to successfully carry
out our business strategy.
IF WE DO NOT SUCCESSFULLY FORECAST THE NEEDS OF OUR TARGET MARKET WE MAY BE
UNABLE TO SUCCESSFULLY IMPLEMENT OUR STRATEGY.
Our target market is small and medium-sized businesses in the Asia-Pacific
region. In many of the Asia-Pacific countries, small and medium-sized businesses
have not yet adopted the Internet as an integral part of their business
strategy, and consequently there has not yet been significant demand for
value-added Internet communications services. In order for our strategy to be
successful, we must grow our customer base by attracting additional small and
medium-sized businesses, and accurately forecast the Internet services needs of
these businesses and the value of such services to them. Market information
about small and medium-sized businesses in the Asia-Pacific region is not as
readily available or as comprehensive as it is in the United States, so we have
limited information available to inform our understanding and analysis of local
markets. If we overestimate the needs of our market or the willingness of small
and medium-sized businesses to purchase higher cost Internet services such as
hosting, co-location, web design and other professional services, we may be
unsuccessful in selling value-added Internet services to our target market, and
we may be unable to successfully carry out our business strategy.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE DIFFICULT TO PREDICT, AND, IF
OUR RESULTS ARE BELOW THE EXPECTATIONS OF THE PUBLIC MARKET ANALYSTS AND
INVESTORS, THE PRICE OF OUR COMMON STOCK MAY DECLINE.
Our quarterly revenues and operating results may fluctuate significantly as
a result of a variety of factors, many of which are outside of our control. As a
result, you should not rely on year-to-year or quarter-to-quarter comparisons of
our operating results as an indication of future performance. Some of the
factors that may cause our revenues to fluctuate significantly include, but are
not limited to:
- the costs relating to, and the timing and integration of, our
acquisitions;
- changes in telecommunications and other operating costs;
- the timing and magnitude of capital expenditures relating to organic
growth of our operations;
- changes in our pricing policies in response to changing costs,
competition or industry trends such as consolidation;
- currency fluctuations; and
- unexpected regulatory changes in our target markets.
We may also experience seasonality in our business in the future, resulting
in diminished revenues as a consequence of reduced demand for Internet services
during summer or holiday periods.
We expect the September 2000 Olympic Games in Sydney, Australia to have a
negative impact on our professional services revenues from our Australian
operations through business interruptions for our corporate customers.
As a result of the foregoing factors, as well as others, our revenues in
some future reporting periods may be below the expectations of some analysts or
investors, which may cause our stock price to fall.
INCREASING COMPETITION FOR THE PURCHASE OF LOCAL INTERNET SOLUTIONS PROVIDERS
MAY IMPEDE OUR ABILITY TO MAKE FUTURE ACQUISITIONS AS WELL AS INCREASE THE
COST OF THESE ACQUISITIONS.
Our business strategy includes the identification and acquisition of new
local Internet solutions providers that meet our acquisition criteria. We cannot
guarantee that we will be able to identify
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appropriate acquisition candidates, negotiate acquisitions on favorable terms,
or complete future acquisitions. There are a limited number of companies in our
target markets that meet our criteria for price, revenues, market share and
qualified personnel. In pursuing these acquisitions, we compete with other
Internet solutions providers, local, regional, national and global
telecommunication companies and other buyers. These competitors may drive up the
price of our acquisition candidates or may acquire our acquisition candidates.
Many of these competitors are larger than us and have greater financial and
other resources. In addition, our acquisition candidates may find our
competitors more attractive because they may have greater resources, may be
willing to pay more, or may have a more compatible operating philosophy. If we
are unable to successfully complete acquisitions, it may delay or prevent the
growth of our business and may limit our entry into or expansion within certain
markets.
FINANCIAL INFORMATION ON WHICH WE RELY TO MAKE FUTURE ACQUISITIONS MAY NOT BE
ACCURATE, WHICH MAY RESULT IN OUR ACQUIRING UNDISCLOSED LIABILITIES OR
EXPERIENCING LOWER THAN EXPECTED OPERATING RESULTS.
The companies we target for acquisition typically do not have audited
financial statements and have varying degrees of internal controls and detailed
financial information. As a result, we may acquire undisclosed liabilities or
experience lower-than-expected revenues or higher-than-expected costs, which
could adversely affect our operating results. Any acquired company could
significantly underperform relative to our expectations. In particular, acquired
companies may experience revenue declines immediately following the closing of
the acquisition due to such factors as loss of customers, loss of personnel and
the transition of their products and services to those consistent with our
business plan. Additionally, undisclosed liabilities of the companies we acquire
may further impact our operating results by distracting management's attention
from operations, increasing legal and accounting expenses, slowing the
integration of our business and development of our brand identity. If an
acquired company turns out to be a poor performer, we may face problems related
to integrating operations with our existing operations and client satisfaction,
our reputation could be damaged, and we might have a dispute with the sellers of
the acquired entity.
FAILURE TO SUCCESSFULLY INTEGRATE OUR ACQUISITIONS COULD REDUCE REVENUES,
INCREASE COSTS, DIVERT MANAGEMENT TIME AND HARM OUR BUSINESS.
A key component of our growth strategy is the acquisition of Internet
services firms. We have acquired 15 businesses since our inception in December
1998, and two additional acquisitions are pending subject to closure. Our future
success will depend in part on our ability to rapidly integrate these
businesses, as well as any businesses acquired in the future, with our
operations. Since we are a relatively new company, our ability to meet these
challenges has not been proven. To integrate these businesses, we may need to,
among other things:
- integrate the product and service offerings of acquired companies into
the Asia Online brand;
- retain and motivate key personnel from acquired companies;
- identify partners of the acquired companies and migrate them to our
business partner program;
- consolidate individualized and localized sales and marketing efforts into
a regional sales and marketing effort under the Asia Online brand;
- consolidate their billing and accounting systems into our systems;
- implement integrated management reporting, financial and other control
systems; and
- migrate the operations of acquired companies onto our technology
platforms.
We are not able to estimate when, if at all, any of our acquired companies
will be fully integrated. If we are unable to successfully integrate or
experience substantial difficulty in integrating the operations of our
acquisitions with those of our operating companies, we may fall short of our
growth objectives or experience substantial costs, delays, or other problems and
our business could suffer. Additionally, the
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integration of our acquired companies, even if successful, requires substantial
management attention and can divert resources from other aspects of the
business, including aspects that could negatively affect our business, financial
condition and results of operations.
ENTERING A TARGET MARKET THROUGH A START-UP ENTITY INSTEAD OF THROUGH
ACQUISITION CAN INCREASE OUR RISK OF FAILURE AND MAY DELAY OUR ENTRY INTO SUCH
MARKET.
In certain of our target markets we may decide to form an operating
subsidiary and grow it organically rather than enter the market through an
acquisition. Forming an operating company and starting operations in a market
where we do not currently have operations requires substantial commitment of
personnel and financial resources. Forming a start-up entity would require us to
build market share, brand recognition and local expertise rather than acquiring
a company that may already possess those competitive advantages. This approach
would also delay our entry into a market and increase the likelihood that our
initial attempt at entry into a market could be unsuccessful.
FAILURE TO ENTER INTO STRATEGIC RELATIONSHIPS IN ORDER TO EXPAND THE SCOPE AND
QUALITY OF OUR PRODUCT AND SERVICE OFFERINGS COULD LIMIT OUR ABILITY TO MEET
OUR BUSINESS PLAN.
We are entering into, and plan to continue to enter into, strategic
relationships with business partners who can provide products that meet the
needs of our small and medium-sized business customers and partners who can help
us expand our geographical reach. There is a risk that we may be unable to enter
into agreements on favorable terms or at all with partners with whom we are
currently negotiating. Some of our current or potential strategic partners may
have economic, business or legal interests that are inconsistent or competitive
with ours. Of the agreements that we currently have, some are for a one-year
term and are terminable by the other party. Additionally, we have only a limited
amount of exclusivity in many of our strategic relationships. Our failure to
establish or maintain successful strategic relationships could slow our growth,
hamper our ability to respond effectively to customer demands for expanded
product and service offerings and harm our business.
THE GEOGRAPHIC DISPERSION OF OUR OPERATIONS, FACILITIES AND PERSONNEL MAY
DIFFUSE OUR MANAGEMENT CAPABILITIES.
Our current operations and facilities are widely dispersed throughout the
Asia-Pacific region, and within some of these countries we have multiple
operating companies. We are becoming more dispersed as we carry out our
expansion plans. Our operations are conducted in various countries with
different languages, cultures, and business practices. The requirements of
managing our widely dispersed operations may strain our management, personnel
and financial resources. Our management may be unable to carefully direct,
oversee and supervise the actions of all of our facilities and employees, which
could harm our business and future prospects.
WE WILL CONTINUE TO FACE SIGNIFICANT COMPETITION AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY.
There are competitors in our markets with more significant local market
presence, brand recognition and greater financial, technical and personnel
resources. As a result of this competition, we expect to continue to face
significant pressure to reduce our prices and improve the products and services
we offer. In particular, there is currently a trend toward consolidation in the
Internet access industry, which could result in reduced revenues from Internet
access. A significant reduction in revenues from Internet access could harm our
financial condition and results of operations. The barriers to entry are low for
some of the services we offer, such as web hosting and web design, so we could
quickly face additional competition. Although our competitors vary depending on
the market and the country, these competitors may include local and regional
Internet service providers, telecommunication companies, information technology
companies and cable companies. These competitors may be local, regional or
global companies. Some of our competitors, especially the telecommunications
companies, have large networks in place as well as a significant existing
customer base. These competitors may offer products and services that are more
appealing to our current and potential customers.
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WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND
ANY INABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH COULD HARM OUR
BUSINESS.
We were formed in December 1998, completed our first acquisition in
February 1999, and as of June 30, 2000 had acquired 15 businesses. We have grown
from 79 employees in two countries in February 1999, to 692 employees in seven
countries as of June 30, 2000. We seek to grow our company through further
acquisitions, start-up entities and the organic growth of our current
subsidiaries, along with expanding our product and service offerings. Growth is
expected to continue to place a significant strain on our managerial,
operational and financial resources. To manage further growth, we must
effectively manage our operational, customer service and financial systems,
procedures and controls. We may not be able to hire, train, retain, motivate and
manage required personnel. The majority of our current employees have been with
us less than 12 months and we expect that our rate of hiring will continue at a
very high pace. If we cannot manage growth effectively, our business, operating
results and financial condition will suffer.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND THE
LOSS OF ANY OF THESE OFFICERS OR KEY PERSONNEL COULD HARM OUR BUSINESS.
Our future success is substantially dependent on the continued services and
contributions of our senior management, particularly Kevin Randolph, our
President and Chief Executive Officer, and other key personnel. With the
exception of Kevin Randolph and Edward Roberto, our Executive Vice President of
Business Development, we have no long-term employment agreements with any of our
executive officers. We do not have "key person" life insurance on any of our key
employees. The loss of the services of any of our executive officers or other
key employees may delay the introduction of new products or services, impede the
organic growth of our business, delay or prevent potential acquisitions and
interfere with the integration of acquisitions, thus harming our business.
IF WE FAIL TO EXPAND OUR PRODUCT DEVELOPMENT, PROFESSIONAL SERVICES AND SALES
AND MARKETING ORGANIZATIONS AND ATTRACT, RETAIN, AND TRAIN TECHNICAL AND
MARKETING PERSONNEL, WE MAY BE UNABLE TO EXPAND OUR MARKET AND GROW OUR
BUSINESS.
We believe that our growth may be affected by our ability to provide our
customers with new products and services. Our business requires trained
product-development personnel, as well as experienced sales and marketing
personnel to educate prospective customers regarding the use and benefits of our
services. A wide range of companies active in our markets, many of which have
substantially greater resources than we have, compete for the same skilled
personnel. In turn, our inability to hire and train a sufficient number of
personnel at all levels may limit our ability to undertake future projects and
could cause us to lose market share. In addition, new professional services
personnel that require training and education will take time to reach full
productivity. As a result, our future success may be affected by our ability to
timely identify, attract, hire, train, retain and motivate highly skilled
technical, managerial, sales and marketing personnel. We plan to increase the
number of our product development, professional services and sales and marketing
personnel to meet these needs. It may be more difficult to attract prospective
employees with equity incentives as a larger, public company than as a smaller,
privately held company. Failure to retain and attract the necessary technical,
sales, marketing and administrative personnel could adversely affect our
business, financial condition and operating results.
WE RELY UPON THE AVAILABILITY OF ADEQUATE CONNECTIVITY WITH THIRD-PARTY
PROVIDERS, AND FAILURE OR DELAY IN OBTAINING NECESSARY CONNECTIVITY WOULD
IMPEDE OUR GROWTH.
In building our network we rely upon connectivity supplied by third-party
providers and local and international telecommunications carriers. In some of
our markets we are dependent on one or a limited number of connectivity
providers. Many of these carriers are, or potentially are, our competitors. In
some of our markets our ability to meet expanding access needs is limited by our
ability to obtain additional network capacity as our customer levels require it.
There can be no assurance that we will be able to obtain the requisite network
connectivity at commercially viable prices or that the necessary connectivity
will be available on a timely basis or at all. Failure to obtain this
connectivity would jeopardize our ability
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to meet existing customer demand, limit our ability to conduct business and
restrict our growth in these markets.
WE DEPEND ON THE RELIABILITY OF OUR NETWORK, AND A SYSTEM FAILURE OR A BREACH
OF OUR SECURITY MEASURES COULD RESULT IN A LOSS OF CUSTOMERS AND REDUCED
REVENUES.
We are able to deliver services only to the extent that we can protect our
network systems against damage from telecommunication failures, computer
viruses, natural disasters, unauthorized access and other disruptions. Any
system failure, accident or security breach that causes interruptions in our
operations could impair our ability to provide Internet services to our
customers, damage our reputation and negatively impact our revenues and results
of operations. Because much of our network is leased, we cannot always control
its quality. To the extent that any disruption or security breach results in a
loss or damage to our customers' data or applications, or inappropriate
disclosure of confidential information, we may incur liability and suffer from
adverse publicity. In addition, we may incur additional costs to remedy the
damage caused by these disruptions or security breaches. Although we currently
possess errors and omissions insurance and business interruption insurance,
these policies may not provide effective coverage upon the occurrence of all
events. We have insurance specifically to guard against losses resulting from
computer viruses and security breaches, but, it may not be sufficient to cover
all losses.
IF THE THIRD-PARTY SOFTWARE AND HARDWARE WE USE FAILS OR BECOMES UNAVAILABLE,
WE COULD LOSE CUSTOMERS OR BE SUBJECT TO CLAIMS FOR LIABILITY.
We have incorporated software and hardware developed by third parties,
including security, encryption and database software as well as router and
server hardware, into our products and services. We expect to continue to
incorporate third-party software and hardware in our future products and
services. If the providers from whom we license software or obtain hardware
ceased to deliver and support these products, enhance their current products in
a timely fashion or respond to emerging industry standards, our business could
be seriously harmed. Defects in third-party software or hardware could damage
our reputation, increase our service costs, cause service interruptions, cause
us to lose revenue or delay market acceptance of our products and services. We
have no control over whether or when this third-party software or hardware will
be developed or enhanced.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT TO ACQUIRE US.
Provisions in our certificate of incorporation and our bylaws, as well as
Delaware law, could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. These provisions could
adversely affect the rights of our stockholders and the price of our common
stock. These provisions are described in more detail later in this prospectus
under "Description of Capital Stock -- Anti-Takeover Effects of Certain
Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws."
RISKS RELATING TO THE INTERNET, OUR INDUSTRY AND THE ASIA-PACIFIC MARKETS.
THE ECONOMIC, POLITICAL, REGULATORY AND STATUTORY UNCERTAINTIES OF DOING
BUSINESS IN THE ASIA-PACIFIC REGION MAY INCREASE OUR OPERATING COSTS WHILE
REDUCING OUR BUSINESS PROSPECTS.
There are certain risks inherent in conducting business in the Asia-Pacific
region that could affect our profitability, including:
- political and economic instability;
- cultural differences across markets within the Asia-Pacific region;
- risk of government expropriation of our business or some of our
subsidiaries;
- export restrictions, tariffs and other trade barriers;
- changes in regulatory requirements;
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- legal restrictions on the business practices of United States companies
operating outside of the United States, such as the Foreign Corrupt
Practices Act; and
- potential adverse tax consequences and developments.
For example, we are subject to the following political risks in key
markets:
- Hong Kong may not remain autonomous from the People's Republic of China.
Although Hong Kong currently has its own government and legislature
separate from that of the People's Republic of China, we can give no
assurance that Hong Kong will continue to remain autonomous. Any loss of
autonomy could directly affect the regulation of business in Hong Kong
and indirectly affect the economic stability of the entire Asia-Pacific
region, and thereby adversely affect our business.
- Political or military conflict between Taiwan and the People's Republic
of China may destabilize the Asia-Pacific region and render us unable to
transact business in Taiwan, the People's Republic of China and other
countries in the region, and adversely affect our business.
THE ECONOMIC CLIMATE IN THE ASIA-PACIFIC REGION IS VOLATILE AND A DOWNTURN IN
ANY ONE OF THE ECONOMIES WE OPERATE IN COULD ADVERSELY AFFECT OUR BUSINESS.
Our operating results and future growth are affected by the economies of
various countries in the Asia-Pacific region. Many countries in the Asia-Pacific
region experienced significant economic downturns and related difficulties
beginning in mid-1997. As a result of the decline in the value of the region's
currencies, many governments in the Asia-Pacific region and companies operating
in the region had difficulties servicing foreign currency denominated debt and
many corporate borrowers defaulted on their payments. These currency
fluctuations, as well as resulting higher interest rates and other factors,
materially and adversely affected the economies of many countries in the
Asia-Pacific region. We can give no assurance that recent improvements in
economic conditions in the Asia-Pacific region will continue or that any such
improvement can be sustained. Any adverse economic developments in the
Asia-Pacific region could materially and adversely affect our current and target
markets and, as a result, our business and our prospects.
GOVERNMENTAL REGULATION AND THE APPLICATION OF EXISTING LAWS TO THE INTERNET
MAY SLOW THE INTERNET'S GROWTH, INCREASE OUR COSTS OF DOING BUSINESS AND
INHIBIT OUR ABILITY TO PROVIDE SERVICES TO OUR CUSTOMERS.
Laws and regulations directly applicable to Internet communications are
becoming more prevalent. The international nature of the Internet and the
possibility that we may be subject to conflicting laws of, or the exercise of
jurisdiction by, different countries may make it difficult or impossible to
comply with all the laws that may govern our activities. Furthermore, the law
relating to the liability of online service providers for information carried on
or disseminated through their networks is currently unsettled. New laws and
regulations in the Asia-Pacific region or in the United States could inhibit the
expansion of the Internet, prevent or limit our ability to operate in certain of
our markets, expose us to compliance costs and substantial liability and could
result in costly and time consuming litigation, all of which could materially
harm our business, operating results and financial condition. Additionally, we
face these same risks because of uncertainties about how existing laws will be
applied to address the Internet. New and existing laws may cover issues that
affect our business, such as:
- national sovereignty issues, including controls on foreign ownership of
Internet-related companies, export controls governing encryption
containing software and national security concerns;
- rights and protection of Internet users, including user privacy, libel
and defamation, consumer protection, pornography and obscenity laws and
government interception of data traffic;
- controls on the Internet as a market place, including sales and other
taxes, telecommunications access fees, pricing, characteristics and
quality of products and services, antitrust and fair trade laws;
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- the level and scope of competition from telecommunications or cable
companies;
- limits on foreign ownership of companies in general or communications
services companies specifically; and
- copyright, trademark and patent infringement laws.
To comply with new or existing laws regulating electronic business and
information on the Internet, we may need to modify the manner in which we do
business, which could result in additional expenses and could slow our growth.
We may need to hire additional personnel to monitor our compliance with
applicable laws. A restrictive regulatory policy regarding the Internet industry
in any country in the Asia-Pacific region could have a direct material adverse
effect on us by retarding the industry's growth in such countries. Any liability
as a result of a change in laws or failure to comply with laws could harm our
operations and financial condition.
WE MAY BE LIABLE FOR INFORMATION DISSEMINATED OVER OUR NETWORK.
We may face liability for information carried on or disseminated through
our network. Some types of laws that may result in our liability for information
disseminated over our network include:
- laws designed to protect intellectual property, including trademark and
copyright laws;
- laws relating to publicity and privacy rights and laws prohibiting
defamation;
- laws restricting the collection, use and processing of personal data;
- laws prohibiting the sale, dissemination or possession of pornographic
material; and
- other laws relating to the nature and content of Internet materials. The
laws governing these matters vary from jurisdiction to jurisdiction. If
we violate laws governing content on our network, we may face fines,
temporary disruption of our service or loss of required operating
licenses, depending on the jurisdiction.
UNDERDEVELOPED OR UNRELIABLE TELECOMMUNICATIONS AND INTERNET INFRASTRUCTURE
MAY LIMIT THE GROWTH OF THE INTERNET IN THE ASIA-PACIFIC REGION AND THE
QUALITY OF OUR SERVICE, WHICH MAY ADVERSELY AFFECT OUR BUSINESS.
Our customers access our services either through their dial-up telephone
lines or dedicated lines provided by local telecommunications companies
specifically for that use. In some of our markets, we experience delays in
delivery of new telephone lines that have prevented our customers from accessing
our services. These delays result in lost revenues. Additionally, some local
telecommunications companies that provide Internet services provide delivery of
dial-up or dedicated lines to their Internet customers on a preferential basis,
which may cause us to lose current and potential customers.
We also lease network capacity from telecommunications companies and rely
on the quality and availability of their service. These companies may experience
disruptions of service that could disrupt our services to, or limit Internet
access for, our customers and adversely affect the perceived quality or
reliability of our services. We may not be able to replace or supplement these
services on a timely basis or in a cost-effective manner, which may result in
customer dissatisfaction and lost revenues. Where we have not yet leased network
capacity, we are dependent on public channels over the Internet for routing and
network redundancy and cannot assure the quality of service. The quality of our
services is ultimately limited by, and reliant upon, the speed and reliability
of the networks operated by third parties. Any perceived degradation in the
performance of the Internet could undermine the benefits of our services.
Consequently, the emergence and growth of the market for our services is
dependent on improvements being made to the entire Internet infrastructure in
the Asia-Pacific region to alleviate overloading and congestion.
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CURRENCY FLUCTUATIONS COULD DECREASE OUR REVENUE OR INCREASE OUR COSTS. IN
ADDITION, RESTRICTIONS ON CURRENCY EXCHANGE MAY ADVERSELY AFFECT OUR
OPERATIONS AND OUR FINANCIAL PERFORMANCE.
We conduct business in multiple countries in the Asia-Pacific region and
generate revenue, expenses and liabilities in multiple Asia-Pacific currencies.
Gains and losses on the conversion of foreign payments may contribute to
fluctuations in our results of operations, and fluctuating exchange rates could
cause reduced revenue and gross margins from international sales. For example,
the value of the Australian dollar against the U.S. dollar fell by 7.4% between
December 31, 1999 and June 30, 2000. Since each Australian dollar converted to
fewer U.S. dollars, our U.S. dollar revenue was reduced accordingly. In the
past, the currencies of the Asia-Pacific region have experienced significantly
more volatility than this particular example. We currently do not engage in any
currency hedging activities. In addition, some of the countries in which we
operate or plan to operate impose exchange controls. As a result, we may not be
able to freely convert the relevant local currencies into other Asia-Pacific or
non-Asia-Pacific currencies, including U.S. dollars. Currency rate fluctuations
and exchange controls may adversely affect our operations and financial
performance.
OUR BUSINESS AND PROSPECTS WILL SUFFER IF THE INTERNET DOES NOT DEVELOP INTO
AN EFFECTIVE COMMERCIAL AND INFORMATION MEDIUM IN THE ASIA-PACIFIC REGION.
The market for Internet services, particularly Internet based business
solutions, in the Asia-Pacific region is relatively new and is changing rapidly.
We believe that only a very small percentage of Asia-Pacific small to
medium-sized enterprises have adopted the Internet as a component of their
business strategy. The general population of the Asia-Pacific region uses the
Internet much less than in the United States. Because the Internet is an
unproven medium for information, advertising and other commercial services in
the Asia-Pacific region, our future operating results and prospects depend on
increasing the acceptance and use of the Internet for business and commerce in
the Asia-Pacific region. Many potential customers may have limited experience
with the Internet, may not have devoted a significant portion of their available
funds to web site development and may not find the Internet to be effective for
promoting, distributing or conducting their products and services relative to
traditional means. Furthermore, critical issues concerning the commercial use of
the Internet in the Asia-Pacific region, such as security, reliability, cost,
ease of deployment, administration and quality of services, may affect the
acceptance and adoption of the Internet to solve business needs. The failure of
the Internet to develop widespread acceptance as a medium for commerce and
personal communications in our markets could greatly limit our market and reduce
our revenues.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE COULD LOSE CUSTOMERS.
To remain competitive, we must continue to enhance and improve the
functionality and features of our services. If competitors introduce new
products and services featuring new technologies, or if new industry standards,
technologies and practices emerge, our existing technology and systems may
become obsolete or the relative benefit of our services to customers may be
diminished. Keeping up with changes in technology could require substantial
expenditures of time and money by us. Furthermore, we may fail to use new
technologies effectively, or we may be unable to license or otherwise obtain
desired new technologies from third parties.
THE AVAILABILITY OF PROTECTION FOR INTELLECTUAL PROPERTY RIGHTS IN THE CONTEXT
OF THE INTERNET, LEGAL PROTECTION OF INTERNET DOMAIN NAMES AND ENFORCEABILITY
OF EMPLOYEE NON-COMPETITION AGREEMENTS REMAINS UNCERTAIN.
We rely on trademark and copyright law, laws restricting unfair trade
practices, laws relating to trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to protect
our intellectual property rights. The applicability and enforceability of legal
principles concerning intellectual property rights in an Internet context and
the enforceability of non-competition agreements with our employees remains
substantially uncertain as the courts and legislatures in the Asia-
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Pacific region continue to address the issues. In many of the countries in the
Asia-Pacific region, the courts have not had the opportunity to address the
legal issues within the Internet context to the same degree as United States
courts. It is therefore uncertain whether the intellectual property of our
operations located outside of the United States will be subject to a lesser
degree of protection than that generally afforded in the United States.
The relationship between regulations governing Internet domain names and
laws protecting trademarks and similar proprietary rights is unclear, and each
may be governed by different laws in the United States and each jurisdiction in
the Asia-Pacific region. We may be unable to prevent third parties from
acquiring Internet domain names that are similar to, infringe upon or otherwise
decrease the value of our Internet domain names and we may need to protect our
rights through litigation. If we are unable to adequately protect our
trademarks, our Internet domain names and other intellectual property rights, or
must incur costs in doing so, our brand name could be diluted and our business
could be harmed.
INVESTORS MAY NOT BE ABLE TO ENFORCE JUDGMENTS BY UNITED STATES COURTS AGAINST
US.
We are incorporated in the State of Delaware. However, several of our
directors and a majority of our executive officers live outside the United
States, principally in Hong Kong. Also, all or most of our assets are located
outside the United States. As a result, you may not be able to:
- effect service of process upon us or these persons within the United
States; or
- enforce against us or these persons judgments obtained in United States
courts, including judgments relating to the federal securities laws of
the United States.
RISKS RELATING TO THIS OFFERING
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND MAY APPLY THE
PROCEEDS TO USES THAT DO NOT INCREASE OUR PROFITS OR MARKET VALUE.
We have not designated any specific use for the net proceeds from the sale
of our common stock. Although we expect to use the net proceeds of the offering
to complete additional acquisitions and for start-ups, to purchase certain
minority interest holdings in our Australian subsidiaries, to further expand our
professional services, sales and marketing and product development capabilities
and for other general corporate purposes, our management will have broad
discretion in applying the net proceeds of this offering. Because we are not
required to allocate the proceeds of this offering to any specific investment or
transaction, you will not be able to determine at this time the value or
appropriateness of our use of the proceeds. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions on how to use the proceeds. Our management's allocation of the
proceeds of this offering may not benefit our business, and we may not be able
to obtain a significant return on any use of the proceeds of this offering.
THE PRICE PER SHARE OF OUR COMMON STOCK IN THIS OFFERING MAY NOT BE INDICATIVE
OF THE MARKET PRICE THAT WILL PREVAIL AFTER THIS OFFERING.
Since our stock has not yet traded publicly, our management and the
underwriters will negotiate the common stock's initial public offering price per
share. The price they determine may not be indicative of the market price that
will prevail after this offering. For example, the market price of our common
stock after this offering could vary from the initial public offering price in
response to any of the following factors, some of which are beyond our control:
- changes in earnings estimates or recommendations by analysts;
- future announcements concerning us or our competitors of key personnel
changes;
- significant contracts, strategic partnerships, acquisitions,
technological innovations or capital commitments;
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- additions or departures of key personnel;
- quarterly fluctuations in operating results; and
- fluctuations in the stock price and volume of traded shares, especially
in the traditionally volatile Internet-related and technology sectors.
A SMALL NUMBER OF EXISTING STOCKHOLDERS WILL RETAIN SUBSTANTIAL CONTROL OVER
OUR BUSINESS AFTER THE OFFERING.
Our largest stockholders will beneficially own approximately %
of our outstanding common stock following the completion of this offering. These
entities, acting together, will be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers and other business combinations and may make decisions
that are not in the best interest of all stockholders.
THE PRICE FOR OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY AND MAY BE HIGHLY VOLATILE AND LIMIT YOUR ABILITY TO SELL OUR COMMON
STOCK FOR A GAIN.
The market price and trading volume of our common stock is likely to be
highly volatile. In particular, the market for Internet-related and technology
companies has been highly volatile. Investors may not be able to sell their
shares of our common stock following periods of volatility because of the
adverse reaction by the market to such volatility.
Factors that could cause such volatility may include, among other things:
- the economic environment in Asia;
- investor perceptions of us and investments relating to the Asia-Pacific
region;
- announcements of technological innovations;
- variations in our operating results from period to period due to project
timing;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and telecommunications industry;
- changes in the market valuations of other Internet companies; and
- announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures.
In addition, the technology sector of the stock market frequently
experiences extreme price and volume fluctuations, which have particularly
affected the market prices of many Internet companies, and which have often been
unrelated to the operating performance of these companies.
Fluctuations in our common stock's price may affect our credibility in the
Internet communications solutions market. In the event of broad fluctuations in
the market price of our common stock, you may be unable to resell your shares at
or above the offering price.
Securities class action litigation has often been brought against companies
that experience volatility in the market price of their securities. Litigation
brought against us could result in substantial costs to us in defending against
a lawsuit and management's attention could be diverted from our business.
AN ACTIVE TRADING MARKET FOR OUR SHARES MAY NOT DEVELOP AND THE TRADING PRICE
FOR OUR SHARES MAY FLUCTUATE SIGNIFICANTLY.
Prior to this offering, there has been no public market for our shares. If
an active public market for our shares does not develop after this offering, the
market price and liquidity of our shares may be adversely affected. We have
applied to have our common stock approved for quotation on The Nasdaq
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Stock Market's National Market. We can provide no assurances that a liquid
public market for our shares will develop.
The initial public offering price for our shares has been determined by
negotiation between us and the United States underwriters and international
managers based upon several factors and we can provide no assurance that the
price at which the shares are traded after this offering will not decline below
the initial offering price.
In addition, The Nasdaq Stock Market's National Market has from time to
time experienced significant price and volume fluctuations that have affected
the market prices for the securities of technology companies, particularly
Internet companies. As a result, investors in our shares may experience a
decrease in the value of their shares regardless of our operating performance or
prospects. In the past, following periods of volatility in the market price of a
company's securities, shareholders have often instituted securities class action
litigation against that company. If we were involved in a class action suit, it
could divert the attention of senior management, and, if adversely determined,
could have a material adverse effect on our business, financial condition and
results of operations.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR STOCK
PRICE TO FALL AND DECREASE THE VALUE OF YOUR INVESTMENT.
Immediately after the offering, the public market for our common stock will
include only the shares that we are selling in the offering. At that time,
there will be an additional shares of common stock outstanding. The persons
that hold of these shares will be able to sell these shares in the
public market upon the expiration of the 180-day lock-up agreements which they
have executed. If our stockholders sell substantial amounts of common stock
(including shares issued upon the exercise of outstanding options) in the public
market following this offering, the market price of our common stock could fall.
Such sales might also make it more difficult for us to sell equity securities in
the future at a time and price that we deem appropriate.
Certain of our existing stockholders who purchased our preferred stock have
the right to require us to register their shares of common stock issued upon
conversion of the preferred stock with the Securities and Exchange Commission.
If we register their shares of common stock, they can sell those shares in the
public market. After the offering, we intend to register approximately
shares of common stock that we have issued or may issue under our
stock plans. Once we register these shares, they can be sold in the public
market upon issuance, subject to the "lock-up" agreements referred to above.
An increase in the number of shares for sale in the public market may limit
the marketability of the shares sold in this offering and, by depressing demand
for our stock, may limit our ability to raise additional money in the public
market.
YOU WILL PAY A HIGHER PRICE FOR OUR COMMON STOCK THAN WAS PAID BY EXISTING
STOCKHOLDERS AND WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share, and our existing stockholders will experience an unrealized
gain of $ million in the aggregate.
17
<PAGE> 22
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, all of which
are subject to risks and uncertainties. Forward-looking statements contain
information concerning our possible or assumed business success of future
results of operations. These forward-looking statements may be found in the
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," and other sections
of this prospectus. Forward-looking statements include, but are not limited to,
statements as to our expectations regarding:
- our future revenue opportunities;
- the future growth of, change in, and demand for Internet-related services
and business;
- our future expense levels, including acquisitions, sales and marketing,
general and administrative expenses, and non-cash expenses such as
compensation and amortization of goodwill and other intangibles;
- our future capital needs;
- our use of the net proceeds of this offering; and
- future financial pronouncements.
When we use words such as "believe," "expect," "anticipate," "plan," "may"
or similar words, we are making forward-looking statements.
You should also be aware that the Internet services and telecommunications
industries and Internet studies and reports that we refer to in this prospectus
also make forward-looking statements concerning, among other things, the future
growth of the Internet services and telecommunications industries, Internet
usage and Internet applications for commercial and consumer purposes globally
and in the Asia-Pacific region. These industry studies and reports base their
forward-looking statements on a number of different factors and assumptions, all
of which are beyond our control. These industry studies and reports are also
based on other assumptions, including assumptions that are specifically
identified in the reports. All of these assumptions are subject to a high degree
of uncertainty. One or more of these assumptions may turn out to be incorrect.
Accordingly, actual developments in the Asia-Pacific region may differ
materially from the projections contained in these industry studies and reports.
The telecommunications industry and Internet-related markets in the Asia-Pacific
region may not grow at the rates projected by these studies and reports.
An investment in our securities involves risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those set
forth in "Risk Factors" and elsewhere in this prospectus. You should carefully
consider such factors before you make an investment decision.
18
<PAGE> 23
USE OF PROCEEDS
We estimate that we will receive approximately $ million in net
proceeds from this offering based upon an assumed initial public offering of
$ per share. This amount reflects deductions from the gross proceeds of the
offering of approximately $ for underwriting discounts and an estimated
$ for the expenses of this offering. If the underwriters exercise their
over-allotment option in full, we estimate that our net proceeds will be
approximately $ million.
We intend to use the net proceeds from the offering for general corporate
purposes, including start-ups or acquisitions serving our target markets,
purchase of certain minority interest holdings in our Australian subsidiaries,
expansion of our professional services, and sales and marketing capabilities,
product development, capital expenditures, and working capital. The net proceeds
of this offering will be invested in short-term, interest-bearing,
investment-grade securities until they are used.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future.
19
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $94.1
million, or $2.76 per share of common stock. Pro forma net tangible book value
represents the amount of total tangible assets less total liabilities, divided
by the total number of shares of common stock outstanding, after giving effect
to the conversion of all outstanding shares of preferred stock into common stock
upon the closing of this offering. Dilution in pro forma net tangible book value
per share represents the difference between the assumed initial purchase price
and the pro forma net tangible book value per share of our common stock
immediately after completing this offering. After giving effect to our receipt
of the net proceeds from the sale of the shares of common stock in this
offering at an assumed initial public offering price of $ per share and
after deducting applicable underwriting fees and estimated offering expenses,
our adjusted pro forma net tangible book value as of June 30, 2000 would have
been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
2000................................................... $
Increase in pro forma net tangible book value per share
attributable to new investors..........................
----
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution in pro forma net tangible book value per share to
new investors.......................................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 2000,
the differences between existing stockholders and the new investors with respect
to:
- the number of shares of common stock purchased from us;
- the total consideration paid to us; and
- the average price per share paid by existing stockholders and by new
investors purchasing shares in this offering at an assumed public
offering price of $ per share (before deducting estimated
underwriting discounts and commissions and offering expenses payable by
us).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 34,056,690 % $ 150,211 % $4.411
New investors.........................
---------- ----- ------------ -----
Total....................... -- 100.0% $ -- 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to shares, or %, of the
total number of shares of common stock outstanding after this offering.
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of June 30, 2000. New investors in this offering will be further
diluted to the extent that these options are exercised. If all outstanding
options outstanding as of June 30, 2000 were exercised on the date of closing of
this offering, investors purchasing shares in this offering would suffer total
dilution of $ per share.
20
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis;
- on a pro forma basis to reflect the automatic conversion of all of our
preferred stock into 30,451,438 shares of common stock upon the closing
of this offering; and
This table should be read together with the consolidated financial
statements and notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term capital lease obligations, less current portion... $ 855 $ 855
======== ========
Preferred stock, $.001 par value, 44,100,000 shares
authorized, 30,451,438 shares issued and outstanding;
no shares issued and outstanding pro forma............. 143,566 --
Stockholders' (deficit)/equity:
Common stock, $.001 par value, 155,000,000 shares
authorized; 3,605,252 shares issued and outstanding;
34,056,690 shares issued and outstanding pro forma..... 4 4
Additional paid-in capital................................ 22,897 166,433
Deferred stock-based compensation......................... (10,975) (10,975)
Accumulated deficit....................................... (32,684) (32,684)
Accumulated other comprehensive (loss)/gain............... 158 158
-------- --------
Total stockholders' (deficit)/equity.............. (20,600) 122,966
-------- --------
Total capitalization.............................. $123,821 $123,821
======== ========
</TABLE>
---------------
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000. You should be
aware that we are permitted, and in some cases, obligated, to issue shares of
common stock in addition to the common stock to be outstanding after this
offering. The following is a summary of these additional shares of common stock:
- 2,301,786 shares issuable upon the exercise of options outstanding as of
June 30, 2000 under our stock option plan, at a weighted average exercise
price of $0.47 per share; and
- 1,097,334 additional shares that could be issued under our stock option
plan.
21
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the year ended December
31, 1999 and the consolidated balance sheet data as of December 31, 1999 are
derived from our audited consolidated financial statements included elsewhere in
this prospectus. The consolidated statement of operations data for the six
months ended June 30, 2000 and the consolidated balance sheet data as of June
30, 2000 are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus. The historical results are not
necessarily indicative of the results to be expected in future periods.
The pro forma statement of operations data for the year ended December 31,
1999 and the six months ended June 30, 2000 and the pro forma balance sheet data
as of December 31, 1999 and as of June 30, 2000 give effect to our acquisition
of 15 businesses between January 1, 1999 and June 30, 2000, to two pending
acquisitions and to the conversion of all of the outstanding convertible
preferred stock into common stock upon the closing of this offering. The pro
forma financial data for the year ended December 31, 1999 and the six months
ended June 30, 2000 are not necessarily indicative of the results that would
have occurred if the acquisitions had been consummated as of January 1, 1999 and
are not intended to indicate expected results for any future period.
These statements should be read together with our audited consolidated
financial statements, unaudited interim financial statements, unaudited pro
forma condensed combined financial statements, our acquired companies' financial
statements and related notes and other financial information including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this prospectus.
22
<PAGE> 27
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------- --------------------------
PERIOD FROM (UNAUDITED) (UNAUDITED)
DECEMBER 8, SIX MONTHS ENDED (UNAUDITED) SIX MONTHS
1998 TO YEAR ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ------------------------- DECEMBER 31, JUNE 30,
1998 1999 1999 2000 1999 2000
------------ ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues:
Internet access...................... -- $ 4,979 $ 1,431 $ 7,306 $ 15,543 $ 7,886
Web hosting.......................... -- 265 51 762 889 874
Professional Services................ -- 1,848 359 6,320 10,658 8,317
-- -------- ------- -------- -------- --------
Total Revenues.............. 7,092 1,841 14,388 27,090 17,077
== ======== ======= ======== ======== ========
OPERATING COSTS AND EXPENSES:
Internet service expenses.......... -- 3,332 987 8,602 14,700 10,217
Selling, general and
administrative................... -- 11,237 3,887 17,918 19,240 19,065
Depreciation....................... 910 397 1,489 1,575 1,561
Amortization....................... -- 2,964 567 5,628 23,364 11,512
Stock-based compensation........... -- 1,769 521 3,512 1,769 3,512
-- -------- ------- -------- -------- --------
Total operating costs and
expenses.................. -- 20,212 6,359 37,149 60,648 45,867
== ======== ======= ======== ======== ========
Loss from operations................. -- (13,120) (4,518) (22,761) (33,558) (28,790)
Other operating expenses:
Interest income.................... -- 420 10 1,618 429 1,619
Interest expense................... (20) (9) (112) (110) (144)
Loss before minority interests and
taxation........................... -- (12,720) (4,517) (21,255) (33,239) (27,315)
Income tax........................... -- (26) -- (125) (95) (125)
Minority interest.................... -- 239 -- 1,203 (44) 0
Net loss attributable to common
stockholders....................... -- $(12,507) $(4,517) $(20,177) $(33,378) $(27,440)
Basic and diluted loss per share
attributable to common
stockholders....................... -- $ (5.53) $ (2.57) $ (6.01)
Shares used in computing basic and
diluted loss per share............. -- 2,262 3,357
Basic and diluted pro forma loss per
share attributable to common
stockholders....................... $ (0.93) $ (0.70) $ (2.03) $ (0.89)
Shares used in computing pro forma
basic and diluted loss per share... 13,385 6,918 28,643 16,467 30,959
OTHER FINANCIAL DATA:
Net cash used in operating
activities......................... -- $ (6,290) $(1,950) $(10,715)
Net cash used in investing
activities......................... -- (19,527) (3,877) (40,349)
Net cash provided by financing
activities......................... -- 43,029 11,234 97,163
EBITDA(1)............................ -- (7,477) (3,033) (12,132)
Capital expenditure.................. -- $ 2,351 $ 222 $ 9,760
</TABLE>
---------------
(1) "EBITDA" represents earnings or loss from operations before interest, taxes,
depreciation, amortization and non-cash compensation charges. Although
EBITDA is a measure commonly used in our industry, it should not be
considered an alternative to net earnings, when determined in accordance
with generally accepted accounting principles, or GAAP, or as an alternative
to cash flows from operating activities, determined in accordance with GAAP.
In addition, the measure of EBITDA we use may not compare to other,
similarly titled measures used by other companies.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 63,336 $ 46,910
Marketable securities....................................... 21,299 21,299
Working capital............................................. 81,471 65,059
Total assets................................................ 142,615 157,435
Long-term obligations, net of current portion............... 855 855
Convertible preferred stock................................. 143,566 --
Total stockholders' (deficit)/equity........................ $(20,600) $140,553
</TABLE>
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements, including the related notes, and the other financial information
appearing elsewhere in this prospectus. Our short history and rapid growth
through acquisitions and organic operations make it difficult to discern
meaningful trends in our historical financial statements. In addition to
historical information, the following discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated by such forward-looking statements due to the
factors discussed in the sections entitled "Cautionary Note on Forward-Looking
Statements" and "Risk Factors" and elsewhere in this prospectus.
INTRODUCTION
We provide cost-efficient, reliable Internet-related services focusing
primarily on the needs of small and medium-sized businesses in the Asia-Pacific
region. Since our inception in late 1998, we have grown to provide
Internet-related services to over 60,000 business and consumer customers
primarily located throughout the Asia-Pacific region. We have operations in
Australia, New Zealand, Hong Kong, Malaysia, the Philippines, India, Canada and
the United States. For the six months ended June 30, 2000 our pro forma revenues
were $17.1 million. We have rapidly established our regional presence by
acquiring 15 Internet service businesses in five countries in the Asia-Pacific
region. Two additional acquisitions are pending subject to closure. We intend to
expand our presence in the Asia-Pacific markets through additional acquisitions
or through establishing start-up operations.
We were formed in December 1998 and earned no income and incurred no
material expenses from formation to February 1999, when we acquired our initial
Hong Kong and Philippines businesses. In September and October 1999, we acquired
six businesses in Australia and one in New Zealand. In the first half of 2000,
we acquired six additional businesses, three in Hong Kong, one in Malaysia and
two in Australia. We also opened sales offices in San Francisco in October 1999
and in Toronto in July 2000 and a business development office in New Delhi in
March 2000.
Our financial statements for the year ended December 31, 1999 and for the
six months ended June 30, 2000 reflect acquisitions and the growth of existing
operations. Our acquisitions have been accounted for using the purchase method
of accounting and, accordingly, the net assets and results of operations of each
acquired company have been included in our consolidated financial statements
from the date of acquisition.
Internet access has accounted for the majority of our revenues to date. Our
business plan anticipates revenue growth primarily through web hosting and
professional services. The companies we acquired before March 2000 predominantly
deliver Internet access services to a mixture of business and consumer
customers, with supplementary capabilities in web hosting and professional
services. Our more recent acquisitions predominantly deliver value-added
services of web-hosting and professional services as their primary business with
a focus on business customers. After each acquisition, our business plan is to
consolidate the management team and network operations, strengthen the sales and
marketing efforts, integrate support services and market more value-added
services to the existing customer base. We believe that by doing so the acquired
companies can increase revenues faster than the related expenses increase in
future periods.
It is still early in the implementation of our business plan, as we have
owned businesses accounting for a substantial majority of our assets and
revenues for less than one year. We are in the process of integrating our
operations into a common customer relationship management, billing, rating for
charges, and financial information management system. We have recently entered
into a limited number of strategic relationships and are in the process of
negotiating additional ones to bring services appealing to our customers. As a
result, it is too early to gauge the success of the execution of our business
plan, and our operating results to date may be of limited benefit in assessing
the probability of our future success.
24
<PAGE> 29
Our revenue growth to date is primarily due to our acquisitions of
businesses. From our inception until June 30, 2000, we have reported $32.7
million of cumulative net losses and $17.0 million of negative cash flow from
operating activities, and we have invested an additional $12.1 million on
capital expenditures. We expect to record further losses as we continue our
growth strategy. Our losses to date and our expected future losses reflect our
investments in network infrastructure, personnel, and external marketing needed
to support our business plan.
REVENUES
We derive the majority of our revenues from business customers. The
customer mix of our acquired businesses, however, has a relatively high
proportion of consumer customers. As we implement our business plan, we expect
that our customer mix will shift with an increased proportion of business
customers. For the six months ended June 30, 2000, 42% of our revenues were
derived from dial-up and ISDN access across a mixture of business and consumer
accounts, while 58% were derived from other services to business accounts.
For reporting purposes, we classify our revenues into three service
categories:
- Internet access;
- web hosting; and
- professional services.
We derive Internet access revenues from dialup and dedicated subscriptions.
Our Internet access pricing plans vary not only from country to country but also
from city to city, reflecting local market conditions. Fees for Internet access
may include a one-time subscription startup fee, a periodic subscription charge,
typically monthly, a charge for hours used or a charge for volume of data
downloaded. Many of our plans feature prepaid hours of usage. Startup fees and
subscription fees for dialup or dedicated connection services are usually billed
in advance and revenue is recognized as the services are provided, while time
and data fees are billed in arrears and recognized when billed, except for
access plans with prepaid hours where income is recognized based on the hours
used.
Web hosting services are provided on a shared basis when multiple customers
are allocated to a server; on a dedicated basis when we allocate a particular
server to the customer; and on a co-location basis when the customer's equipment
is maintained at our data center. Web hosting customers generally pay a one-time
setup fee and fixed monthly service charge that vary depending on the amount of
rack space, disk space and bandwidth required. We generally bill for such
services in advance and recognize revenues as earned. As a supplement to our
existing 10 data centers, in June 2000 we entered into an agreement with
Interliant to provide our customers in the Asia-Pacific region with web hosting
services at the Interliant data center in Atlanta and we launched this product
in Australia in July 2000. We expect to enter into agreements to lease data
center capacity from third parties in key locations in the Asia-Pacific region.
Our professional services consist primarily of web solutions, systems
integration, and enhanced communications. Professional service fees are
typically charged based upon estimated hours for completion of the assignment.
They can be billed in advance, arrears or installments, and revenue is
recognized over the life of the assignment. A systems integration assignment
often includes provision of hardware and software as part of a bundled solution.
Our largest sources of revenues based on location of customers for the
periods shown were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(PERCENTAGE OF REVENUES)
<S> <C> <C>
Australia............................................... 27 39
Hong Kong............................................... 54 36
New Zealand............................................. 11 11
</TABLE>
25
<PAGE> 30
We expect to increase the diversification of revenues as we expand our presence
across the Asia-Pacific region.
COSTS AND EXPENSES
Internet service expenses consist primarily of recurring telecommunications
costs necessary to provide access service to customers and of hardware and
software costs for systems integration projects. We pay rentals for dial-up
lines, local leased lines and international leased lines. We anticipate that our
telecommunications costs will increase in absolute terms as we expand our
network and enter new markets. As we are able to generate growth and increase
the utilization of our network, we expect to realize a reduction in per unit
data transmission costs, lowering our overall network costs as a percentage of
revenue. In order to preserve our flexibility on pricing and technologies we
have maintained contracts with national telecommunications providers with terms
of less than two years. We are in the process of implementing the first phase of
our international backbone with completion scheduled by the end of the year
2000, establishing direct connections between Australia and the United States
and between Hong Kong and the United States. As we are able to increase the
utilization of our network, we may seek to layer fixed price bandwidth with
burstable capacity to cover peak usage.
Internet service expenses also include the cost of hardware and software
acquired for systems integration projects. We do not hold substantial inventory
of hardware acquired for systems integration projects as we generally order only
on demand.
Selling, general and administrative costs consist primarily of salaries,
commissions and related costs for employees providing professional services,
customer support and network operations, other than stock-based compensation for
employees' travel costs, marketing, professional fees, and occupancy and
overhead costs. Our professional services consist primarily of direct labor
costs for web design and development and systems integration projects. As we
expand the scope of our operations, we expect these expenses will continue to
increase in absolute terms. As a percentage of revenues, we expect these
expenses to decline as these costs are spread over larger operations as we
expand our presence in our target markets.
Depreciation expense includes depreciation of tangible assets including
computer and communications equipment, office furniture, and leasehold
improvements. We depreciate tangible assets on a straight-line basis over their
useful lives, which is generally three to five years.
Amortization expenses include amortization of goodwill and other
intangibles for our acquired companies. In our acquisitions, to the extent that
the purchase price exceeds the value of the tangible net assets acquired, we
first value the customer relationships acquired and amortize this value on a
straight-line basis using an estimate of the duration of our customer
relationship, currently assessed at three years. Additional amounts of the
purchase price are treated as residual goodwill and are amortized on a straight-
line basis, also over three years. As of June 30, 2000, customer relationship
intangible assets were $16.2 million, net of amortization of $5.5 million, and
residual goodwill was $16.8 million, net of amortization of $3.0 million.
Since our inception we have used stock based compensation for employees to
attract and retain business and technical personnel. We charge to income amounts
based on the excess of the deemed fair value of our common stock on the date of
option grant or stock sale over the stock option price or stock purchase price.
The vesting schedule under our stock option plan is four years and the
restricted common stock purchased by our founders is subject to a three year
vesting schedule. Options have been granted to a majority of our employees.
Options granted under the plan expire ten years from the grant date.
At June 30, 2000, we had deferred approximately $1.9 million of transaction
expenses relating to this offering, which are included as other assets. Upon the
consummation of this offering, these costs will be offset against the proceeds
of this offering.
26
<PAGE> 31
RESULTS OF OPERATIONS
The following table shows revenue and expense categories on an historical
basis and as a percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENT OF REVENUES) (IN THOUSANDS) (PERCENT OF REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Internet access.................. $ 4,979 70% $ 7,306 51%
Web hosting...................... 265 4 762 5
Professional services............ 1,848 26 6,320 44
-------- ---- -------- ----
Total revenues........... 7,092 100 14,388 100
Operating costs and expenses:
Internet service................. 3,332 47 8,602 60
Selling, general and
administrative................ 11,237 158 17,918 125
Depreciation..................... 910 13 1,489 10
Amortization..................... 2,964 42 5,628 39
Stock-based compensation......... 1,769 25 3,512 24
-------- ---- -------- ----
Total operating costs and
expenses............... 20,212 285 37,149 258
Loss from operations............. (13,120) (185) (22,761) (158)
EBITDA............................. $ (7,477) (105)% $(12,132) (84)%
</TABLE>
Year ended December 31, 1999 and six months ended June 30, 2000
We had no operations, revenues or expenses prior to February 26, 1999.
Accordingly, there is no comparable prior period with which to compare our
results for the year ended December 31, 1999. The six months ended June 30, 1999
included four months of operations of only the Hong Kong and Philippines
businesses, while the six months ended June 30, 2000 included operations of
businesses in five countries involving significant ramp up of personnel and
operations. Accordingly, we do not believe a discussion comparing the two
periods is relevant. Instead, we discuss below the general development of our
business as reflected in our consolidated financial statements.
Internet access revenues were $5.0 million for the year ended December 31,
1999 and $7.3 million for the six months ended June 30, 2000. Dial-up access
revenues were 74% of total access revenues for the year ended December 31, 1999
and 73% for the six months ended June 30, 2000. The balance of Internet access
revenues consisted of dedicated leased line and ISDN revenues. We believe that
Internet access will increasingly become a commodity service and that revenues
per customer from both dial-up and dedicated access will decline.
Web-hosting revenues were $0.3 million for the year ended December 31, 1999
and $0.8 million for the six months ended June 30, 2000. These revenues were
derived principally from businesses acquired. In June 2000, we entered into a
strategic agreement with Interliant that enables us to offer a high-volume
web-hosting platform to our customers in the Asia-Pacific region. We expect to
enter into agreements to lease data center capacity in the Asia-Pacific region
that would allow us to offer high quality regional hosting for customers with
more sophisticated needs. We will seek to increase our web-hosting revenues with
products that are designed to take advantage of these facilities and are
marketed across the region by local marketing teams.
Professional services revenues increased from $1.8 million for the year
ended December 31, 1999 to $6.3 million for the six months ended June 30, 2000.
System integration revenues increased from $0.8 million, or 45% of professional
services revenues for 1999, to $4.3 million, or 68% of professional service
revenues, for the six months ended June 30, 2000. Web design revenues were $0.8
million, or 41% of professional service revenues, for the year ended December
31, 1999 compared to $1.6 million, or 26% of professional service revenues, for
the six months ended June 30, 2000. We expect further growth in
27
<PAGE> 32
professional services revenues through future acquisitions as well as continued
growth of our previously acquired businesses.
The percentage of our revenues derived from professional services increased
from 26% for the year ended December 31, 1999 to 44% in the six months ended
June 30, 2000, while our revenues from access declined from 70% for the year
ended December 31, 1999 to 51% in the six months ended June 30, 2000.
Web-hosting revenues increased slightly to 5% over those same periods. These
changes were driven by growth in our systems integration and web solutions
businesses, coupled with the impact of our acquisition of two systems
integrators. The percentage mix of our services may vary over time because the
nature of our professional services assignments is project-based and because the
business mix of new acquisitions may vary.
Internet service expenses were $3.3 million for the year ended December 31,
1999 compared to $8.6 million for the six months ended June 30, 2000. Of these
expenses, telecommunication charges totaled $2.1 million for the year ended
December 31, 1999, and $4.4 million for the six months ended June 30, 2000. We
anticipate that telecommunications expense will increase substantially in
absolute terms as we expand our business and volume of traffic. Cost of hardware
and software used in systems integration projects was $0.7 million for the year
ended December 31, 1999, and $3.5 million for the six months ended June 30,
2000, reflecting our increased sales from systems integration.
Selling, general and administrative expenses were $11.2 million for the
year ended December 31, 1999 compared to $17.9 million for the six months ended
June 30, 2000. As a percentage of revenues, selling, general and administrative
expenses has declined, which we would expect to continue. Employee costs
constituted 44% of total selling, general and administrative expenses in the
year ended December 31, 1999 and 48% in the six month ended June 30, 2000. The
absolute increase in employee costs was primarily due to the increase in the
number of employees from 276 employees at the end of 1999 to 692 employees at
June 30, 2000. As a percentage of selling, general and administrative expenses
for the year ended December 31, 1999 and the six months ended June 30, 2000,
other material expense categories were: selling expenses at 6% and 13%;
occupancy expenses at 8% and 6%; travel expenses at 7% and 6%; and professional
costs at 18% and 13%, respectively.
Amortization expense of intangible assets was $3.0 million for the year
ended December 31, 1999 compared to $5.6 million for the six months ended June
30, 2000. Our amortization expense is expected to rise significantly in future
periods as a result of two recent acquisitions, and of the purchase of the
remaining minority shareholdings in our Australian subsidiaries, and of future
acquisitions made as part of the implementation of our business plan.
Stock-based compensation was $1.8 million for the year ended December 31,
1999 and $3.5 million for the six months ended June 30, 2000. For options
granted through June 30, 2000, we expect to incur further additional stock based
compensation expenses of $3.6 million in the six months ending December 31,
2000, $4.3 million in the year ending December 31, 2001, $2.2 million in the
year ending December 31, 2002 and $1.1 million in the year ending December 31,
2003. See note 11 of Notes to our Consolidated Financial Statements.
INCOME TAXES
We have incurred operating losses for all periods from inception through
December 31, 1999. We have recorded a valuation allowance for the full amount of
our net deferred tax assets, as the realization of the tax benefit is not
currently likely.
As of December 31, 1999, we had net operating loss carry-forwards for
United States federal and state tax purposes of approximately $3.4 million and
$1.7 million, respectively. These federal and state tax loss carry-forwards are
available to reduce future taxable income and expire in 2019 and 2004,
respectively. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carry-forwards that could be utilized annually in the future to offset taxable
income.
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<PAGE> 33
EXPOSURE TO FLUCTUATIONS IN FOREIGN CURRENCIES
We currently do business in five currencies other than the U.S. dollar.
Except for the Hong Kong dollar, which is currently closely linked to the U.S.
dollar, such currencies fluctuate in value against the U.S. dollar. We reported
foreign currency translation losses of $75,000 for the year ended December 31,
1999, and a gain of $233,000 for the six months ended June 30, 2000. As a
percentage of total revenues for the six months ended June 30, 2000 our
operations in Australia, Hong Kong and New Zealand contributed 39%, 36%, 11%,
respectively. We expect to continue to experience translation gains and losses
in future periods, although we cannot predict the scope of such gains or losses.
Our local operations collect revenues and pay expenses in their home
currencies. They do not have significant assets, liabilities or other accounts
denominated in currencies other than their home currency, and therefore are not
subject to exchange risk with regard to their normal operations. On a
consolidated income basis, we are subject to exchange risks because we translate
our local operations' financial data into U.S. dollars. For any period, a net
appreciation on a weighted average basis of the U.S. dollar against the foreign
currencies in which we do business will reduce our net income or net loss in
U.S. dollar terms. A net depreciation of the U.S. dollar against such foreign
currencies in any period will increase our net income or net loss in U.S. dollar
terms. For the six months ended June 30, 2000, the net appreciation of the U.S.
dollar reduced our revenues by 4% and the net loss in U.S. dollar terms by a
similar amount.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly statements of
operations data for each of the five quarters up to June 30, 2000, the only full
quarters of our operations, in both U.S. dollars and as a percentage of
revenues. Our management believes these data have been prepared on a basis
consistent with the audited consolidated financial statements included in this
prospectus, including all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data. You
should read the quarterly data in conjunction with our financial statements and
the related notes included elsewhere in this prospectus. These results should
not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999
------------------ ------------------ ------------------
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PERCENTAGES(1))
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Internet access............ $ 876 78% $ 912 75% $ 2,637 65%
Web hosting................ 33 3 43 4 170 4
Professional services...... 214 19 265 22 1,225 30
------- ---- ------- ---- -------
Total revenues....... 1,123 100 1,220 100 4,032 100
Operating costs and
expenses:
Internet service costs..... 584 52 411 34 1,934 48
Selling, general &
administrative........... 2,577 229 2,859 234 4,490 111
Depreciation............... 239 21 170 14 343 9
Amortization............... 368 33 395 32 2,002 50
Stock-based compensation... 437 39 532 44 716 18
------- ------- -------
Total operating costs
and expenses........ 4,205 374 4,367 358 9,485 235
------- ------- -------
Loss from operations........ (3,082) (274) (3,147) (258) (5,453) (135)
------- ------- -------
EBITDA...................... $(2,038) (181)% $(2,050) (168)% $(2,392) (59)%
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31, JUNE 30,
2000 2000
------------------ -------------------
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PERCENTAGES(1))
<S> <C> <C> <C> <C>
Revenues:
Internet access............ $ 3,300 57% $ 4,006 47%
Web hosting................ 281 5 481 6
Professional services...... 2,238 38 4,082 48
------- --------
Total revenues....... 5,819 100 8,569 100
Operating costs and
expenses:
Internet service costs..... 3,083 53 5,519 64
Selling, general &
administrative........... 7,074 122 10,844 127
Depreciation............... 394 7 1,095 13
Amortization............... 2,391 41 3,237 38
Stock-based compensation... 1,600 27 1,912 22
------- --------
Total operating costs
and expenses........ 14,542 250 22,607 264
------- --------
Loss from operations........ (8,723) (150) (14,038) (164)
------- --------
EBITDA...................... $(4,338) (75)% $ (7,794) (91)%
</TABLE>
---------------
(1) Percentages represent percent of revenues.
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<PAGE> 34
<TABLE>
<CAPTION>
QUARTER ENDED, UNAUDITED
------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 1999 2000 2000
-------- ------------- ------------ --------- --------
(PERCENT)
<S> <C> <C> <C> <C> <C>
Quarter to quarter revenue growth:
Internet access................. 58% 4% 189% 25% 21%
Web hosting..................... 74 30 295 65 71
Professional services........... 48 24 362 83 82
Total revenues.......... 56% 9% 230% 44% 47%
Organic quarterly revenue
growth(1):
Internet access................. 3% 0% (4)% 0% 8%
Web hosting..................... (28) 27 22 50 63
Professional services........... 25 24 30 30 48
Total revenues.......... 5% 6% 5% 12% 27%
</TABLE>
---------------
(1) Organic quarterly revenue growth is calculated as the quarter to quarter
revenue growth adjusted to eliminate the impact of new acquisitions.
Our quarterly operating results have been influenced primarily by our
acquisitions. The quarter ended March 31,1999 included only one full month of
operations of our Hong Kong and Philippine businesses. In our first full
operating quarter, ended June 30, 1999, we organized operations and began to put
our management team in place.
Revenues remained essentially flat in the quarter ended September 30, 1999,
as we added no new businesses until the end of that period. We believe it is
common for acquired businesses to remain relatively flat in performance shortly
after being acquired, reflecting the transition of control and the time
necessary for our integration to take effect. Selling, general and
administrative expenses continued to increase in line with our strategy in the
quarter, as did stock based compensation as we provided stock incentives to new
employees needed to implement our acquisition and growth strategy.
The substantial increase in revenues for the quarter ended December 31,
1999 reflect our initial Australia and New Zealand acquisitions, which we
operated for most of the quarter. Selling, general and administrative expenses,
depreciation and amortization also increased substantially in that quarter, as
the Australia and New Zealand combined operations were substantially larger than
our existing Hong Kong and Philippines businesses.
Revenues for the quarter ended March 31, 2000 again increased
substantially, reflecting primarily increases through acquisitions in Hong Kong,
Malaysia and Australia in that quarter, but also growth in our professional
services in Hong Kong, and our Philippine web design business. Internet service
expense increased mainly through the increase in systems integration work, which
incorporated the sale of associated hardware and software. Stock-based
compensation expense increased by 123% in the quarter ended March 31, 2000,
because we implemented an option program covering most of our employees and the
intrinsic value of our options increased as our stock value appreciated.
The strong revenue growth for the quarter ended June 30, 2000 came
primarily from systems integration, through growth in our Sydney and Hong Kong
operations and, to a lesser extent, the acquisition of an additional systems
integrator in Hong Kong. Depreciation expense rose as a result of our acquiring
network equipment in Australia. Amortization expense increased in the quarter
ended June 30, 2000, reflecting the first full quarter effect of the
acquisitions we made in the quarter ended March 31, 2000.
The change in our mix of revenues across the five quarters resulted
primarily from increases in our professional services revenues. Internet access
has declined from 78% of total revenues in the quarter ended June 30, 1999 to
47% of total revenues in the quarter ended June 30, 2000. This change occurred
primarily as a result of an increase in our professional services revenues,
which grew from 19% of total revenues in the quarter ended June 30, 1999, to 48%
of total revenues in the quarter ended June 30, 2000,
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<PAGE> 35
primarily through increases in systems integration revenues. Web hosting has
remained a relatively small percentage of revenues across all five quarters.
This trend information is not necessarily indicative of future results.
LIQUIDITY AND CAPITAL RESOURCES
Our business plan will continue to require substantial capital for
acquisitions, capital expenditures for expansion of our services, funding of
operating losses and working capital as we grow our business.
Since inception, we have financed ourselves through the private sale of
preferred stock convertible into common stock. Net cash provided by such
financing activities was $42.7 million during the year ended December 31, 1999
and $99.4 million during the six months ended June 30, 2000. In February 1999
and May 1999 we sold $7.8 million of Series A preferred stock carrying the right
to convert into common stock at $1.14 per share; in August 1999 we sold $35.0
million of Series B preferred stock carrying the right to convert into common
stock at a price of $3.18 per share; and in March 2000 we sold $100.0 million of
Series C preferred stock carrying the right to convert into common stock at
$8.77 per share.
While we have not historically financed our business with debt, we recently
obtained $1.4 million of lease financing from equipment vendors. We expect to
increase our use of debt to finance equipment in future periods, although there
can be no assurance that we will be able to obtain any funds through debt on
acceptable terms.
Net cash used by operations, primarily to fund operating losses, was $6.3
million during the year ended December 31, 1999 and $10.7 million for the six
months ended June 30, 2000. Net cash used in investing activities was $19.5
million for the year ended December 31, 1999, of which $17.2 million was used
for acquisitions and $2.4 million for equipment. Net cash used in investing
activities was $40.3 million for the six months ended June 30, 2000, of which
$9.4 million was used for acquisitions, $9.8 million was used for equipment and
$21.2 million was used to purchase investment grade commercial paper to improve
our asset yields. Our acquisitions have typically been made with a mix of cash
and our common stock.
On April 12, 2000, we exercised our right to purchase all of the minority
interests in four of our Australian acquisitions. The estimated cost of these
purchases in the aggregate is $33.1 million and is made up of cash payments
estimated at $15.6 million payable on successful completion of this offering
with the balance of the consideration being shares of our common stock.
We expect that available cash resources combined with the net proceeds from
the offering will be sufficient to meet our acquisition, capital expenditure and
working capital requirements for at least 12 months from the date of this
prospectus. However, we intend to seek continued rapid growth in our business,
including acquisitions and start-ups, to establish a significant presence in the
Asia-Pacific region, and we may require additional funding to carry out these
efforts while supporting our expected continuing losses from operations.
We are at the very early stages of developing and offering application
service provisioning services to our customers. If successful, this may require
significant commitments of capital by us in purchasing hardware and software for
rental by our customers. There can be no assurance that we will have access to
sufficient capital to fund these potential purchases of equipment.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
As of June 30, 2000, we had cash, cash equivalents and marketable
securities of $84.6 million. This has been invested in highly liquid investment
grade assets with maturities of less than 180 days. Because of the short
maturities of these instruments, a sudden change in market interest rates would
not have a material impact on the fair value of our portfolio. We would not
expect our operating results or cash flows to be affected by a sudden change in
market interest rates to any significant degree.
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<PAGE> 36
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133." These statements require companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives will be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. We are required to adopt SFAS No. 133
and SFAS No. 137 in the year ended December 31, 2001. To date, we have not
entered into any derivative financial instruments or engaged in any hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, 101, Revenue Recognition, which provides guidance
on the recognition, presentation and disclosure on revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We believe that our current revenue recognition policy is
in compliance with SAB 101.
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<PAGE> 37
BUSINESS
OVERVIEW
We provide Internet-related services focusing primarily on the needs of
small and medium-sized enterprises in the Asia-Pacific region. We offer our
customers a single source of cost-efficient, reliable Internet solutions,
including: Internet access, web hosting, and professional services. Our
solutions enable our customers to capitalize on the Internet to reach new
customers, increase revenues, reduce operating costs, and operate regionally and
internationally. We market our services under a single Asia Online brand name in
all of the countries in which we do business. As of June 30, 2000 we had 692
employees based in seven countries.
Since our inception in late 1998, we have grown to provide Internet-related
services to over 60,000 business and consumer customers primarily located
throughout the Asia-Pacific region. We have operations in Australia, New
Zealand, Hong Kong, Malaysia, the Philippines, India, Canada and the United
States. For the six months ended June 30, 2000 our pro forma revenues were $17.1
million. We have established a regional presence in the Asia-Pacific region by
acquiring 15 Internet services businesses. We intend to continue to increase our
presence in our target markets in the Asia-Pacific region with additional
acquisitions or by starting-up entities. In addition, we are also aggressively
marketing our web solutions to companies in North America, capitalizing on our
cost competitiveness in providing such services as our operations are based in
Asia, where labor and infrastructure costs are generally lower.
We have assembled a strong management team and board of directors. Members
of our senior management and board of directors have extensive experience in
Internet communications and technology and the financial industries from working
at leading companies such as Bank of America, Charles Schwab, Concentric, GE
Capital, Interliant, JP Morgan, SOFTBANK, and USWest. We intend to capitalize on
our significant management experience and relationships to help grow our
businesses.
We have a limited operating history and have incurred net losses since
inception in December 1998, and until we become profitable will be dependent on
access to investment capital and other funding sources. To date we have financed
our operations primarily from $143 million in investments from leading venture
capital and strategic investors, including entities affiliated with ABN-AMRO,
Concentric, Dell Computer, GE Capital, JP Morgan, Nexus, PaineWebber, Pequot
Capital, Paribas, and SOFTBANK Technology Ventures.
INDUSTRY
International Data Corporation, or IDC, an independent market research
firm, estimates that the Internet market in the Asia-Pacific region will be the
fastest growing of the major regions in the world. IDC projects that the number
of Internet users in the Asia-Pacific region will increase by 114 million users,
to a total of 138 million users, for the period from 1999 to the end of 2003,
representing a compound annual growth rate, or CAGR, of 41%. This compares to
IDC's estimate that Internet users in the United States will increase by $128
million to a total of $197 million for the period from 1998 to the end of 2003,
representing a CAGR of 23%. Similarly, IDC projects that during the same period,
eCommerce revenues in the Asia-Pacific region will increase by $299 billion to a
total of $304.5 billion, representing a CAGR of 124%, while eCommerce revenue in
the United States is estimated to increase by $681.3 billion to a total of
$726.1 billion, representing a CAGR of 75%.
This growth in eCommerce and Internet usage has stimulated the demand for
Internet hosting, co-location, managed services and other value-added services
throughout the world. As an indication of the potential of the Internet hosting
market, IDC predicts U.S.-based Internet hosting and co-location revenue will
increase by $18.1 billion to a total of $18.9 billion, for the period from 1998
to the end of 2003, representing a CAGR of 87%. While IDC has not reported
estimates of hosting and co-location growth during this period, we believe that
as Internet penetration increases in the Asia-Pacific region, the web hosting,
professional services and other products and services offered by Asia Online
will see corresponding increases in demand.
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<PAGE> 38
The following table presents the total number of Internet users, total
small and medium-sized business Internet users and Internet usage penetration in
each of the following markets in the Asia-Pacific region based on information
from IDC:
<TABLE>
<CAPTION>
TOTAL SMALL AND
MEDIUM-SIZED
ESTIMATED ADJUSTED TOTAL ENTITIES INTERNET
POPULATION(1) INTERNET USERS(2) USERS
------------- ----------------- -----------------
COUNTRY (1999) (1999) (2003) (1999) (2003)
------- ------------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Australia........................................ 18.7 5.2 9.9 1.0 2.7
Hong Kong........................................ 7.0 1.0 2.3 0.3 0.8
India............................................ 1,000.8 1.0 11.3 0.2 4.0
Indonesia........................................ 216.1 0.9 2.2 0.2 0.5
Japan............................................ 126.2 19.3 60.3 3.1 6.9
Malaysia......................................... 21.4 1.3 3.6 0.3 0.7
People's Republic of China....................... 1,246.9 3.8 25.2 0.4 2.9
New Zealand...................................... 3.7 0.9 1.8 0.2 0.5
Philippines...................................... 79.3 0.6 1.7 0.1 0.4
Singapore........................................ 3.5 0.7 1.9 0.2 0.6
South Korea...................................... 46.9 3.3 9.2 0.5 1.8
Taiwan........................................... 22.1 2.0 4.5 0.3 1.3
Thailand......................................... 60.0 1.1 3.0 0.3 0.8
</TABLE>
---------------
(1) The 1998 CIA World Factbook.
(2) Numbers do not double count business users who are also home users.
According to eMarketer, an independent Internet market research firm,
business-to-business, or B2B, "e-commerce will dominate the online market over
the next several years. The majority of businesses in Asia are small and midsize
companies, looking for a cheap and very accessible means of doing business.
Currently, 52% of all Internet use in Asia is by the business sector. This trend
will not slow, as Asian companies will drive the worldwide B2B market,
representing 70% of all B2B-enabled companies in the world." Currently, a
substantial majority of these entities do business solely within their home
market relying on traditional means of communication. As Internet penetration
increases throughout the region, we believe these small and medium-sized
businesses will increasingly use the Internet as a business tool. For example,
many small and medium-sized businesses in the Asia-Pacific region are involved
in import and export, where the Internet may provide a cost efficient way to
reach and communicate with potential customers outside their local market.
OUR MARKET OPPORTUNITY
Small and medium-sized businesses in the Asia-Pacific region, our primary
target customer base are demanding expanded Internet services to reach new
customers, increase revenues, reduce operating costs, and operate regionally and
internationally. In addition, we also market our web solutions to companies in
North America.
Our market opportunity will continue to expand as a result of the
following:
- GROWTH OF SMALL AND MEDIUM-SIZED BUSINESSES INTERNET SOLUTIONS
MARKET. Currently, Internet penetration of small and medium-sized
businesses in the Asia-Pacific region is relatively low. Small and
medium-sized businesses in the Asia-Pacific region are increasingly
adopting Internet-related communications services as alternatives to long
distance telephony, facsimile transmission, and paper-based
communications, and are adopting Internet tools, such as business web
sites, in conducting their businesses.
- GROWING TREND TOWARD OUTSOURCING AND DEMAND FOR SINGLE SOURCE INTERNET
COMMUNICATIONS SOLUTIONS. Small and medium-sized businesses often lack
the resources to develop and implement Internet
34
<PAGE> 39
solutions internally and are increasingly seeking a single-source
solution for their Internet-related communications needs.
- LACK OF FOCUS ON THE SMALL AND MEDIUM-SIZED BUSINESS MARKET BY LARGE
INTERNET SERVICE PROVIDERS. We believe that currently most Internet
service providers in the Asia-Pacific region focus on large businesses
and consumers. These large service providers typically lack the local
presence needed to provide customized solutions to small and medium-sized
businesses.
- MORE FAVORABLE REGULATORY ENVIRONMENT. Deregulation of telecommunications
in various countries within the Asia-Pacific region has facilitated
growth of the Internet and electronic business across the region. The
relaxing of long-held monopolies of national telephone companies,
reduction or elimination of government price controls and liberalization
of foreign ownership requirements have created a more favorable
environment for Internet solutions providers.
- FRAGMENTED INTERNET SERVICE MARKET, INCONSISTENT SERVICE QUALITY. There
are a large number of small Internet service providers in each of our
local markets. However, these smaller entrants are often
under-capitalized and lack regional and international network coverage.
Rising costs, increased demands for sophisticated services and lack of
economies of scale have also adversely affected the capability of many of
these companies to provide quality service to their customers.
- COST COMPETITIVENESS FOR WEB SOLUTIONS SERVICES. Labor and infrastructure
costs in the Asia-Pacific region are generally lower than those in North
America. In addition, access to skilled labor enables the provision of
both low cost and high quality web solutions.
OUR SOLUTION
Due to the fragmented nature of the Internet services market in
Asia-Pacific, we believe that many existing Internet services providers lack
economies of scale, capital, technical expertise and the international network
to provide high-quality services to their customers in a rapid and
cost-efficient manner. We seek to differentiate ourselves by taking a
professional approach to providing Internet solutions to our customers.
Our goal is to be a single source of cost-efficient, reliable Internet
solutions, including Internet access, web hosting, and professional services to
the small and medium-sized businesses in the Asia-Pacific region. Key benefits
to our solutions are:
- SINGLE SOURCE PROVIDER. By providing our customers a single source
solution in the Asia-Pacific region, we can enable clients to address
their particular business needs in a cost effective and efficient manner
without developing solutions internally or assembling services through
multiple vendors.
- PERFORMANCE AND RELIABILITY. Our Asia-Pacific network and data centers
provide our subscribers with high-speed and reliable Internet access and
ensures that our customers' web sites are continuously online and deliver
data rapidly to users. Our professional services help our customers solve
their complex Internet related business problems.
- COST SAVINGS. Our customers benefit from our focus on providing Internet
solutions and the capital, network, and labor investments that we have
made to support access, hosting, and professional services. We believe
that our infrastructure enables us to provide more reliable, cost
effective solutions than our customers' internal solutions and other
local Internet services providers.
- SCALABILITY AND FLEXIBILITY. We design, plan and build our infrastructure
to scale rapidly and seamlessly in response to expanding customer needs.
We believe that our scalable infrastructure enables our customers to
purchase additional bandwidth, web hosting capacity and professional
services as their business needs grow.
- ACCESS TO LEADING EDGE SOLUTIONS. In an environment of rapidly changing
technologies, our relationships with leading technology companies such as
Interliant, Critical Path, Evoke
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<PAGE> 40
Communications, GRIC, E-Centric and Concentric enable us to introduce and
customize the latest technology and applications for our clients that may
not otherwise be available or economical to them. We are in the process
of developing and entering into relationships with other leading
technology companies.
- GLOBAL REACH, REGIONAL SCALE AND LOCAL PRESENCE. We have established a
network that will enable our customers to have Internet access to and
from our regional network of offices and business affiliates around the
world. Our regional scale gives our customers access to personnel who
have experience working within the geopolitical systems and cultural
norms of countries throughout the Asia-Pacific region. With over 650
employees located in various markets around the Asia-Pacific region, we
have strong local presence and broad market knowledge for the markets in
which we operate. Our regional coverage allows us to offer customer
service in English as well as local languages on a 24X7 basis. The local
capabilities assembled through our acquisitions also facilitate effective
interaction with legal, governmental and administrative systems in our
markets and ease cultural adaptation to our local business environments.
OUR STRATEGY
Our goal is to be the premier provider of Internet solutions to small and
medium-sized businesses in the Asia-Pacific region. Key elements of our strategy
are to:
Expand our market presence through acquisitions, start-up organizations and
organic growth throughout the Asia-Pacific region.
We have expanded rapidly across the Asia-Pacific region through 15
acquisitions of Internet service companies, focusing on firms with a dedicated
management team, a strong market position in our target markets, and a good
technology platform. We intend to continue to acquire or start-up service
companies in our target markets that have demonstrated strong financial
performance or provide us with an opportunity to broaden and deepen our market
presence in the Asia-Pacific region. We are currently actively pursuing such
opportunities in Korea, Taiwan, Japan, India and the People's Republic of China.
We have used, and intend to continue to use, equity participation and employee
compensation structures that provide appropriate ongoing incentives to
management of acquired companies. Our acquisition and consolidation strategy
allows us to implement the common technology platform and network infrastructure
that we are developing, which will in turn enable us to expand our customer base
and increase our service levels with only incremental costs for our network and
centralized services support. We believe our acquisition and consolidation
strategy is well suited to the needs of the Internet communications service
market for small and medium-sized businesses in the Asia-Pacific region. By
consolidating resources, capturing economies of scale and creating an enhanced
common technology platform, we believe that we can foster continued
entrepreneurship, support our customers locally with localized resources and
stimulate organic growth.
We have and will continue to establish our own start-up operations where it
is economically more attractive than acquiring existing businesses. These
start-up companies, as well as our acquired companies, will employ local
management and sales forces and use our equity incentive program to maintain an
entrepreneurial environment.
Integrate operations to leverage economies of scale, reduce costs, and provide
consistent and professionally managed customer support services.
We are integrating our support services, including customer relationship
management, billing, rating for charges, and financial information management.
We are currently in the process of implementing these applications across our
target market while encouraging continued strong entrepreneurship and close
customer relationships at local levels. We believe that small and medium-sized
businesses seek a provider with locally based personnel who are available to
respond to technical issues, assist in developing and implementing effective
Internet solutions, and establish long-term relationships with them. By
centralizing
36
<PAGE> 41
and standardizing these services, we can simplify operations at the local level
and free up local management to focus more on direct sales, local marketing, and
customer support and service. Through economies of scale not previously
available to locally focused Internet service companies, we can establish local,
national and regional service and support centers to provide all our customers
24X7 technical support and customer services.
Be a single source of Internet solutions to meet our customers' evolving
business needs and build strong, long-term customer relationships.
We offer a wide range of products and services that address our customers'
evolving business needs, as those needs expand from basic services such as
Internet access and web hosting, to higher value-added professional services. By
offering services at each step of the value chain we can assist customers to
expand their Internet sophistication and transform their business processes
utilizing an Internet platform. Offering this broad range of services can
increase our profitability by allowing us to cross sell and upsell our wide
range of products and services, lowering customer acquisition costs, reducing
customer churn and leveraging our network infrastructure. We intend to become
identified as the best advisor to small and medium-sized businesses in the
Asia-Pacific region for their Internet business needs, providing services that
enable them to participate in the shift to an information-based economy and
allowing them to increase efficiencies through use of the Internet and
Internet-related services.
Develop strategic relationships with technology companies to enable us to
offer leading edge Internet solutions.
We intend to continue to integrate products and services from technology
companies to create a portfolio of leading edge solutions for our customers. In
certain cases, we may enter into exclusive or private label arrangements
allowing us to offer select services that address the needs of a wide variety of
customers or industry segments in the Asia-Pacific region. For example, we
recently entered into an agreement with Interliant, Inc. granting us an
exclusive right to offer our "WorldHost" private label version of Interliant's
mass market web hosting program in 13 countries in the Asia-Pacific region. In
addition, we have entered into arrangements with Evoke and E-Centric allowing us
to offer their web conferencing products and a unified messaging system that
includes fax and telephone based email products, respectively, in the
Asia-Pacific region. These strategic relationships allow us to quickly expand
the scope and capacity of our services as we develop additional customer demand
without expending resources on Internet development. This approach allows us to
offer our customers a wide variety of leading edge solutions that strengthen
customer relationships, saves us fixed expansion costs associated with product
development, reduce our exposure to product obsolescence and minimizes customer
acquisition costs.
Build and enhance our unified brand globally.
We intend to establish Asia Online as a leading Internet services brand
through aggressive and targeted marketing. We intend to invest in the promotion
of our brand through the Internet, print and broadcast media. Our brand
marketing efforts seek to project a consistent core message to establish our
position as a leading Internet solutions provider, while tailoring the creative
execution to accommodate the cultural and business norms in each country in our
target markets. We seek to make the Asia Online brand synonymous in our markets
with a single source of Internet business communications solutions which are
reliable, user friendly and cost effective.
Expand and upgrade our network and data center infrastructure on a
"just-in-time" basis.
Our approach to bandwidth management is to apply
"just-in-time-availability" rather than buying bandwidth in bulk and working to
fill the capacity we have purchased. Our approach to data center management is
to lease additional capacity from professionally managed data center providers
as space is required, rather than building or leasing excess capacity in
anticipation of demand. This approach to bandwidth and data center management
allows us to take advantage of new technological developments as well as lower
infrastructure costs.
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Continue to attract and retain highly qualified and professional personnel.
Members of our senior management team have proven track records in managing
either large or complex information technology or telecommunications operations.
They have brought with them strategic vision and high professional standards
much needed in the Internet communications industry. We will continue to seek to
attract and retain qualified personnel by offering attractive compensation
packages, including stock options, and a challenging working environment.
Additionally, we offer continuing on-the-job training and have created a
training academy in the Philippines designed to train students in web solutions
from which we anticipate that we will find many qualified recruits.
OUR SERVICES
We provide a full range of access, hosting and professional services. The
specific services offered in each market vary and are determined by the needs of
the customer, local regulations and competition. We intend to continue to
develop a broad range of innovative value-added services independently, through
acquisitions and through strategic relationships. By offering a full range of
services, we can migrate users of our basic services to more advanced services
as their needs and levels of sophistication grow.
Internet access
Much of our product offering to date has involved bringing Internet access
to our clients. We offer the following Internet access services:
- Access services. We offer a spectrum of access alternatives from dial-up
connections to dedicated high-speed broadband connections depending on
customer preferences and local market conditions. Dial-up connections can
be made with speeds of 28.8Kbps, or kilobits per second, to 56Kbps.
Dedicated leased lines provide high-speed connections with speeds of
64Kbps and up to 45Mbps, or megabits per second, depending on the
technology deployed. We provide high-speed access through technologies
such as ISDN, DSL, cable modem, and wireless, depending on local market
conditions and customer preferences.
- Global roaming. We provide global roaming that allows customers to
connect to the Internet from more than 3,500 local telephone numbers in
78 countries around the world.
- Internet access card. We offer Internet access cards that allow any
purchaser to access the Internet on a pre-paid basis within our markets.
We currently offer this service through co-marketing arrangements with 38
hotels in Hong Kong and are expanding this service to additional markets.
- Fax and telephone based unified messaging email. We offer our customers
email services that do not require the use of a computer. This service
allows our customers to use their fax machines and telephones to send and
receive email messages. As the majority of small and medium-sized Asia-
Pacific businesses are not yet computer enabled, these solutions will
allow us to establish an initial customer relationship with small and
medium-sized businesses who do not have computers.
Web hosting
We offer hosting and co-location services throughout our markets to
customers seeking to establish a presence on the Internet without the physical
need for wholly-owned equipment and support personnel. We maintain and operate
data centers in 10 cities located throughout Hong Kong, Australia, Malaysia, and
New Zealand, which total approximately 35,000 square feet. We also are able to
use data center facilities in the Atlanta, Dallas, San Jose and London through
our strategic relationships with Interliant and Concentric. Based on the
customer's needs, we can provide the following services:
- Shared hosting. We offer shared hosting to enable customers to cost
effectively establish a web presence without purchasing, configuring and
maintaining the necessary Internet hardware and software. In shared
hosting, a customer's web site is hosted on a server provided by us and
shared by other customers.
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- Dedicated hosting. We offer dedicated web hosting for customers who
require substantially more server and network capacity or enhanced
security than that which would be provided under a shared hosting plan.
Dedicated hosting provides the customer with a server owned and
maintained by us within our data center that is dedicated entirely to
their web site. This service enables customers to establish complex web
sites and applications without the need to incur significant
infrastructure and overhead costs.
- Co-location. We offer co-location services for our customers who prefer
to own and have physical access to their servers, but require the high
performance, reliability and security of our data centers. Our
co-location services include physical facilities and reliable, high
bandwidth Internet access tailored to meet the outsourcing needs of our
customers' critical Internet operations. Co-location customers are
typically businesses employing more sophisticated Internet hardware and
software who have the expertise to maintain their web sites and related
equipment. These customers have 24x7 physical and remote access to the
data center to administer their own equipment, or they may engage us to
provide systems administration and maintenance.
- Domain name research and registration. To help our clients choose the
name and address of their web site, we provide domain name research and
registration in each of the countries where our clients operate and are
expected to operate.
- Web site management. We provide our clients with ongoing support services
for their Internet solutions from content maintenance to site
administration. Our technical staff can assist our customers to resolve
technical issues, provide assistance with the hosting environment and
deliver support for their Internet software solutions. Our operating
companies routinely perform maintenance work and update customers' web
sites by changing dates, revising product configurations and
specifications, and updating product availability information and prices.
We also offer tools that enable our web hosting customers to control and
update their sites remotely, monitor site performance, track the number
of site visits, check account billing information and evaluate the
overall effectiveness of their web sites.
Professional services
We believe that businesses will increase their use of the Internet as a
business tool and, as a result, will require an expanding array of services. We
currently offer a wide range of services that provide additional value to our
customers. We intend to continue expanding our service offerings through
internal development, acquisitions and strategic relationships. Our professional
services are categorized into four main categories:
Web solutions
Our web solutions are designed to help our clients establish a web presence
and transact business through their eCommerce web sites. Although the current
customer base for our web solutions is primarily small and medium-sized
businesses in the Asia-Pacific region, we are also marketing these services
throughout the Asia-Pacific region and North America to capitalize on our cost
competitiveness.
Our web solutions resources are primarily located in the Philippines with
additional resources located in Hong Kong, Melbourne, and Canberra. In response
to the shortage of qualified professionals in the Internet industry and to
support growth in our web solutions business, we opened a training academy in
July in the Philippines that currently has six full-time teachers, which we
anticipate will graduate 100 students per quarter. We believe this approach can
be applied in other Asia-Pacific countries such as Malaysia, India and China so
that we can provide technically trained low-cost personnel who can create web
solutions to benefit our customers.
- Web design. We assist our customers in the design and development of
their web sites, which range in complexity from basic informational sites
to complex web sites with interactive and transactional capabilities. We
have over 135 web design professionals, 84 of which are located in
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the Philippines, and the remainder of which are located in Hong Kong,
Melbourne and Canberra, who advise customers to choose, design and
develop features that work best for their business and customers.
- Web translation. We offer web content translation into and from any of
the following languages: simplified and traditional Chinese, English,
Bahasa, Hindi, Tagalog, Korean, and Japanese. Our solutions enable the
use of multiple languages on the same web site.
- eCommerce. We provide eCommerce solutions that enable our clients to sell
products and services online directly to their customers, purchase
supplies, coordinate inventory systems with suppliers, process electronic
payments, track shipments and perform other business functions. Using our
application platform, a customer can quickly create an eCommerce site
that includes product descriptions, graphics, "shopping cart" capability,
a credit card transaction system, security, encryption, and back-end
marketing support utilities.
Systems integration
We assist our customers with Internet and communications technology
assessment, requirements definition, project planning and management,
installation and support. By understanding our clients' Internet and
communications needs, we are able to help them align their business connectivity
needs to more efficiently meet their organization's goals and objectives.
Additionally, through our third-party hardware and software relationships we are
able to add value by providing a single source for multiple services and
support.
Enhanced communication services
We also provide our customers with a variety of enhanced communications
services designed to facilitate and expand their use of the Internet. The
following are some of the enhanced communication services we offer our
customers:
- Email services. We currently offer email services through each of our
local operating companies and intend to migrate all clients to our
state-of-the-art email services or protocol through our agreement with
Critical Path. Our email technologies are customizable, reliable and
scalable, enabling us to offer to a customer additional email addresses
and server capacity as the customer requires.
- Web-based intranet. This service is a network accessible only by
authorized individuals, which uses a web browser as the principal
applications interface. It enables multiple office locations and
individuals to share a common database. Instead of sending large files to
each computer and storing them there, this service enables authorized
users to share central postings and updates, such as product information,
customer information, shared email, bulletin boards and calendars.
- Virtual private networks. We offer our customers the ability to establish
virtual private networks, or VPNs, which provide secure transmission of
proprietary data between office locations and remote office users over
the Internet. VPNs are a cost-effective replacement to wide area
networks, or WANs, which require more expensive dedicated leased lines.
Our VPN solutions allow the business customer to choose the type of
access, services and information that users of the VPN are afforded
according to the specific needs of its business.
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Application service provisioning
Through application service provisioning, customers can lease hardware and
software applications on a monthly or per usage basis, reducing their need for
infrastructure investments such as hardware, software, and ongoing maintenance
support. We have recently launched this service in Hong Kong under the brand
name "CenoSuite(SM)." CenoSuite currently permits a customer to rent Microsoft
Office accessed through thin client hardware, which we manage for the customer.
This service is expected to be a simpler and more cost effective alternative for
our customers compared with the outright purchase of the software or hardware.
We plan to expand the application service provisioning market through increased
software offerings delivered via CenoSuite. We plan to centrally manage our
application service provisioning solutions to allow customers automatic access
to new software releases and upgrades to existing programs.
Future service offerings
To continue to expand the range of services to our customers, we are
currently developing the following services to offer in the future:
- Inter-company collaborative extranets. We plan to introduce a service
that provides customers with an inter-company collaborative extranets,
which will enable participants to work together across companies over the
Internet. This service would enable users to communicate simultaneously
or sign in and participate at a time convenient to them, and may include
multimedia technologies, such as video or voice conferencing. Current
online collaborative offerings, such as email, fail to effectively
provide an efficient means to collaborate on time-critical activities
requiring coordination among many parties. Examples of activities that
require collaborative services are project management, product
development, and media campaigns.
- Managed security services. We recognize that security and control of the
risks associated with doing business over the Internet are critical to
our customers and can create significant overhead costs for them. We plan
to introduce services in partnership with various providers of Internet
security products and services that will enable our customers to
outsource their Internet security development, management and audit
functions. We anticipate that the core components of this service will
include anti-virus tools, digital signatures and certificates, security
integrity testing, online data back-up, and security audits. This
portfolio of products and services should reduce our customers' overhead
costs associated with security management by enabling them to effectively
implement a security program without expensive in-house security experts
and management.
STRATEGIC RELATIONSHIPS
We intend to continue entering into strategic alliances with technology
companies to bring their leading edge solutions to our clients in the
Asia-Pacific region. In addition, our strategic relationships enable us to
leverage their products, brand names, distribution channels and other assets. We
believe that our existing strategic partners are attracted to us because of our
regional geographic coverage and our local market presence throughout the
Asia-Pacific region, our ability to influence purchase decisions of our
customers using our other services due to our strong existing relationships with
them, the ability of our sales force to sell complex Internet solutions and our
experienced management team.
We have established a strategic relationship with Interliant, Inc. to
license their software to provide our "WorldHost" platform throughout the
Asia-Pacific region. We launched this product into Australia in July 2000. This
agreement also gives us a right of first offer to provide Interliant web hosting
services in 12 other countries in the Asia-Pacific region. For WorldHost,
Interliant will provide the hosting services and customer service support, as
well as providing consulting and development services to our management and
technical team. This agreement provides the ability to create advanced web
hosting platforms and enables easy sign-up, modification and web site analysis
for our customers. We will conduct all branding, sales and marketing for this
service under the WorldHost name as we expand our service offerings across the
Asia-Pacific region.
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We have an agreement with Critical Path to enhance our email offerings.
Through this agreement we are able to partially or totally outsource email
services as needed to meet our customer demand in a more reliable, scalable and
cost-effective manner. We are also able to provide private label email with an
Asia Online domain name or the domain name of a particular customer.
We also have relationships with Internet solutions providers, such as Evoke
Communications for online web conferencing; GRIC for international roaming dial
up capabilities; E-Centric for fax and telephone based email and a number of
other software and technology equipment providers. We intend to expand our
strategic relationships with additional providers of key products and services.
These relationships provide us with benefits including preferred pricing, access
to the latest products, co-marketing with vendors, tailored product training and
access to the vendor's distribution channels to generate customer leads for our
sales force.
Through our relationship with Concentric Network Corp., one of our
stockholders, our customers are able to use our Internet access services with
local phone calls at over 450 United States points of presence. This permits us
to offer access services to United States customers, as well as supplementing
our global roaming capabilities for our Asia-Pacific customers by providing them
with more extensive United States access at reduced cost to our customers.
Through our relationship with Concentric, we also have access to data centers in
Dallas, San Jose, and London.
OUR ORGANIZATION
We were founded on December 8, 1998. We have acquired 15 locally managed
operating companies, which are located in five countries. Two additional
acquisitions are pending subject to closure.
To capitalize on the fragmented nature of the Internet solutions market in
the Asia-Pacific region, we have pursued a regional acquisition strategy to
build and grow our organization. Although there are numerous Internet services
companies in the markets located throughout the Asia-Pacific region, most of
them lack economies of scale, capital, technological expertise and an
international network necessary to provide high-quality service. We take
advantage of these opportunities by acquiring entrepreneurial companies that
focus on small and medium-sized businesses.
Our acquisition team of seven professionals focuses on identifying
acquisition candidates in markets with large market potential and a favorable
regulatory environment, which allows us to acquire majority control of these
companies. In identifying acquisition candidates, we seek companies that are run
by experienced managers and are well positioned in their markets.
We staff our operations with local management, sales and technical
personnel, which allows us to serve our customers in their native language with
people who understand the local regulations and business practices in their
markets. To further enhance the productivity of our acquired companies, we
typically take the following actions:
- centralize support services such as customer relations management,
billing, rating and financial information management systems;
- lower costs by aggregating our purchase of services and products required
for operating our businesses, such as telecommunications, hardware and
software;
- enhance sales and marketing efforts;
- provide management, technical, and financial expertise; and
- provide additional value-added services that the acquired companies may
not previously have been able to offer their customers.
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The business profile of Internet services companies in the Asia-Pacific
region changed considerably over the last few years. In the past, most Internet
service provider companies focussed on access and provided limited capabilities
in web hosting and professional services. Today, as companies have become more
sophisticated and specialized in their services offered, we have the opportunity
to acquire companies that focus on web hosting and professional services. As a
result, the primary business focus of our acquisitions has changed. The table
below sets forth the companies we have acquired since inception:
<TABLE>
<CAPTION>
COUNTRY OF PRIMARY BUSINESS PERCENTAGE
OPERATION COMPANY FOCUS OWNED(1) ACQUISITION DATE
---------- ------------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Philippines............... Asia Online Web Design 100% February 26, 1999
(Phils.)
Hong Kong................. Asia On-line Ltd. Access/Web Hosting 100 February 26, 1999
Melbourne, Australia...... Internet Access Access 51(2) September 24, 1999
Australia
New Zealand............... The Internet Access/Web Hosting 100 September 27, 1999
Company of New
Zealand
Canberra, Australia....... InterACT Technology Access/Web 60(2) October 1, 1999
Group Solutions /Web
Hosting
Sydney, Australia......... The Message Web Hosting 100 October 1, 1999
Exchange Pty Ltd.
Adelaide, Australia....... Dove Australia Access 100 October 5, 1999
Brisbane, Australia....... Brisbane Internet Access 67(2) October 7, 1999
Technology
Sydney, Australia......... Flex Information Access/Systems 51(2) October 14, 1999
Technology Integration
Hong Kong................. Macro Systems Systems Integration 100 January 17, 2000
Malaysia.................. Asia Online Utusan Access/Web Hosting 51 January 28, 2000
Sdn
Hong Kong................. Helix Web services Web Hosting 100 February 1, 2000
Gold Coast, Australia..... Fast Access Network Access 100 February 22, 2000
Hong Kong................. MetroLink/HopeLight Systems Integration 100 May 5, 2000
Geelong, Australia........ Avonsleigh Pty Ltd. Web Solutions 100% June 26, 2000
(Diezel/Dzign)
Pending Acquisitions
Hyderabad, India.......... India Domain Web Web Hosting --
Services Private
Limited
Canberra, Australia....... Spirit Networks Pty Access/Web Hosting --
Ltd.
</TABLE>
---------------
(1) Percentage owned is as of June 30, 2000.
(2) We have exercised options to acquire the remaining shares of these
companies.
In addition to our operating companies, we have established sales offices
in San Francisco and Toronto to market our web solutions, which include web
design, web translation and eCommerce services, to companies in North America.
We offer web solutions in North America from our centers in the Philippines,
Hong Kong, Melbourne and Canberra at prices we believe are competitive with
those offered by competitors in North America. We plan to open additional
offices in North America to further take advantage of this opportunity. We have
also opened a business development office in New Delhi, India.
OUR NETWORK AND DATA CENTERS
Network
Our network provides our customers a reliable connection to the Internet
via local and international leased lines, purchased transit from major local
Internet Network Service Providers, or NSPs, and over
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200 peering relationships. In peering relationships, Internet service providers
agree to carry each other's traffic on their networks to improve performance and
reduce congestion and costs. Our private lines and purchased transit
arrangements use multiple asynchronous transfer mode, or ATM, and clear-channel
connections. We are connected to major NSPs where justified. Direct connections
to multiple major carriers and NSPs assure reliable service levels, protecting
against traffic congestion and network outages. Using all of these connections,
our network routes traffic over the network of the provider best able to deliver
the data in the most efficient manner.
We have established a dedicated regional backbone interconnecting each of
the Australian cities where we have operations. This covers 27 locations,
including all of the capital cities, with over 140 ISDN connections providing
access to our network. We have also established a dedicated ATM connection from
our Australian to New Zealand operations. In addition, we intend to implement
the first phase of our international backbone by the end of the year 2000,
establishing direct connections between Australia and the United States and
between Hong Kong and the United States.
We have established over 50 points of presence, or POPs, in five countries
in the Asia-Pacific region. A point of presence is a telecommunications facility
that allows customers in that location to connect to the Internet with a local
telephone call. Through our relationship with Concentric we also have access to
over 450 POPs in the United States. These POPs enable our customers in the
United States to use our Internet access services without incurring long
distance charges.
Given the availability of a large number of bandwidth suppliers and
fast-changing technologies, our approach to bandwidth management is to apply
"just-in-time" availability, rather than buying bandwidth in bulk and working to
fill the capacity we have purchased. This approach allows us to take advantage
of new network technological developments and lower bandwidth costs. For
example, new international cables are under construction or being planned to
address the rapidly growing international data needs. Intra-Asia, these planned
cables include Asia-Pacific Cable Network 2 and East Asia Crossing, and
trans-Pacific these planned cables include Japan-US, China-US, and Southern
Cross. This approach may also allow us to benefit from new technologies such as
new fiber optic cables that employ new optical networking technologies, two-way
interactive communications via satellite, new Internet protocols and optical
laser technologies, which may potentially provide greater bandwidth at
substantially lower costs.
Data centers
Our data centers house our servers and routing equipment and our customers'
co-located equipment and are linked to the United States Internet backbone via
multiple, dedicated, high-speed data lines. For our co-location services,
customers have 24X7 physical access to the equipment they co-locate in our
facilities and remote access for software maintenance and administration.
We currently operate 10 data centers located in Hong Kong, Australia,
Malaysia and New Zealand, which total approximately 35,000 square feet. We plan
to upgrade these existing data centers according to the requirements of our
customers in each location. We acquired these data centers in the course of
completing acquisitions, and they vary in their levels of security, cooling,
power redundancy, fire suppression and other characteristics. Our approach to
data center management is to lease additional capacity from professionally
managed data center providers as space is required, rather than building or
leasing excess capacity in anticipation of demand. For example, we have leased
new data center space in Hong Kong, which initially is 2,500 square feet, with
an option to increase to 10,000 square feet. We are working with leading
technology companies to meet our needs for professionally managed data center
space and managed services throughout the Asia-Pacific region. Through strategic
relationships with Interliant and Concentric, we also have access to data
centers in Atlanta, Dallas, San Jose, and London, primarily for our web hosting
services.
INTEGRATED SUPPORT SERVICES
We believe that while local, independent ISPs understand local customer
needs and providing hands-on support demanded by their customers, they typically
lack the ability to cost-effectively scale and
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automate their back-office IT infrastructure. To address this issue in our
operating subsidiaries, we are developing an integrated support services
platform designed to increase operational efficiencies, to enhance the quality,
consistency and scalability of our services, and to allow local personnel to
focus on relationships with customers. The core components of this platform are
customer relationship management, billing, rating for charges and financial
information management.
Customer relationship management
We believe a high level of customer support is critical to attracting and
retaining our customers. We have licensed and customized the Vantive system, a
leading customer relationship management system offered by PeopleSoft.
The system gives us the ability to track, route, and report on customer
issues and provides significant benefit in ensuring quality and timely care to
customers. In addition, the customer relations management system enables
customer care representatives to build and share a knowledge base of common
resolutions to customer inquiries. Our customers can also initiate changes in
their service and track their account activity in a secure web environment,
thereby administering their account without any interaction with our customer
care representatives. We have deployed the Vantive system in our Hong Kong and
New Zealand operations, and we intend to put the system in place in our
Australian operations by the end of 2000 and subsequently in our other
operations.
Billing and rating
We have licensed and customized a billing solution from Portal Software, a
leading billing solutions provider to telecommunications companies and Internet
service providers, which is designed to produce accurate, timely, and
easy-to-understand invoicing. This system offers cost-effectiveness, scalability
and the ability to tailor features such as currency and language to the
requirements of each market. In addition, Portal's rating engine enables us to
offer flexible service packages tailored to various customer needs, and to
bundle and accurately bill for our Internet services. This also enables us to
provide real time provisioning of services. As of June 30, 2000 this billing
solutions program was being used in our Hong Kong operations. We are
aggressively rolling out this uniform billing platform to all of our regional
operations and will continue toward centralized management of billing
operations.
Financial information management
In order to provide a central, standardized accounting system we are
converting the systems of our acquired companies to the SunSystems financial
management suite. These applications will enable us to increase the productivity
and quality of administrative support. As of June 30, 2000, the SunSystems
general ledger was in use at 10 of our 15 acquired companies.
We are customizing and integrating these components to provide a single,
unified view of all interactions with each customer. In addition, this enables
our customer service representatives and end-customers through the web to
resolve inquiries without having to manually "switch systems," thus improving
efficiency and accuracy. Our support services were integrated on top of a
middleware package, so that the architecture facilitates the rapid building of
interfaces for additional component systems in the future.
Our strategy combines local presence with regional support centers in order
to deliver high-quality services to our customers in a cost-effective manner.
This will enable us to provide 24X7 responsiveness on a regional basis while
maintaining the ability to provide local on-site installation assistance,
hands-on troubleshooting and customer access to local experts. For example, we
recently entered into an agreement with a third-party call center to provide
regional customer support for our operations in Australia and New Zealand. Our
integrated support services facilitate this deployment model as both regional
support centers and local offices will have a single, common view of customer
activity.
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SALES AND MARKETING
Our sales and marketing objective is to achieve broad market penetration by
targeting small and medium-sized businesses in the Asia-Pacific region. As of
June 30, 2000 we had 184 employees engaged in sales and marketing.
Sales
We sell our services through local sales efforts, supported by local and
regional advertising and promotion programs. We currently sell our services
through a direct sales force and indirect sales channels, which are as follows:
- Direct sales force. Our sales force is based geographically out of each
of our operating companies, and as of June 30, 2000 consisted of 137
full-time employees. In the Asia-Pacific region, we hire locally based
direct sales representatives who have a strong Internet technical
background and an understanding of their local geographic market and the
industries we are targeting. Because they are locally based, these sales
representatives are able to meet face to face with prospective customers
to discuss the customers' specific needs and technical requirements and
develop tailored solutions. Sales representatives can also leverage our
pre-sales product specialists, who have more in-depth knowledge of our
products and who can help our clients develop tailored solutions to meet
their needs.
We believe the North American market will be an increasingly important
source of customers for our web solutions that can be provided through
our resources in the Asia-Pacific region. We also have sales offices in
San Francisco and Toronto with an aggregate of 12 sales and marketing
employees as of July 31, 2000, and we plan to establish additional
offices in the United States and Canada by the end of 2001. We are
implementing programs to attract, train and retain high quality,
motivated sales representatives that have the necessary technical skills
and experience.
- Indirect sales. For some of our basic services, indirect sales channels
represent a cost effective means of acquiring customers. We have
arrangements with web designers, computer stores, system integrators,
value-added resellers and third party technology providers to sell our
services. Our operating companies also maintain relationships with
referral partners, such as advertising agencies, whose core businesses
typically do not include Internet services.
- Online ordering. We offer our customers the ability to purchase certain
services directly through our web sites. Our web sites provide us with a
low-cost, globally accessible sales channel that is available 24X7. We
are expanding the range of services offered for direct purchase on these
web sites.
Marketing
Our marketing team develops and implements our positioning, database
marketing, public relations, pricing and promotional strategies. Our marketing
strategy addresses opportunities from the following three perspectives:
geography, industry-specific market segments and products.
- Geography. We have marketing managers for each country where we have
operations who are responsible for promoting and selling our suite of
products and services. These marketing managers work closely with our
headquarters marketing staff to localize execution of our global
marketing strategies with centralized support and direction.
- Industry-specific market segments. We identify attractive industry market
segments to focus on, such as brokerage firms, commercial banks, import
and export firms, schools, hotels and restaurants. We then seek to
determine their unmet needs and develop tailored solution packages for
these segments.
- Products. We identify and market products and services that we expect
will have broad appeal to small and medium-sized entities in their
businesses across the Asia-Pacific region, such as
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CenoSuite application service provisioning, WorldHost hosting platform, fax and
telephone based email and Evoke Communications' web conferencing system.
In implementing our marketing strategy, we use Internet, print, television
and radio marketing campaigns. Through public relations initiatives, we seek to
enhance brand recognition by highlighting important technical developments,
service offerings, awards, strategic partnerships and company milestones. We
seek to enhance our position in our industry through active participation in
industry trade shows, conferences and speaking engagements.
We have consolidated the regional operating and marketing efforts of each
of our local operating companies under the Asia Online brand name. We seek to
make the Asia Online brand synonymous in our markets with a single source of
Internet business communications solutions which are reliable, user friendly and
cost effective.
COMPETITION
We believe that the primary competitive factors in the Internet solutions
market in the Asia-Pacific region include:
- ease of use of services;
- breadth of service offerings;
- quality and reliability of network services;
- pricing;
- strong brand positioning;
- the ability to attract and retain professionals;
- quality of customer service; and
- providing services tailored to local market needs.
Our failure to adequately address any of the above factors could harm our
business.
We compete with providers of Internet access, web hosting, and professional
services. We believe that few of our competitors currently combine these
services into an integrated and packaged customer solution. However, our current
and potential competitors may enter or expand their positions in the Internet
access and services market by acquiring one of our existing competitors or by
forming strategic alliances with these competitors, and thereby offer solutions
similar to our own. We believe that our main competitors in each of our service
areas include the following:
- Internet access. Our main competitors in the business market are global
service providers such as WorldCom and PSINet and regional service
providers such as Pacific Internet, national telecommunications companies
such as Hong Kong Telecom, Telecom New Zealand, Telekom Malaysia and
Telstra, and numerous local access providers.
- Web hosting. In addition to Asia-based web hosting companies such as
iAsiaWorks, iAdvantage and iLink, hosting companies based in North
America such as Exodus Communication, Global Crossing Global Center,
Level 3, WorldCom, and Intel have all announced plans to establish
Internet data centers in the Asia-Pacific region.
- Professional services. For web solutions companies focused on small and
medium-sized businesses in the Asia-Pacific region, we face competition
from Asia-Pacific based companies such as Solution 6, The Web Connection,
iMerchants and numerous local companies. For web solutions targeting
companies in North America, we expect to face competition from companies
such as Razorfish and marchFIRST. For systems integration, we face
competition from numerous local companies and international companies
such as IBM, Datacraft and EDS.
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The application service provisioning market is in its early stage of
development and is characterized by many different types of companies trying to
enter this market, such as Internet service providers, software providers,
software developers, resellers and wholesalers. Principal competitors in the
application service provisioning market, however, have not yet emerged.
Nevertheless, we expect competition will also vary in each country.
We believe there are relatively low barriers to entry into the markets
where we operate. For example, we have no patented technology that could
preclude or inhibit competitors from entering our markets. We anticipate that we
will face additional competition from new entrants into our markets in the near
future. These current and potential competitors may have larger customer bases,
longer operating histories, greater name recognition, more employees and
significantly greater financial, technical, marketing, public relations and
distribution resources than we do. These competitors may also compete for our
acquisition candidates, which could result in fewer acquisitions and higher
acquisition prices for the resulting acquisition.
INTELLECTUAL PROPERTY
We protect our proprietary intellectual property rights through a
combination of trademarks, service marks, trade secrets, copyrights,
confidentiality agreements with our employees and third parties, and protective
contractual provisions. We pursue the registration of our trade and service
marks in the United States and internationally. We have filed a total of ten
trademark and service mark applications in the United States, and have
registered the Asia Online trademark with logo in the United States. We have
also filed for trademark protection in various foreign countries. We do not own
any patents and have not filed any patent applications. Our protection efforts
may prove to be unsuccessful, and unauthorized parties may copy or infringe upon
aspects of our technology, services or trademarks. Furthermore, the validity,
enforceability and scope of protection for intellectual property such as ours in
Internet-related industries are uncertain and still evolving. Existing trade
secret, copyright and trademark laws offer only limited protection. Further,
effective trade secret, copyright and trademark protection may not be available
in every country in which we will offer our services and policing unauthorized
use of our proprietary information is difficult.
GOVERNMENT REGULATION
Regulation of Internet services and Internet service providers varies
widely from jurisdiction to jurisdiction in the Asia-Pacific region. The
following summary of the general legal framework governing our Internet related
services is not complete and does not purport to describe all of the laws and
regulations applicable to our business.
In countries such as New Zealand, Singapore, South Korea, Taiwan and Japan,
laws and regulations exist relating to access to telecommunication facilities,
intellectual property rights, privacy, and consumer protection applicable to
Internet services and Internet service providers. However, only a relatively
small body of laws and regulations specifically regulate Internet services and
Internet service providers in these countries.
In other target markets such as the Philippines, Malaysia, the People's
Republic of China and India, Internet services and Internet service providers
are highly regulated. Regulatory schemes in these countries may distinguish
among various types of Internet services, and some or all of our services may
fall under a formal licensing system, foreign ownership restrictions,
content-based regulations or other legal restrictions.
If we are unable to obtain the required licenses, permits or exemptions
necessary to provide a type of service in a given country, our ability to
continue to provide, or to commence the provision of, Internet services in that
country may be adversely affected.
Since the Internet remains a fairly new and rapidly developing phenomenon,
laws and regulations governing Internet services and Internet service providers
in our target markets will continue to evolve. At the same time, the application
of existing laws to communications and business done over the Internet are, in
some cases, unclear and are being clarified and refined. These regulations may
cover issues such as
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content, privacy, pricing, encryption standards, consumer protection, electronic
commerce, taxation, copyright infringement and other intellectual property
issues. We cannot predict the impact, if any, that any future regulatory
interpretations, changes or developments may have on our ability to operate in
specific markets.
Hong Kong
Our principal executive offices and our operational headquarters are
located in Hong Kong. We conduct our business in Hong Kong and the People's
Republic of China through our Hong Kong operating subsidiaries. The Office of
the Telecommunications Authority, or OFTA, regulates our operations in Hong
Kong. Internet access services are "public non-exclusive telecommunication
services" which require an annual Public Non-Exclusive Telecommunications
Service, or PNETS, license issued by OFTA. PNETS licenses are renewable annually
on payment of a nominal fee to OFTA, subject to any terms or conditions
specified by OFTA. Depending on the services offered by the ISP, two PNETS
licenses may be required: (a) a PNETS license for ISPs, of which OFTA has
granted about 180, and (b) a PNETS license for external telecommunications
service operators, of which OFTA has granted about 160 of these. Currently, we
hold two PNETS licenses, which allow us to conduct Internet access businesses in
Hong Kong. The licenses are not transferable without the prior written consent
of OFTA and expire in 2001, after which they may be renewed on an annual basis
subject to any terms and conditions specified by OFTA.
Australia
Internet service providers in Australia are regulated as "carriage service
providers" under the Australian Telecommunications Act of 1997. We are not
subject to specific licensing requirements but must join an industry based
consumer protection program run by the Telecommunications Industry Ombudsman.
That act also imposes obligations on carriage service providers, including
Internet service providers, in relation to confidentiality, compliance with
certain standards and the provision of certain information to regulatory
authorities. We are also subject to the regulation of online content that
protects us from liability for offensive material subject to fulfillment of
certain conditions. Privacy laws in Australia only apply to the public sector
and credit reference information. However, a bill recently tabled in Australia's
Federal Parliament proposes a privacy regime for the private sector that will
impose on our business new obligations regarding the collection and management
of personal information collected in Australia. In addition the Federal
Government announced in July 2000 a review into whether audio and video
streaming on the Internet should be regulated as broadcasting. The outcome of
that review may affect the potential growth of our business in Australia.
Malaysia
The Internet industry in Malaysia was regulated by the Malaysian
Telecommunications Act of 1950 until April 1, 1999 when it was replaced by the
Malaysian Communications and Multimedia Act, or CMA. As of June 30, 1999 the
Malaysian government had granted a total of seven licenses for Internet service
providers, however only six of such licenses are actively used for the provision
of such services. We provide, through our Malaysian operating subsidiary,
Internet access, web hosting, web co-location and other Internet professional
services in Malaysia pursuant to contractual arrangements with a licensed
Internet service provider. Such contractual arrangements will expire on December
31, 2001. Under the CMA and licensing regulations introduced recently, it is
possible that our Malaysian operating subsidiary may be exempted from obtaining
licenses in order to provide web hosting, private network services, electronic
transaction services and other professional services. We believe that our
Malaysian operating subsidiary will need to apply for registration as a class
licensee to continue its Internet access provision services. Prior to the
publication of the recently introduced licensing regulations, our Malaysian
operating subsidiary applied for various licenses that are relevant to its
businesses under the new regulatory regime. In light of the recently introduced
regulations however, our Malaysian operating subsidiary will only be applying
for registration as a class licensee for the provision of Internet access
services. We anticipate that
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our Malaysian subsidiary will be able to obtain the necessary class license to
continue providing Internet access services.
Malaysian governmental policy imposes restrictions on foreign ownership,
which prescribe that the foreign ownership in Malaysian companies is generally
limited to a maximum of 30% unless an exemption is granted by the Foreign
Investment Committee of the Malaysian government. Such restrictions do not have
the force of law and contravention of them does not give rise to civil or
criminal sanctions or penalties. We currently own 51% of our Malaysian operating
subsidiary and have an option to purchase the remaining 49%. In an effort to
encourage the development of the information technology industry, the Malaysian
government has launched the Multimedia Super Corridor project, which provides
certain preferential treatment to the information technology industry in
Malaysia. Companies with Multimedia Super Corridor Status are not subject to
foreign ownership restrictions. Our Malaysian operating subsidiary is currently
in the process of applying for Multimedia Super Corridor status, however, we do
not know if we will obtain such status.
The Philippines
Internet service providers in the Philippines are considered as
telecommunication entities and are subject to Republic Act No. 7925, "An Act to
Promote and Govern the Development of Philippines Telecommunications and the
Delivery of Public Telecommunications Services." This act requires Internet
service providers to register with the Philippine National Telecommunications
Commission, which currently does not restrict or otherwise limit the number of
registrations. As telecommunications entities, internet service providers are
considered public utilities by the National Telecommunications Commission. As
public utilities telecommunications entities, which include internet service
providers, are subject to the provision under the Philippine Constitution which
prohibits public utilities, from having more than 40% of their share capital
owned by persons who are not citizens of the Philippines and from appointing any
executive managing officer that is not a citizen of the Philippines. Further,
the corporate officers of public utilities are generally required to be citizens
of the Philippines because foreign nations are not allowed to intervene in the
management, operation, administration or control of public utilities, whether as
an officer, employee or laborer, with or without remuneration, except technical
personnel whose employment may be specifically authorized by the Secretary of
Justice. Accordingly, should we decide to enter the Internet access market in
the Philippines, our ability to obtain a majority stake in or actively manage
our business will be restricted. These restrictions do not limit our ability to
render other professional services in the Philippines, provided these services
are not considered nationalized activities under Philippine law.
India
The Internet industry in India is subject to regulation by the Ministry of
Communications through the Telecom Commission and the Department of
Telecommunications pursuant to the provisions of the Indian Telegraph Act, (the
"Telegraph Act") of 1885 and the India Wireless Telegraphy Act (the "Wireless
Act") of 1933. Pursuant to the Telegraph Act, any telecommunication services in
India require a license from the government of India which acts through the
Department of Telecommunications of India in such matters. The supervision and
regulation of many Internet and high technology companies is also implemented
through license provisions with the Department of Telecommunications and other
governmental agencies as stated in the license agreement.
General terms of a licensing agreement with the Department of
Telecommunications include provisions permitting the Department to revoke the
license if certain terms and conditions of the license are breached, as well as
authorizing the Department to assume control of the network and alter or suspend
any terms or conditions of the license if it deems such action proper or in the
public interest. Generally, foreign equity ownership in a company providing
telecommunication services including Internet services is limited to 49% in
India. No regulatory approval is required for a company to carry on the business
of software development, web designing and web hosting and 100% foreign equity
is permitted in such Indian companies. However, approval of the Secretariat for
Industrial Assistance/Foreign Investment Promotion
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Board and Reserve Bank of India is required respectively for making downstream
investment and acquiring the existing shares of an Indian company.
The People's Republic of China
The Chinese government tightly regulates the telecommunications industry,
including the Internet. Laws and regulations applicable to the Internet in China
are still evolving and unsettled. There are certain application and registration
procedures in place for Internet users who wish to have access to Internet-
related services. Foreign owned companies are currently prohibited from directly
engaging in Internet services provision, Internet content provision and other
value-added Internet related services in China. The Ministry of Information
Industry is currently reviewing its telecommunications regulations and
restrictions, particularly as they relate to Internet activities. According to
the bilateral trade agreement concluded between the United States and Chinese
Governments in November 1999, the Chinese government has agreed that upon its
accession to the World Trade Organization, China will gradually remove these
restrictions and allow up to 49% foreign ownership in most telecommunication
services, which may also include Internet service provision, Internet content
provision and other value-added Internet services. However, the current
restrictive regulatory environment may seriously restrict our ability to enter
the China market.
EMPLOYEES
As of June 30, 2000 we employed 692 people of which 214 were in Australia,
233 were in Hong Kong, two were in India, 31 were in Malaysia, 58 were in New
Zealand, 133 were in the Philippines, and 21 were in the United States. These
employees included 20% in general and administrative functions, 32% in
operations, 27% in sales and marketing, and 21% in technology. Our future
success may be affected by our ability to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
Our employees are not represented by a labor union or covered by any collective
bargaining agreements. We consider our employee relations to be good. We
anticipate that our employee base will continue to grow as a result of organic
growth and pursuit of our acquisition strategy.
FACILITIES
Our principal executive offices are located in Hong Kong where we lease
approximately 5,000 square feet of space, pursuant to a lease expiring in
October 2002. Our operating companies also lease all of their office facilities.
We also currently lease approximately 35,000 square feet of space in the
aggregate for data centers in Hong Kong, Australia, Malaysia and New Zealand.
We believe that these existing facilities are adequate to meet current
foreseeable requirements or that suitable additional or substitute space will be
available on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings or claims that we believe will
have, individually or in the aggregate, a material adverse effect on our
business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of June 30, 2000 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin H. Randolph(1)...................... 51 President, Chief Executive Officer and
Director
Edward P. Roberto......................... 40 Executive Vice President of Business
Development
Gareth Stephens........................... 45 Executive Vice President and Chief
Financial Officer
Kiron Chatterjee.......................... 47 Executive Vice President and Chief
Technical Officer
Stoddard Vandersteel...................... 52 Executive Vice President of Development
Services
Sung Il Lee............................... 39 Executive Vice President of Marketing
Ronald W. Leeder.......................... 46 Executive Vice President of Sales
Bradley A. Feld........................... 34 Director, Co-chairman of the Board
Karl K. Fooks(1)(2)....................... 41 Director
T.J. Huang(2)............................. 54 Director
James McNiel.............................. 37 Director
Henry Nothhaft(2)......................... 56 Director
Scott Russell(1).......................... 40 Director, Co-chairman of the Board
</TABLE>
---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
EXECUTIVE OFFICERS
Kevin H. Randolph co-founded Asia Online in December 1998 and has been our
president, chief executive officer and member of the board of directors, since
that time. Mr. Randolph has extensive experience in the information industry,
beginning in the 1980's as vice president and general manager with Bank of
America where he helped create financial management software that is now at the
core of electronic commerce. Mr. Randolph co-founded Interactive Network in
December 1987, which brought to market the first wireless broadcast interactive
television service. Following Interactive Network's successful IPO, he joined
ICTV as senior vice president of marketing and product development. ICTV built
the first cable-based interactive television network combining a patented
delivery technology with a television interface system. In November 1992, Mr.
Randolph founded the consulting company, Randolphs.com, LLC, which has aided
numerous companies, including US West, Netscape and Philips, in Internet
development projects. Mr. Randolph holds a B.B.A. from Washington State
University majoring in Electrical Engineering and Marketing.
Edward P. Roberto co-founded Asia Online in December 1998 and has been our
executive vice president of business development since March 1999. From January
1998 until October 1998, Mr. Roberto was vice president of business development
for the Asia Pacific region at VIA Net.Works, an international Internet services
company. From October 1994 until July 1997, Mr. Roberto was vice president of
Business Development for Logicom International, a convergence billing and
customer service application provider. Mr. Roberto studied electrical and
mechanical engineering at the University of Colorado and holds an MBA from the
Daniels School of Business at the University of Denver.
Gareth Stephens has been our executive vice president and chief financial
officer since November 1999. From November 1979 until August 1998, Mr. Stephens
worked in various positions for J.P. Morgan, a global investment bank. From
March 1993 to December 1995, Mr. Stephens was the managing director responsible
for the valuation and control of J.P. Morgan's global derivatives business, and
from January to
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December 1996, he was a managing director responsible for re-engineering
European support activities. From January 1997 until August 1998 Mr. Stephens
was managing director and chief operating officer at J.P. Morgan's Sydney,
Australia office. Mr. Stephens is a member of the Institute of Chartered
Accountants in England and Wales, and holds an honors degree in Engineering
Science and Economics from Oxford University, England.
Kiron Chatterjee has been our executive vice president and chief technical
officer since March 2000. From October 1992 until February 1999, Mr. Chatterjee
was the head of information technology of the senior management team charged
with building, commissioning and managing Hong Kong's airport at Chek Lap Kok.
From 1999 to 2000, Mr. Chatterjee worked as an independent consultant. Mr.
Chatterjee holds an MBA from Hull University in the United Kingdom.
Stoddard Vandersteel has been our executive vice president of development
services since March 2000. Mr. Vandersteel joined Asia Online in October 1999 as
our vice president of Strategic Services. From June 1994 until October 1999, Mr.
Vandersteel was a principal of InterWork, a groupware consulting firm. Mr.
Vandersteel holds a B.A. in mathematics and computer science from Cornell
University and an MBA from the University of California at Berkeley.
Sung Il Lee has been our executive vice president of marketing since April
2000. From January 1990 until December 1995, Mr. Lee worked at Pepsi-Cola
International, serving as the sales and marketing director for South-East Asia
from January 1994 to January 1995. From February 1996 to May 1997, Mr. Lee was
the regional business development director for the Asia-Pacific region at S.C.
Johnson Wax, a manufacturer of cleaning products. From May 1997 until April
2000, Mr. Lee served as the managing director for Malaysia, Singapore and Brunei
at Bristol-Myers Squibb, a pharmaceuticals and beauty care products company. Mr.
Lee holds a B.S.B. from the University of Kansas and received an MBA from the
University of Michigan.
Ronald W. Leeder has been our executive vice president of sales since
January 2000. From May 1994 until December 1999, Mr. Leeder was employed by GE
Capital and from April 1997 until December 1999 was the chief executive officer
for GE Capital Information Technology Solutions in Australia and New Zealand.
From May 1994 until April 1997, Mr. Leeder served as GE Capital's vice president
of sales for North America and vice president of business development in Canada.
Mr. Leeder holds a B.A. from the University of Winnipeg and a masters in
environmental studies from York University in Toronto.
DIRECTORS
Bradley A. Feld has served as a member of our board of directors since
December 1998. Since June 1996, Mr. Feld has served as managing director of
SOFTBANK Technology Ventures. Since July 1995, Mr. Feld has been the president
of Intensity Ventures Inc., a company that helps to establish, advise and
operate software companies. From September 1994 until June 1995, Mr. Feld served
as chief technology officer of AmeriData Technologies, a publicly traded systems
integration company. Mr. Feld is a director and co-chairman of Interliant, Inc.
and a director of MessageMedia, Inc and Evoke Communications Inc. Mr. Feld holds
S.B. and S.M. degrees from the Massachusetts Institute of Technology.
Karl K. Fooks has served as a member of our board of directors since August
1999. Mr. Fooks is a managing director of J.P. Morgan Securities Asia, Ltd., and
has been with J.P. Morgan since 1986. Mr. Fooks holds a B.A. from the University
of California at Berkeley and a masters of public administration from the
Woodrow Wilson School of Public and International Affairs at Princeton
University.
T.J. Huang has served as a member of our board of directors since March
2000. Dr. Huang has been the president of TCW/YFY Investment Partners, Ltd., a
private equity fund management company, since May 1995. Dr. Huang is the founder
of YFY Asset Management Company, a private investment holding company, and the
chairman of Systex Corporation, a company providing system integration services
and financial trading databases and Sysware Corporation, an Internet portal in
Taiwan. Prior to joining TCW/ YFY Investment Partners, Ltd., Dr. Huang was chief
financial officer and managing director of YFY
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Paper Manufacturing Company, Ltd. Dr. Huang holds a mathematics degree from
National Taiwan University and an M.S. in mathematics and a Ph.D. in computer
science from the University of Wisconsin at Madison.
James McNiel has served as a member of our board of directors since August
1999. Mr. McNiel is currently a senior vice president with Pequot Capital
Management, Inc. From May 1990 until May 1996, Mr. McNiel worked for Cheyenne
Software, Inc., a provider of software products for desktops and personal
networks, in various positions including executive vice president of business
development and executive vice president of corporate development. In May 1996,
Mr. McNiel founded McNiel Group, Ltd. to provide consulting services to
information technology corporations.
Henry Nothhaft has served as a member of our board of directors since May
1999. Since May 1995, Mr. Nothhaft served as chairman, president and chief
executive officer of Concentric Network Corporation, a provider of Internet
services. In June 2000, Concentric merged with NEXTLINK Communications, Inc., a
provider of broadband communication services. In June 2000, Mr. Nothhaft became
vice chairman of NEXTLINK Communications, a publicly traded company, while
continuing as president and chief executive officer of Concentric. Mr. Nothhaft
received a B.S. from the U.S. Naval Academy in 1966 and an M.B.A. from George
Washington University in 1976.
E. Scott Russell has been a member of our board of directors since December
1998. Mr. Russell is a managing director of SOFTBANK Venture Capital and has
been with SOFTBANK Venture Capital since October 1996. Prior to joining
SOFTBANK, Mr. Russell was the executive managing director of SBC Warburg PLC
from 1989 until 1996. He is a director of Buy.com Inc. and Support.com, both
public companies. Mr. Russell holds a B.S. in computer science from Carnegie
Mellon University.
BOARD COMPOSITION
We currently have seven directors. All directors hold office until the next
annual meeting of stockholders at which their term expires and until their
successors have been duly elected and qualified. There are no family
relationships among any of our directors or executive officers.
BOARD COMMITTEES
Audit committee
Our audit committee consists of Messrs. Nothhaft, Huang, and Fooks. The
audit committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors, and evaluates our
internal accounting procedures.
Compensation committee, interlocks and insider participation
Our compensation committee consists of Messrs. Russell, Fooks and Randolph.
Mr. Randolph does not participate as to any matter that may affect his own
compensation. The compensation committee reviews and approves compensation and
benefits for our executive officers. The compensation committee also administers
our compensation and stock plans and makes recommendations to the board of
directors regarding such matters. Other than Mr. Randolph, no member of our
compensation committee has been an officer or employee of Asia Online at any
time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee. Compensation of Mr. Randolph, our chief executive officer, was
determined by the entire board of directors.
DIRECTOR COMPENSATION
We do not pay any of our directors cash compensation for any services
provided as directors. They are reimbursed for certain expenses in connection
with attendance at board and committee meetings. Non-
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employee directors are eligible to receive stock option and stock issuances
under our 1999 equity incentive plan and have been granted the following
options:
- In May 1999, Mr. Nothhaft was granted an option to purchase 100,000
shares of common stock at an exercise price of $0.11 per share. The first
25% vested one year after the initial grant with the remainder vesting
monthly over the following three-year period. Mr. Nothhaft exercised his
options on June 18, 1999 pursuant to an early exercise provision in his
option grant.
- In March 2000, Dr. Huang was granted an option to purchase 50,000 shares
of common stock at an exercise price of $0.32 per share. The first 25%
will vest one year after the initial grant with the remainder vesting
monthly over the following three-year period.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid to our chief executive officer and our executive officers whose annual
salary exceeded $100,000 for services rendered in all capacities to us during
the fiscal year ended December 31, 1999. Throughout this prospectus we refer to
these individuals as our named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -------------------------
-------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
NAME AND PRINCIPAL POSITION SALARY COMPENSATION STOCK AWARDS OPTIONS
--------------------------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Kevin H. Randolph......................... $200,000(1) $100,000(2) $--(3) 438,596(4)
President and Chief Executive Officer
Edward P. Roberto......................... $150,000(5) $ 30,000(6) $--(7) --
Executive Vice President, Business
Development
</TABLE>
---------------
(1) Mr. Randolph began receiving compensation from Asia Online in March 1999.
His salary for 1999 on an annualized basis was $240,000.
(2) Mr. Randolph received $10,000 per month as an allowance to cover his living
expenses while residing in Hong Kong.
(3) On February 10, 1999, Mr. Randolph purchased a total of 1,062,500 shares of
common stock with vesting provisions and a repurchase right in favor of Asia
Online for the unvested shares, pursuant to his employment agreement and a
founder stock purchase agreement. The purchase price for these shares was
$0.02 per share, the fair market value of the stock at that time, for a
total of $21,250. The first 33% of this stock vested one year after the
commencement of his employment with the reminder to vest monthly for the
subsequent 24 months, so long as he is employed by Asia Online.
(4) Mr. Randolph was granted a warrant to purchase up to $500,000 of Series A
Preferred Stock at an exercise price of $1.14 per share, pursuant to his
employment agreement, dated February 11, 1999. This warrant was amended to
extend the exercise period until December 31, 1999 and to reduce the amount
for which it was exercisable to $100,000. He exercised this warrant in full
to purchase a total of 87,719 shares of Series A preferred stock on December
27, 1999.
(5) Mr. Roberto began receiving compensation from Asia Online in March 1999. His
salary for 1999 on an annualized basis was $180,000.
(6) Mr. Roberto received $3,000 a month as an allowance to cover his living
expenses while residing in Hong Kong.
(7) On February 10, 1999, Mr. Roberto purchased a total of 700,000 shares of
common stock with vesting provisions and a repurchase right in favor of Asia
Online for the unvested shares, pursuant to his employment agreement and a
founder stock purchase agreement at $0.02 per share, the fair market value
of the stock at that time, for a total of $14,000. This stock vests 33%
following one year after the commencement of his employment and thereafter
1/36th each month for the subsequent 24 months, so long as he is employed by
Asia Online.
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OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999
The following table sets forth information regarding options and warrants
granted to named executive officers during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
GRANTED ANNUAL RATES OF
NUMBER OF TO STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN FISCAL OPTION TERM
OPTIONS YEAR EXERCISE PRICE ---------------------
NAME GRANTED 1999 PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------- -------------- --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Kevin Randolph(1)....... 438,596 39% $1.14 12/31/99
Edward Roberto.......... -- -- -- -- -- --
</TABLE>
---------------
(1) Mr. Randolph was granted a warrant to purchase up to $500,000.00 of Series A
preferred stock at an exercise price of $1.14 per share, pursuant to his
employment agreement, dated February 11, 1999. This warrant was amended to
extend the exercise period until December 31, 1999 and to reduce the amount
for which it was exercisable to $100,000. He exercised this warrant in full
to purchase a total of 87,719 shares of Series A preferred stock on December
27, 1999.
The percent of total options and warrants granted in 1999 in the above
table is based on options and warrants to purchase a total of 1,126,096 shares
of common stock and shares of common stock issuable upon conversion of Series A
preferred stock to employees, directors and consultants. Our board of directors
may reprice options under the terms of our stock option plans.
Options were granted at an exercise price equal to the fair market value of
our common stock and preferred stock, as determined by our board of directors on
the date of grant. In making this determination, the board of directors
considered a number of factors, including:
- our historical and prospective revenue and profitability;
- our cash balance and rate of cash consumption;
- the development and size of the market for our services;
- the status of our financing activities;
- the stability of our management team; and
- the breadth of our services.
The amounts reflected in the "Potential Realizable Value" column of the
table above are calculated assuming that the assumed initial public offering
price of $ per share appreciates at the indicated annual rate compounded
annually for the entire term of the option, and that the option is exercised and
the common stock so received is sold on the last day of the term of the option
or warrant for the appreciated price. The 5% and 10% rates of appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future increases in the price of the
common stock.
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<PAGE> 61
1999 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin Randolph....... 87,719(1) $178,916(2) -- -- -- --
Edward Roberto....... -- -- -- -- -- --
</TABLE>
---------------
(1) Shares of common stock to be issued upon conversion of 87,719 shares of
Series A preferred stock acquired pursuant to a warrant to purchase Series A
preferred stock at a purchase price of $1.14, exercised on December 27, 1999
for an aggregate purchase price of $100,000.
(2) Assumes a fair market value of $3.18 based upon the issuance price of our
Series B preferred stock issued on August 3, 1999, which was the latest
determination of fair market value by our board of directors prior to the
exercise of the warrant on December 27, 1999.
401(k) PLAN
Our employees are eligible to participate in our 401(k) Plan. Pursuant to
the 401(k) Plan, employees may elect to reduce their current compensation by up
to the lesser of 15% of eligible compensation or the statutorily prescribed
annual limit ($10,500 in 2000). Employees may contribute this amount to the
401(k) Plan. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by employees to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn, and so that the contributions by employees will be deductible when
made. We will not make matching contributions to the 401(k) Plan. However, we
may make discretionary contributions in amounts to be determined by the board of
directors.
1999 EQUITY INCENTIVE PLAN
Adoption
Our 1999 Equity Incentive Plan was adopted by our board of directors and
approved by our stockholders in February 1999. The plan was amended by the board
to increase the amount of common stock reserved for issuance under the plan to a
total of 3,554,120 shares of common stock, and such amendments were approved by
the stockholders on July 30, 1999 and March 20, 2000. The plan was also amended
on , 2000 by the board, with approval by the shareholders received on
, 2000.
Reserve
We currently have 3,554,120 shares of our common stock reserved for
issuance under the equity incentive plan. Additionally, on each December 31 for
a period of nine years, commencing on December 31, 2000, the share reserve will
automatically be increased by the lesser of that number of shares equal to 10%
of the diluted shares outstanding, or shares. The board may,
however, provide for a lesser automatic increase.
As of June 30, 2000, 2,456,785 options had been granted under the equity
incentive plan. If the recipient of a stock award does not purchase the shares
subject to his or her stock award before the stock award expires or otherwise
terminates, the shares that are not purchased again become available for
issuance under the equity incentive plan.
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<PAGE> 62
Administration
The board created a stock option committee on April 20, 2000 to administer
certain grants of stock options. The committee is to consist of one member drawn
from the board. Currently, Mr. Randolph serves as the sole member. The board has
the authority to construe, interpret and amend the equity incentive plan, while
it is up to the committee, if not otherwise administered by the board, to
determine:
- the grant recipients, subject to the limitation that they be newly hired
employees;
- the grant dates;
- the number of shares subject to the award, however, the committee must
obtain board approval for amounts of shares which exceed the maximum
specified in the committee charter;
- the exercisability and vesting of the award;
- the exercise price, but such price shall not be less than the fair market
value of the stock as determined by the board;
- the type of consideration; and
- the other terms of the award.
Eligibility
The board or the stock option committee may grant incentive stock options
that qualify under Section 422 of the Internal Revenue Code to our employees and
to the employees of our affiliates. The board or the committee also may grant
nonstatutory stock options, stock bonuses and restricted stock purchase awards
to our employees, directors and consultants as well as to the employees,
directors and consultants of our affiliates.
- A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
- An incentive stock option is a stock option that has met the requirements
of Section 422 of the Internal Revenue Code. This type of option is free
from regular tax at both the date of grant and the date of exercise.
However the difference between the fair market value on the date of
exercise and the exercise price is an item of alternative minimum tax
unless there is a disqualifying disposition in the year of exercise. If
two years pass between grant date and sale date and one year passes
between exercise date and sale date, all profit on the sale of our shares
acquired by exercising the incentive stock option is long-term capital
gain income. However, if either of the holding periods is not met, there
has been a disqualifying disposition, and a portion of any profit will be
taxed at ordinary income rates.
- A nonstatutory stock option is a stock option that either does not meet
the Internal Revenue Code criteria for qualifying incentive stock options
or is not intended to be an incentive stock option. It triggers a tax
upon exercise. This type of option requires payment of state and federal
income tax and, if applicable, FICA/FUTA on the difference between the
exercise price and the fair market value on the exercise date.
- A restricted stock purchase award is our offer to sell our shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for services rendered.
Under certain conditions the board or the stock option committee may grant
an incentive stock option to a person who owns or is deemed to own stock
possessing more than 10% of our total combined voting power or the total
combined voting power of an affiliate of ours. The exercise price of an
incentive stock option in such cases must be at least 110% of the fair market
value of the stock on the grant date and the option term must be five years or
less.
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<PAGE> 63
Limits on Option Grants
There are limits on the number of shares that the board or the stock option
committee may grant under an option.
- Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the
chief executive officer and the four highest compensated officers in a
taxable year to the extent that the compensation for each officer exceeds
$1,000,000. When we become subject to Section 162(m), in order to prevent
options granted under the incentive plan from being included in
compensation, the board or committee may not grant options under the
incentive plan to an employee covering an aggregate of more than 800,000
shares in any calendar year.
- In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating the $100,000 per year
limitation, we determine the aggregate number of shares under all
incentive stock options granted to that employee that will become
exercisable for the first time during a calendar year. For this purpose,
we include incentive stock options granted under the incentive plan as
well as under any other stock plans that our affiliates or we maintain.
We then determine the aggregate fair market value of the stock as of the
grant date of the option. Taking the options into account in the order in
which they were granted, we treat only the options covering the first
$100,000 worth of stock as incentive stock options. We treat any options
covering stock in excess of $100,000 as nonstatutory stock options.
Option Terms
The board of directors or the stock option committee may grant incentive
stock options with an exercise price of 100% or more of the fair market value of
a share of our common stock on the grant date. The exercise price of
nonstatutory stock options may be 85% or more of the fair market value. If the
value of our shares declines thereafter, the board of directors may offer
optionholders the opportunity to replace their outstanding higher-priced options
with new, lower-priced options. To the extent required by Section 162(m) of the
Internal Revenue Code, the old repriced option is deemed to be cancelled and a
new option granted, but both options will be counted against the Section 162(m)
limit discussed above.
The maximum incentive stock option term is 10 years. Subject to this
limitation, the board or committee may provide for exercise periods of any
length in individual option grants. However, generally an option terminates
three months after the optionholder's service to our affiliates and to us
terminates. If this termination is due to the optionholder's disability, the
exercise period generally is extended to 12 months. If this termination is due
to the optionholder's death or if the optionholder dies within three months
after his or her service terminates, the exercise period generally is extended
to 18 months following the optionholder's death.
The board or committee may provide for the transferability of nonstatutory
stock options but not incentive stock options. However, the optionholder may
designate a beneficiary to exercise either type of option following the
optionholder's death. If the optionholder does not designate a beneficiary, the
optionholder's option rights will pass by his or her will or by the laws of
descent and distribution.
Terms of Other Stock Awards
The board alone determines the purchase price of other stock awards.
However, the board may award stock bonuses in consideration of services without
a purchase payment. Prior to the listing date, shares that we sell or award
under the incentive plan may, but need not be, restricted and subject to a
repurchase option in our favor in accordance with a vesting schedule that the
board determines. The board, however, may accelerate the vesting of the
restricted stock.
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<PAGE> 64
Other Provisions
Transactions not involving our receipt of consideration, including a
merger, consolidation, reorganization, stock dividend and stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the cap on the number of shares available for incentive stock
options, and to the Section 162(m) limit. It also will adjust outstanding awards
as to the class, number of shares and price per share subject to the award.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to this event. However, we treat outstanding stock awards
differently in the following situations:
- a sale of substantially all of our assets;
- a merger or consolidation in which we are not the surviving corporation
(other than a merger or consolidation in which stockholders immediately
before the merger or consolidation have, immediately after the merger or
consolidation, greater stock voting power); or
- a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise (other than a reverse merger in
which stockholders immediately before the merger have, immediately after
the merger, greater stock voting power).
In these situations, the surviving entity will either assume or replace all
outstanding awards under the incentive plan. If it declines to do so, then
generally the vesting and exercisability of the awards will accelerate.
After the listing date, in the event of an acquisition of our securities
representing at least 50% of the combined voting power entitled to vote in the
election of directors, the vesting of stock awards generally will accelerate in
full.
Stock Awards Granted
As of June 30, 2000, options to acquire a total of shares of common
stock were outstanding under the equity incentive plan. We have never issued any
stock purchase rights. Restricted shares issued for options exercised which are
subject to repurchase by us totaled at June 30, 2000.
Plan Termination
The equity incentive plan will terminate in 2009 unless the Board of
Directors terminates it sooner.
EMPLOYMENT AGREEMENTS
Kevin H. Randolph
In February 1999 we entered into an employment agreement with Kevin
Randolph, which was subsequently amended on July 30, 1999. Pursuant to this
agreement we have an obligation to Mr. Randolph for the payment, in the event of
termination without cause, of his base salary for twelve months and the
continuation of health coverage for six months to the extent permitted by United
States federal COBRA law and our health insurance policy.
Pursuant to this agreement, Mr. Randolph receives an annualized base salary
of $240,000 subject to normal withholdings and deductions. He also receives a
monthly living allowance of $10,000 per month, subject to normal withholdings
and deductions.
Mr. Randolph was granted 1,062,500 shares of common stock pursuant to this
amended agreement and a founder stock purchase agreement, dated February 10,
1999, at a purchase price of $0.02 per share. The stock vested 33% following one
year from the closing of our acquisition of certain assets of ACG Inc.,
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<PAGE> 65
which occurred on February 26, 1999, and thereafter vests ratably over the
subsequent 24 months. Upon a sale of all or substantially all of our assets or a
transaction that results in a transfer of over 50% of our voting control, the
vesting of Mr. Randolph's common stock is fully accelerated. Upon the closing of
this public offering of our common stock 50% of the then unvested shares of Mr.
Randolph's common stock shall become vested.
Pursuant to the agreement, Mr. Randolph received a warrant to purchase up
to $500,000 of our Series A Preferred Stock at the same price paid by the
initial purchasers of our Series A preferred stock which would expire upon the
date of issuance of our Series B preferred stock. On July 30, 1999, the
agreement was amended to reduce the number of Series A shares for which the
warrant could be exercised to 87,719 and to extend the right to purchase the
Series A shares until December 31, 1999. Mr. Randolph fully exercised his
warrant on December 27, 1999, purchasing 87,719 shares of our Series A Preferred
stock at an aggregate purchase price of $100,000.
Edward P. Roberto
In February 1999 we entered into an employment agreement with Edward
Roberto. Pursuant to this agreement we have an obligation to Mr. Roberto for the
payment, in the event of termination without cause, of base salary for 12 months
and the continuation of health coverage for six months to the extent permitted
by United States federal COBRA law and our health insurance policy.
Additionally, in the event of termination without cause, our right to repurchase
Mr. Roberto's common stock pursuant to his founder stock purchase agreement
terminates.
Pursuant to Mr. Roberto's employment agreement, Mr. Roberto receives an
annualized base salary of $180,000 subject to normal withholdings and
deductions. Mr. Roberto was granted 700,000 shares of common stock pursuant to
this agreement and a Founder Stock Purchase Agreement, dated February 10, 1999
at a purchase price of $0.02 per share. The stock vested 33% following one year
from the closing of our acquisition of certain assets of ACG Inc., which
occurred on February 26, 1999, and thereafter 1/36 per month for the subsequent
24 months. Upon a sale of all or substantially all of our assets or a
transaction that results in a transfer of over 50% of our voting control, the
vesting of Mr. Roberto's common stock is fully accelerated. Upon the closing of
this public offering of our common stock 50% of the then unvested shares of Mr.
Roberto's common stock shall become vested.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of June 30, 2000 for:
- each person, or group of affiliated persons, known to us to own
beneficially more than five percent of the common stock;
- each of our directors and named executive officers;
- and all of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock
in this offering and the conversion of all outstanding shares of preferred stock
into common stock upon the closing of this offering. The information assumes no
exercise of the underwriters' over-allotment option.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. This information
is not necessarily indicative of beneficial ownership for any other purpose. In
accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options within 60 days of June 30, 2000. In
computing the number of shares beneficially owned by a person, shares of common
stock that are subject to our right of repurchase at the original exercise price
paid per share, or such shares that are subject to exercisable but unvested
options, are not included. Unless otherwise noted in the footnotes to the table
and subject to community property laws where applicable, the following
individuals have sole voting and investment control with respect to the shares
beneficially owned by them.
Unless otherwise indicated, the business address for each of the
individuals or entities listed below is c/o Asia Online, Ltd., 16/F One
International Finance Centre, No. 1 Harbour View Street, Central, Hong Kong. As
of June 30, 2000, we had 69 stockholders of record and 34,056,690 shares of our
common stock and preferred stock convertible into common stock outstanding.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-------------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING(A) OFFERING(B)
------------------------------------ ------------------ ----------- -----------
<S> <C> <C> <C>
SOFTBANK Technology Ventures IV, LP and 7,441,182 22.58%
affiliates(c)........................................
200 W. Evelyn Avenue, Suite 20
Mountain View, California 94043
SOFTBANK Technology Ventures V, LP and affiliates(d)... 2,280,332 6.70
200 W. Evelyn Avenue, Suite 200
Mountain View, California 94043
J.P. Morgan International Capital Corporation(e)....... 3,376,332 9.91
60 Wall Street
New York, New York 10260-0060
Pequot Capital Management, Inc.(f)..................... 3,273,357 9.61
500 Nyala Farm Road
Westport, Connecticut 06880
GE Capital Equity Investments, Inc.(g)................. 2,317,826 6.81
120 Long Ridge Road
Stamford, Connecticut 06927
Nexus Group, LLC(h).................................... 1,935,382 5.68
160 Spear Street, Suite 1775
San Francisco, California 94105
Kevin H. Randolph(i)................................... 1,150,219 3.38
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-------------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING(A) OFFERING(B)
------------------------------------ ------------------ ----------- -----------
<S> <C> <C> <C>
Edward P. Roberto(j)................................... 700,000 2.06
Bradley A. Feld(k)..................................... 10,557,452 31.79
Scott Russell(l)....................................... 9,721,514 28.55
Karl Fooks(m).......................................... 686,668 2.02
James McNiel(n)........................................ 3,273,357 9.61
Henry Nothhaft(o)...................................... 1,299,742 3.82
T.J. Huang(p).......................................... 741,107 2.18
All directors and executive officers as a group (13 18,678,574 54.85
persons)(q)..........................................
</TABLE>
---------------
(a) We have calculated the percentage of shares beneficially owned based on
34,056,690 shares of common stock outstanding as of June 30, 2000, which
includes shares issuable upon conversion of all shares of preferred stock
outstanding before this offering.
(b) Shares beneficially owned after this offering include, in addition to the
shares indicated above, shares of common stock sold in this offering
but does not include any shares that may be sold in accordance with the
exercise of the underwriters over-allotment option.
(c) Consists of 7,441,182 shares of common stock issuable upon conversion of
7,301,476 shares of preferred stock held by SOFTBANK Technology Ventures
IV, LP and 139,706 shares of preferred stock held by SOFTBANK Technology
Advisors Fund, LP. STV IV LLC is the general partner of SOFTBANK Technology
Ventures IV, LP and SOFTBANK Technology Advisors Fund. Excludes 2,550,361
shares of common stock issuable upon conversion of 2,182,962 shares of
preferred stock held by SOFTBANK Technology Ventures V, LP, 58,148 shares
of preferred stock held by SOFTBANK Technology Ventures Advisors Fund V,
LP, 39,222 shares of preferred stock held by SOFTBANK Technology Ventures
Entrepreneurs Fund V, LP and 270,029 shares of preferred stock held by
SOFTBANK Ventures, Inc. STV IV LLC has no voting or investment power over
the excluded shares and disclaims beneficial ownership of them except for
its pecuniary interests therein.
(d) Consists of 2,280,332 shares of common stock issuable upon conversion of
2,182,962 shares of preferred stock held by SOFTBANK Technology Ventures V,
LP, 58,148 shares of preferred stock held by SOFTBANK Technology Ventures
Advisors Fund V LP and 39,222 shares of preferred stock held by SOFTBANK
Technology Ventures Entrepreneurs Fund V, LP. SBTV V LLC is the general
partner of SOFTBANK Technology Ventures V, LP, SOFTBANK Technology Ventures
Advisors Fund V, LP and SOFTBANK Technology Ventures Entrepreneurs Fund V,
LP. Excludes 7,711,211 shares of common stock issuable upon conversion of
7,301,476 shares of preferred stock held by SOFTBANK Technology Ventures
IV, LP, 139,706 shares of preferred stock held by SOFTBANK Technology
Advisors Fund, L.P. and 270,029 shares of preferred stock held by SOFTBANK
Ventures, Inc. SBTV V LLC has no voting or investment power over the
excluded shares and disclaims beneficial ownership of them.
(e) Includes 3,376,332 shares of common stock issuable upon conversion of
2,689,664 shares of preferred stock upon completion of the offering held by
J.P. Morgan International Capital Corporation ("JPMICC") and 686,668 shares
of preferred stock held by Sixty Wall Street Fund, LP ("Sixty Wall
Street"), an investment vehicle for officers and directors of J.P. Morgan &
Co. and its affiliates.
(f) Consists of 3,273,357 shares of common stock issuable upon conversion of
3,273,357 shares of preferred stock upon completion of the offering held by
Pequot Private Equity Fund II, LP. Pequot Capital Management, Inc. is the
beneficial owner of these shares as a result of its power to control Pequot
Private Equity Fund II, LP, and holds voting and dispositive power for all
such shares of preferred stock. Mr. McNiel is a senior vice president of
Pequot Capital Management, Inc. and may be deemed to be the indirect
beneficial owner of the shares owned by Pequot Private Equity Fund II, LP.
Mr. McNiel, a director of Asia Online, disclaims beneficial ownership of
the shares held by Pequot II, except to the extent of his pecuniary
interest arising therein.
(g) Consists of 2,317,826 shares of common stock issuable upon conversion of
2,317,826 shares of preferred stock upon completion of this offering held
by GE Capital Equity Investments, Inc.
(h) Includes 1,951,123 shares of common stock issuable upon conversion of
944,490 shares of preferred stock upon completion of this offering held by
Nexus Capital Partners I, L.P., 912,185 shares of preferred stock held by
Nexus Capital Partners II, L.P., 31,483 shares of preferred stock held by
Nexus Partners, LLC, and 47,224 shares of preferred stock held by Porcelain
Partners, L.P. Nexus Group, LLC is the general partner in each of these
entities, and may be deemed a beneficial owner of the shares held by the
three entities.
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<PAGE> 68
(i) Includes 1,062,500 shares of common stock issued pursuant to a founder
stock purchase agreement the unvested portion of which is subject to a
repurchase option in favor of Asia Online, and 87,719 shares of common
stock issuable upon conversion of 87,719 shares of preferred stock upon
completion of this offering.
(j) Includes 700,000 shares of common stock issued pursuant to a founder stock
purchase agreement, the unvested portion of which is subject to a
repurchase option in favor of the Company.
(k) Includes 7,441,182 shares of common stock issuable upon conversion of
7,301,476 shares of preferred stock upon completion of this offering held
by SOFTBANK Technology Ventures, IV, LP and 139,706 shares of preferred
stock held by SOFTBANK Technology Advisors Fund, LP. STV IV LLC is the
general partner of SOFTBANK Technology Ventures, IV, LP and SOFTBANK
Technology Advisors Fund, LP and may be deemed to be the indirect
beneficial owner of the shares held by them. Mr. Feld is a managing member
of STV IV LLC and may be deemed a beneficial owner of the shares held by
STV IV LLC. Mr. Feld, a director of Asia Online, disclaims beneficial
ownership of the shares held by STV IV LLC except to the extent of his
pecuniary interest arising therein. Includes 2,280,332 shares of common
stock issuable upon conversion of 2,182,962 shares of preferred stock upon
completion of this offering held by SOFTBANK Technology Ventures V, LP,
58,148 shares of preferred stock held by SOFTBANK Technology Ventures
Advisors Fund V, LP and 39,222 shares of preferred stock held by SOFTBANK
Technology Ventures Entrepreneurs Fund V, LP. SBTV V LLC is the general
partner of SOFTBANK Technology Ventures V, LP, SOFTBANK Technology Ventures
Advisors Fund V, LP and SOFTBANK Technology Ventures Entrepreneurs Fund V,
LP and may be deemed to be a beneficial owner of the shares held by them.
Mr. Feld is a managing director of SBTV V LLC and may be deemed a
beneficial owner of the shares held by SBTV V LLC. Mr. Feld disclaims
beneficial ownership of the shares held by SBTV V LLC, except to the extent
of his pecuniary interest arising therein. Excludes 270,029 shares of
common stock issuable upon conversion of 270,029 shares of preferred stock
upon completion of this offering owned by SOFTBANK Ventures, Inc. Includes
835,938 shares of common stock issuable upon conversion of 835,938 shares
of preferred stock held by Interliant, Inc. ("Interliant"). Mr. Feld is a
director and co-chairman of the board of Interliant and may be deemed to be
the indirect beneficial owner of shares owned by Interliant. Mr. Feld, a
director of Asia Online, disclaims beneficial ownership of the shares held
by Interliant, except to the extent of his pecuniary interest arising
therein.
(l) Includes 7,441,182 shares of common stock issuable upon conversion of
7,301,476 shares of preferred stock upon completion of this offering held
by SOFTBANK Technology Ventures, IV, LP and 139,706 shares of preferred
stock held by SOFTBANK Technology Advisors Fund, LP. STV IV LLC is the
general partner of SOFTBANK Technology Ventures, IV, LP and SOFTBANK
Technology Advisors Fund, LP and may be deemed to be the indirect
beneficial owner of the shares held by them. Mr. Russell is a managing
member of STV IV LLC and may be deemed a beneficial owner of the shares
held by STV IV LLC. Mr. Russell, a director of Asia Online, disclaims
beneficial ownership of the shares held by STV IV LLC except to the extent
of his pecuniary interest arising therein. Includes 2,280,332 shares of
common stock issuable upon conversion of 2,182,962 shares of preferred
stock upon completion of this offering held by SOFTBANK Technology Ventures
V, LP, 58,148 shares of preferred stock held by SOFTBANK Technology
Ventures Advisors Fund V, LP and 39,222 shares of preferred stock held by
SOFTBANK Technology Ventures Entrepreneurs Fund V, LP. SBTV V LLC is the
general partner of SOFTBANK Technology Ventures V, LP, SOFTBANK Technology
Ventures Advisors Fund V, LP and SOFTBANK Technology Ventures Entrepreneurs
Fund V, LP and may be deemed to be a beneficial owner of the shares held by
them. Mr. Russell is a managing director of SBTV V LLC and may be deemed a
beneficial owner of the shares held by SBTV V LLC. Mr. Russell disclaims
beneficial ownership of the shares held by SBTV V LLC, except to the extent
of his pecuniary interest arising therein. Excludes 270,029 shares of
common stock issuable upon conversion of 270,029 shares of preferred stock
upon completion of this offering owned by SOFTBANK Ventures, Inc.
(m) Includes 686,668 shares of common stock issuable upon conversion of
preferred stock upon completion of this offering owned by Sixty Wall Street
Fund, L.P. Mr. Fooks, a director of Asia Online, is a limited partner in
Sixty Wall Street Fund, L.P. and may be deemed to be the indirect
beneficial owner of shares owned by Sixty Wall Street Fund, L.P. Mr. Fooks
disclaims beneficial ownership of the shares held by Sixty Wall Street
Fund, L.P., except to the extent of his pecuniary interest arising therein.
Excludes 2,689,664 shares of common stock issuable upon conversion of
preferred stock upon completion of this offering owned by J.P. Morgan
International Capital Corporation. Mr. Fooks has no voting or investment
power over the excluded shares and disclaims beneficial ownership of them.
(n) Consists of 3,273,357 shares of common stock issuable upon conversion of
3,273,357 shares of preferred stock held by Pequot Private Equity Fund II,
LP. Pequot Capital Management, Inc. may be considered a beneficial owner of
these shares as a result of its power to control Pequot Private Equity Fund
II, LP. Mr. McNiel is a senior vice president of Pequot Capital Management,
Inc. and may be deemed to be the indirect beneficial owner of the shares
owned by Pequot Private Equity Fund II, LP. Mr. McNiel, a director of Asia
Online, disclaims beneficial ownership of the shares held by Pequot II,
except to the extent of his pecuniary interest arising therein.
(o) Includes 100,000 shares of common stock issued pursuant to options granted
and exercised pursuant to an early exercise provision, 68,750 of which are
unvested and subject to repurchase by Asia Online, and 1,199,742 shares
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<PAGE> 69
of common stock issuable upon conversion of 1,199,742 shares of preferred
stock upon completion of this offering held by Concentric Network
Corporation ("Concentric"). Mr. Nothhaft is president, chief executive
officer and chairman of the board of Concentric and may be deemed to be the
indirect beneficial owner of shares owned by Concentric. Mr. Nothhaft, a
director of Asia Online, disclaims beneficial ownership of the shares held
by Concentric, except to the extent of his pecuniary interest arising
therein.
(p) Includes 741,107 shares of common stock issuable upon conversion of 741,107
shares of preferred stock upon completion of this offering held by Systex
Capital Group, Inc. Mr. Huang is the chairman of the board of Systex and
may be deemed to be the indirect beneficial owner of shares owned by
Systex. Mr. Huang, a director of Asia Online, disclaims beneficial
ownership of the shares held by Systex, except to the extent of his
pecuniary interest arising therein.
(q) See Notes (i) through (p) above.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock options granted as compensation to our executive officers and
directors are described in this prospectus under the heading
"Management -- Director Compensation" and "-- Executive Compensation."
SERIES A FINANCING
On February 26, 1999 and May 7, 1999, we sold an aggregate of 6,692,970
shares of Series A preferred stock in a private placement at a purchase price of
$1.14 per share, pursuant to the Series A Preferred Stock Purchase Agreement
dated February 26, 1999. See Note 10 of Notes to the Consolidated Financial
Statements for a description of the preferred stock. Upon the closing of this
offering, each share of Series A preferred stock will automatically convert into
one share of common stock. The following directors and beneficial owners of more
than 5% of our common stock (assuming the conversion of all shares of preferred
stock into common stock) acquired beneficial ownership of Series A preferred
stock pursuant to the Series A Preferred Stock Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DIRECTORS/5% STOCKHOLDERS OF SHARES PURCHASE PRICE
------------------------- --------- --------------
<S> <C> <C>
SOFTBANK Technology Ventures IV, LP(a)...................... 5,746,920 $6,551,489.00
SOFTBANK Technology Advisors Fund, LP(a).................... 110,112 125,528.00
Interliant, Inc.(b) ........................................ 835,938 $ 952,969.32
</TABLE>
---------------
(a) Messrs. Feld and Russell, who are the co-chairmen of our board of
directors, are managing members of STV IV LLC, the general partner of
SOFTBANK Technology Ventures IV, LP and SOFTBANK Technology Advisors Fund,
LP.
(b) Mr. Feld, who is co-chairman of our board of directors, is a director and
co-chairman of the board of Interliant, Inc.
SERIES B FINANCING
On August 3, 1999, we sold 11,019,049 shares of Series B preferred stock in
a private placement at a purchase price of $3.176317 per share, pursuant to the
Series B Preferred Stock Purchase Agreement dated August 3, 1999. See Note 10 of
Notes to the Consolidated Financial Statements for a description of the
preferred stock. Upon the closing of this offering, each share of Series B
preferred stock will automatically convert into one share of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of Series B preferred stock pursuant to the Series
B Preferred Stock Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DIRECTORS/5% STOCKHOLDERS OF SHARES PURCHASE PRICE
------------------------- --------- --------------
<S> <C> <C>
SOFTBANK Technology Ventures IV, LP(a)...................... 1,544,556 $4,906,000.00
SOFTBANK Technology Advisors Fund, LP(a).................... 29,594 94,000.00
J.P. Morgan International Capital Corporation(b)............ 2,518,640 8,000,000.00
Sixty Wall Street Fund, LP(c)............................... 629,660 2,000,000.00
Pequot Private Equity Fund II, LP(d)........................ 2,361,225 7,500,000.00
GE Capital Equity Investments, Inc. ........................ 2,203,810 7,000,000.00
Concentric Network Corporation(e)........................... 629,660 2,000,000.00
Nexus Capital Partners I, L.P. ............................. 944,490 $3,000,000.00
</TABLE>
---------------
(a) Messrs. Feld and Russell, who are the co-chairmen of our board of
directors, are managing members of STV IV LLC, the general partner of
SOFTBANK Technology Ventures IV, LP and SOFTBANK Technology Advisors Fund,
LP.
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(b) J.P. Morgan International Capital Corporation owns 639,329 shares of common
stock issuable upon conversion of 639,329 shares of Series B-1 preferred
stock and 1,879,311 shares of Class B non-voting common stock issuable upon
conversion of 1,879,311 shares of Series B-2 non-voting preferred stock.
Sixty Wall Street Fund, LP owns 159,832 shares of common stock issuable
upon conversion of 159,832 shares of Series B-1 preferred stock and 469,828
shares of Class B non-voting common stock issuable upon conversion of
469,828 shares of Series B-2 non-voting preferred stock.
(c) Mr. Fooks, who is a director of Asia Online, is a limited partner in Sixty
Wall Street Fund, LP.
(d) Mr. McNiel, who is a director of Asia Online, is a senior vice president of
Pequot Capital Management, Inc. a beneficial owner of the shares held
directly by Pequot Private Equity Fund II, LP.
(e) Mr. Nothhaft, who is a director of Asia Online, is chairman of the board,
president and chief executive officer of Concentric Network Corporation.
SERIES C FINANCING
On March 24, 2000, we sold 11,401,700 shares of Series C preferred stock in
a private placement at a purchase price of $8.770653 per share, pursuant to the
Series C Preferred Stock Purchase Agreement dated March 24, 2000. See Note 10 of
Notes to the Consolidated Financial Statements for a description of the
preferred stock. Upon the closing of this offering, each share of Series C
preferred stock will automatically convert into one share of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of Series C preferred stock pursuant to the Series
C Preferred Stock Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DIRECTORS/5% STOCKHOLDERS OF SHARES PURCHASE PRICE
------------------------- --------- --------------
<S> <C> <C>
SOFTBANK Technology Ventures V, LP(a)....................... 2,182,962 $19,146,002.21
SOFTBANK Technology Ventures Advisors Fund V, LP(a)......... 58,148 509,995.93
SOFTBANK Technology Ventures Entrepreneurs Fund V, LP(a).... 39,222 344,002.55
J.P. Morgan International Capital Corporation............... 171,024 1,499,992.16
Sixty Wall Street Fund, LP(b)............................... 57,008 499,997.39
Pequot Private Equity Fund II, L.P.(c)...................... 912,132 7,999,993.26
GE Capital Equity Investments, Inc. ........................ 114,016 999,994.77
Concentric Network Corporation(d)........................... 570,082 4,999,991.40
Systex Corporation(e)....................................... 741,107 $ 6,499,992.33
</TABLE>
---------------
(a) Messrs. Feld and Russell, who are the co-chairmen of our board of
directors, are managing directors of SBTV V LLC, the general partner of
SOFTBANK Technology Ventures V, LP, SOFTBANK Technology Advisors Fund V, LP
and SOFTBANK Technology Ventures Entrepreneurs Fund V, LP.
(b) Mr. Fooks, who is a director of Asia Online, is a limited partner in Sixty
Wall Street Fund, LP.
(c) Mr. McNiel, who is a director of Asia Online, is a vice president of Pequot
Capital Management, Inc., a beneficial owner of the shares held directly by
Pequot Private Equity Fund II, LP.
(d) Mr. Nothhaft, who is a director of Asia Online, is chairman of the board,
president and chief executive officer of Concentric Network Corporation.
(e) Dr. Huang, who is a director of Asia Online, is chairman of the board of
Systex Corporation.
COMMERCIAL TRANSACTIONS
We made payments to Randolphs.com, a professional consulting firm which has
been providing consulting services to technology and communications companies
such as US West, Netscape and Philips, since 1992, for services rendered in the
amount of $472,329 in the year ended December 31, 1999. In that same period, for
services in support of Asia Online, Randolphs.com sustained third-party expenses
from external consultants of $214,826 and approximately $230,000 in payroll and
benefits for internal
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consultants. For the six-month period ended June 30, 2000 we made payments to
Randolphs.com of $126,813 for internal consulting services in support of Asia
Online, and in that same time period, Randolphs.com sustained payroll and
benefit expenses of approximately $107,000. Mr. Randolph, chief executive
officer and a director of Asia Online, is the sole owner of all of the
membership interests in Randolphs.com LLC. We did not pay any consulting fees to
Randolphs.com over the above periods for services rendered by Mr. Randolph.
In July 1999, we entered into a Customlink Virtual Private Network Services
Agreement and a Concentric Network Corporation OEM Agreement with Concentric
Network Corporation. Under these agreements, we have agreed to a minimum revenue
commitment to Concentric Network Corporation of $125,000. Additionally, we are
party to a Concentric DSL Agreement, dated as of March 26, 1999 with Concentric
Network Corporation. Payments to Concentric under this agreement amounted to
$5,644 in 1999 and $2,451 in the six-month period ended June 30, 2000. Mr.
Nothhaft is the chief executive officer of Concentric Network Corporation and is
also a director of Asia Online. Concentric Network Corporation is also the
beneficial owner of approximately 3.5% of our common stock.
During 1999, we engaged J.P. Morgan Securities Asia Pte. Ltd. as a
financial advisor in the review of two acquisition opportunities under a letter
agreement dated July 20, 1999. J.P. Morgan International Capital Corporation, an
affiliate of J.P. Morgan Securities Asia Pte. Ltd., is a beneficial owner of
greater than 5% of the stock of Asia Online. For the year ended December 31,
1999, we paid J.P. Morgan a total of $110,125 representing retainer fees and
engagement fees.
On March 20, 2000, we entered into a Reseller Agreement with Evoke
Communications, Inc. for web conferencing and related services. We have agreed
to pay various per minute charges for services and to generate or pay to Evoke
Communications minimum gross revenues of $500,000 over a twenty four month
period from the time of the commencement of services. Bradley A. Feld is a
director of Evoke Communications and is also a director of Asia Online.
On April 27, 1999, we entered into an ISP Service Agreement as amended on
November 1, 1999 by the First Amendment to ISP Service Agreement with E-Centric
Corporation for Internet communications services. We have agreed to pay a
minimum royalty of $75,000 for the nine-month period which commenced on November
1, 1999, and an additional minimum royalty of $60,000 for a six-month extension
or $10,000 per month for a longer renewal term, a gross revenue split of 50-50
and hourly fees for engineering services provided. Kevin H. Randolph, chief
executive officer and a director of Asia Online, is interim chief executive
officer, a director and a shareholder of E-Centric Corporation.
On June 2, 2000, we executed a Master Agreement with Interliant, Inc.
pursuant to which Interliant, Inc. will provide us with a branded web hosting
platform and certain consulting and management services. In consideration for
use of the web hosting platform, we have agreed to pay an annual license fee of
$100,000 in addition to a share of revenues generated in connection with this
agreement which represents the higher of 15% or $4 per customer per month. In
addition, the agreement provides for payment by us of fees for network
management, consulting and support services. Additionally, we are party to a
Master Consulting Agreement with Interliant Consulting & Professional Services
Inc., a wholly-owned subsidiary of Interliant, Inc., for consulting services at
the rate of $150 per hour with a minimum of four hours per incident. Bradley A.
Feld is a director and co-chairman of Interliant, Inc. and is also a director of
Asia Online. Interliant, Inc. is also a holder of approximately 2.5% of the
stock of Asia Online.
BRIDGE LOANS
On April 30, 1999, we issued warrants to purchase an aggregate of 200,000
shares of its Series A preferred stock at a purchase price of $1.14 per share to
four lenders, Nexus Capital Partners I, L.P., MLS-I, L.P., Porcelain Partners,
L.P. and Nexus Partners LLC, as consideration for loans in the form of
promissory notes in an aggregate amount of $3,500,000 pursuant to a Note and
Warrant Purchase Agreement. All of the warrants were cancelled upon the closing
of the Series B financing. Nexus
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<PAGE> 73
Group, LLC, the general partner of Nexus Capital Partners I, L.P., Nexus
Partners, LLC and Porcelain Partners, L.P., is a beneficial owner of greater
than 5% of our capital stock.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
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<PAGE> 74
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of (a) 155,000,000 shares of common stock, par value $.001 per share,
and (b) 44,100,000 shares of preferred stock, par value $.001 per share. The
following description of our securities reflects changes that will be made to
our certificate of incorporation and bylaws upon the closing of this offering.
Subject to preferences that may be applicable to any then-outstanding
shares of preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by our board of directors. In the
event we liquidate, dissolve or wind up our affairs, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any then-outstanding shares of preferred
stock. Holders of common stock have no preemptive, subscription, conversion or
redemption rights.
COMMON STOCK
As of the date of this prospectus, there are shares of Class A
voting common stock outstanding and held of record by stockholders. Under the
restated certificate of incorporation that will become effective upon the
closing of this offering, each outstanding share of Class A common stock will be
reclassified as one share of common stock, and the restated certificate of
incorporation will delete all references to such shares of Class A common stock.
Upon the closing of this offering, there will be shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone.
CLASS C NON-VOTING COMMON STOCK
As of the date of this prospectus, there are shares of Class C
common stock outstanding and held of record by stockholders. Upon the closing
of this offering, all outstanding shares of our Class C common stock will be
converted at a rate of one share of Class A voting common stock for each share
of Class C common stock into an aggregate of shares of Class A voting
common stock. Following the reclassification, our certificate of incorporation
will be amended and restated to delete all references, to such shares of Class C
common stock.
Generally, the holders of Class C common stock are not entitled to vote on
any matter on which our stockholders are entitled to vote, including voting for
the election of directors, and shares of Class C common stock are not included
in determining the number of shares voting or entitled to vote on any matter.
Except for the foregoing voting and conversion features, the Class C common
stock is identical to the common stock.
PREFERRED STOCK
Upon the closing of this offering, provided that the per share price is at
least $12.00 (as adjusted for stock splits, dividends, recapitalizations and the
like) and the gross cash proceeds to us (before underwriting discounts,
commissions and fees) are at least $20,000,000, all outstanding shares of our
Series A, Series B-1 and Series C preferred stock, and pursuant to an election
by the holders of the shares of Series B-2 preferred stock, all outstanding
shares of our Series B-2 preferred stock, will be converted at a rate of one
share of Class A voting common stock for each share of preferred stock into an
aggregate of shares of Class A voting common stock. Following the
conversion, our certificate of incorporation will be amended and restated to
delete all references to such shares of preferred stock.
Under the restated certificate of incorporation that will become effective
upon the closing of this offering, our board of directors is authorized, without
further stockholder approval, to issue up to an
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aggregate of shares of preferred stock in one or more series. The
board of directors may fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each such
series, and the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption price or prices and liquidation
preferences.
The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock,
- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation, and
- delay, defer or prevent a change in control of Asia Online.
We have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of shares of common stock issued upon
conversion of our preferred stock, or their permitted transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. If we propose to register any of our securities under the
Securities Act for our own account or the account of any of our stockholders
other than the holders of the registrable shares, holders of such registrable
shares are entitled, subject to certain limitations and conditions, to notice of
such registration and are, subject to certain conditions and limitations,
entitled to include registrable shares therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration. In addition, commencing 180
days after the effective date of the registration statement of which this
prospectus is a part, we may be required to prepare and file a registration
statement under the Securities Act at our expense if we are requested to do so
by either: (i) the holders of at least 20% of the registrable shares, (ii) the
holders of 40% of the common stock issued upon conversion of the Series B
preferred stock or (iii) the holders of 40% of the common stock issued upon
conversion of the Series C preferred stock. We are required to use our best
efforts to effect such registration, subject to certain conditions and
limitations. We are not obligated to effect more than three of such
stockholder-initiated registrations. Further, holders of registrable shares may
require us to file an unlimited number of additional registration statements on
Form S-3, subject to certain conditions and limitations. The holders of the
registrable shares also possess "piggyback" registration rights which entitle
them to have their shares registered on registration statements relating to
primary or secondary registered public offerings of our securities, subject to
certain cutback restrictions in connection with any public offerings of our
securities.
We are required to bear substantially all costs incurred in connection with
any such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses and
adversely affect any future equity or debt offerings.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
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accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering, may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
- Board of Director Vacancies
The board of directors will be authorized to fill vacant directorships and
to increase the size of the board of directors. This may deter a
stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the resulting vacancies with
its own nominees. In addition, stockholders will only be entitled to
remove directors for cause with a majority vote of the stockholders
entitled to vote;
- Stockholder Action; Special Meetings of Stockholders
Our stockholders will not be permitted to take action by written consent,
but only at duly called annual or special meetings of stockholders. In
addition, special meetings of stockholders may be called only by the
chairman of the board, the chief executive officer or a majority of the
board of directors;
- Advance Notice Requirements for Stockholder Proposals and Director
Nominations
Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an
annual meeting of stockholders, must deliver a written notice to our
principal executive offices within a prescribed time period. Our amended
and restated bylaws also set forth specific requirements as to the form
and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for the election of directors at
an annual meeting of stockholders; and
- Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval, subject to
limitations imposed by the Nasdaq National Market. We may use these
additional shares for a variety of corporate purposes, including future
public offerings to raise additional capital, acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage
an attempt to obtain control of us by means of a proxy contest, tender
offer, merger or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
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Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to us and our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers and to obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol "AONL."
TRANSFER AGENT AND REGISTRAR
We have appointed to serve as the
transfer agent and registrar for the common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options. Of the outstanding shares, the
shares being sold in this offering will be freely tradable, except that
any shares held by our "affiliates" may only be sold in compliance with the
limitations described below. The remaining shares of common stock will be
"restricted securities" that may be sold in the public market only if they are
registered under the Securities Act or if they qualify for an exemption from
registration under Rule 144, 144(k) or 701 promulgated under the Securities Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<C> <S>
------------ Upon the date of this prospectus (shares eligible for resale
under Rule 144(k) and not subject to lock-up agreements)
------------ 90 days following the date of this prospectus (shares
eligible for resale under Rules 144 and 701 and not subject
to lock-up agreements)
------------ 180 days following the date of this prospectus (lock-up
agreements released)
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of:
- 1% of the then-outstanding shares of common stock (approximately
shares immediately after this offering); or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, a person who is not considered an affiliate of ours at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years is entitled to sell such shares under
Rule 144(k) without regard to the volume limitations described above.
Our employees, directors, officers, consultants or advisers who purchased
common stock from us prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, or the Exchange Act, under
written compensatory benefit plans or written contracts relating to the
compensation of these persons may rely on Rule 701 with respect to the resale of
that stock. Rule 701 also will apply to stock options we granted before we
became subject to the reporting requirements of the Exchange Act, along with the
shares acquired upon exercise of the options, including exercises after the date
of this prospectus. Shares of common stock we issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, persons other than
affiliates may sell those shares subject only to the manner of sale provisions
of Rule 144. Persons who are affiliates under Rule 144 may sell those shares
without compliance with its minimum holding period requirements.
In addition, following the closing of this offering, we intend to file a
registration statement to register for resale the shares of common
stock available for issuance under our stock plans. Accordingly,
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shares issued under those plans will become eligible for resale in the public
market from time to time, subject to the lock-up agreements described below and,
in the case of affiliates of Asia Online, the volume limitations of Rule 144
described above. As of the date of this prospectus, options and purchase rights
to acquire a total of shares of common stock are outstanding under our
stock plans, of which are currently exercisable.
Directors, officers and certain other stockholders holding an aggregate of
shares of common stock have agreed not to offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days from the date of this prospectus.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock pursuant thereto.
Following this offering, certain of our stockholders holding an aggregate
of shares of common stock will have rights to have their shares of common
stock registered for resale under the Securities Act. The exercise of these
rights may decrease the market price of our common stock. Please refer to our
discussion in "Description of Capital Stock--Registration Rights" for further
discussion of these registration rights.
UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income tax consequences of the ownership and disposition of our common stock
applicable to Non-United States Holders of this common stock. For the purpose of
this discussion, a Non-United States Holder is any holder that for U.S. federal
income tax purposes is:
- an individual that is a non-resident alien;
- a corporation or other entity taxable as a corporation created or
organized under non-U.S. law; or
- an estate or trust that is not taxable in the United States on its
worldwide income.
If a partnership holds our common stock, the tax treatment of each partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding our common stock, you
should consult your tax advisor.
This discussion does not address all aspects of U.S. federal income
taxation that may be relevant in light of your particular facts and
circumstances, such as being a U.S. expatriate, and does not address any federal
estate tax consequences or any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction. Furthermore, the following
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended, and administrative and judicial interpretations thereof, all as in
effect on the date hereof, and all of which are subject to change, possibly with
retroactive effect. We have not and will not seek a ruling from the Internal
Revenue Service with respect to the U.S. federal income tax consequences
described below, and as a result, there can be no assurance that the Internal
Revenue Service will not disagree with or challenge any of the conclusions set
forth in this discussion.
DIVIDENDS
Any dividends we pay to a Non-United States Holder generally will be
subject to U.S. withholding tax either at a rate of 30% of the gross amount of
the dividends or such lower rate as may be specified by an applicable tax
treaty. Dividends received by a Non-United States Holder that are effectively
connected with a U.S. trade or business conducted by the Non-United States
Holder (or, if a tax treaty applies, are
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attributable to a U.S. permanent establishment of the Non-United States Holder)
are exempt from such withholding tax, provided that the Non-United States Holder
furnishes to us or our paying agent a duly completed Form 4224 or W-8ECI (or
substitute form). However, those effectively connected dividends, net of certain
deductions and credits, are taxed at the same graduated rates applicable to U.S.
persons.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a U.S.
trade or business of such Non-United States Holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be specified by an
applicable tax treaty.
A Non-United States Holder of our common stock that is eligible for a
reduced rate of withholding tax pursuant to a tax treaty must furnish to us or
our paying agent a duly completed Form 1001 or Form W-8BEN (or substitute form)
certifying to its qualification for such rate.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. federal
income tax on any gain realized upon the sale or other disposition of our common
stock unless:
- the gain is effectively connected with a U.S. trade or business of the
Non-United States Holder or, if a tax treaty applies, is attributable to
a U.S. permanent establishment maintained by the Non-United States Holder
(which gain, in the case of a corporate Non-United States Holder, must
also be taken into account for branch profits tax purposes);
- the Non-United States Holder is an individual who holds his or her common
stock as a capital asset (generally, an asset held for investment
purposes) and is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale
or disposition occurs and certain other conditions are met; or
- we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or the holder's
holding period for its common stock. We believe that we are not currently
and will not become a "United States real property holding corporation"
for United States federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the Internal Revenue Service may make its reports
available to tax authorities in the recipient's country of residence.
Dividends paid to a Non-United States Holder at an address within the U.S.
may be subject to backup withholding at a rate of 31% if the Non-United States
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the payer.
Backup withholding will generally not apply to dividends paid to Non-United
States Holders at an address outside the U.S. on or prior to December 31, 2000,
unless the payer has knowledge that the payee is a United States person. Under
new Treasury Regulations regarding withholding and information reporting,
payment of dividends to Non-United States Holders at an address outside the U.S.
after December 31, 2000 may be subject to backup withholding at a rate of 31%
unless such Non-United States Holder satisfies various certification
requirements.
Under current Treasury Regulations, the payment of proceeds from the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of proceeds from the
disposition by a Non-United States
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Holder of common stock outside the U.S. to or through a foreign office of a
broker will not be subject to backup withholding but will be subject to
information reporting requirements if the broker is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
- a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a U.S. trade or business; or
- after December 31, 2000, a foreign partnership with certain connections
to the United States,
unless the broker has documentary evidence in its files of the holder's non-U.S.
status and certain other conditions are met, or the holder otherwise establishes
an exemption. Neither backup withholding nor information reporting generally
will apply to a payment of proceeds from the disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the final Treasury Regulations described above do not
significantly alter the substantive withholding and information reporting
requirements but would alter the procedures for claiming benefits of an income
tax treaty and change the certifications procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of common
stock. Non-United States Holders should consult their tax advisors regarding the
effect, if any, of those final Treasury Regulations on an investment in common
stock. Those final Treasury Regulations are generally effective for payments
made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the regular tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained, provided that the required information is furnished to the Internal
Revenue Service.
The foregoing discussion is a summary of the principal federal income tax
consequences of the ownership, sale or other disposition of common stock by
Non-United States Holders. This discussion is not exhaustive, and does not
address the tax consequences of ownership, sale or other disposition for all
types of Non-United States Holders.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation is acting as the
representative for the U.S. underwriters and Credit Suisse First Boston (Hong
Kong) Limited is acting as the representative for the international managers,
the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Subtotal..........................................
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Credit Suisse First Boston (Hong Kong) Limited..............
Subtotal..........................................
--------
Total.............................................
========
</TABLE>
The U.S. offering and the international offering are each conditioned upon
the closing of the other.
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted the underwriters a 30-day option to purchase on a pro rata
basis up to additional shares of common stock from us at the initial
public offering price, less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------------------------- ---------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us.......................... $ $ $ $
Expenses payable by us................ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed to 5% of the shares being offered.
Pursuant to an agreement between the U.S. underwriters and international
managers, each U.S. underwriter has agreed that, as part of its distribution of
the common stock and subject to permitted exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of common
stock or distribute any prospectus relating to the common stock to any person
outside the United States or Canada or to any other dealer who does not so
agree. Each international manager has agreed that, as part of its distribution
of the common stock and subject to permitted exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of common
stock or distribute any prospectus relating to the common stock in the United
States or Canada or to any other dealer who does not so
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<PAGE> 83
agree. The foregoing limitations do not apply to stabilization transactions or
to transactions between the U.S. underwriters and international managers. As
used herein, "United States" means the United States of America (including the
states and the District of Columbia), its territories, possessions and other
areas subject to its jurisdiction. "Canada" means Canada, its provinces,
territories, possessions and other areas subject to its jurisdiction, and an
offer or sale shall be in the United States or Canada if it is made to (i) any
individual resident in the United States or Canada, or (ii) any corporation,
partnership, pension, profit-sharing or other trust or entity (including any
such entity acting as an investment adviser with discretionary authority) whose
office most directly involved with the purchase is located in the United States
or Canada.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
(the "Securities Act") relating to any of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
Our officers and directors and stockholders holding one percent or more of
our common stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or exercisable for any
shares of our common stock, enter into a transaction which would have the same
effect, or enter into any swap, hedge or other arrangement that transfers, in
whole or in part, any of the economic consequences of ownership of our common
stock, whether any such aforementioned transaction is to be settled by delivery
of our common stock or such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or disposition, or
to enter into any such transaction, swap, hedge or other arrangement, without,
in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
At our request, the underwriters have reserved for sale up to shares of
our common stock at the initial public offering price, to directors, officers,
employees, business associates and persons otherwise related to us. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase these reserved shares. Any reserved shares that are not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered in this offering.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make in respect of any such liabilities.
Application has been made to have the shares listed on The Nasdaq Stock
Market's National Market under the symbol "AONL."
The representatives on behalf of the underwriters may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act").
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when shares of common stock originally sold by
such syndicate member are purchased in a stabilizing or syndicate
covering transaction to cover syndicate short positions.
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These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of such transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
No action has been or will be taken in any jurisdiction by us or by any
underwriter that would permit a public offering of the shares of common stock or
possession or distribution of prospectus in any jurisdiction where action for
that purpose is required, other than in the United States. Persons who receive
this prospectus are advised by us and the underwriters to inform themselves
about, and to observe any restrictions as to, the offering of the shares and the
distribution of this prospectus.
With respect to each of the following jurisdictions, each of the
international managers has represented and agreed to all of the following:
United Kingdom
- it has not offered or sold and prior to the date six months after the
date of issue of the shares will not offer or sell any shares of common
stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted and will not result
in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995, and
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom, and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue
of the common stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
Japan
- it has not offered or sold, and it will not offer or sell, directly or
indirectly, in Japan or to or for the account of any resident of Japan
any shares of common stock except (1) under an exemption from the
registration requirements of the Securities and Exchange Law of Japan,
and (2) in compliance with any other applicable requirements of Japanese
law, and
- it will send to any dealer who purchases from it any shares of common
stock a notice stating in substance that, by purchasing the shares, the
dealer represents and agrees that it has not offered or sold, and will
not offer or sell, any of the shares of common stock, directly or
indirectly, in Japan to or for the account of any resident thereof except
pursuant to any exemption from the registration requirements of the
Securities and Exchange Law of Japan, and that the dealer will send to
any other dealer to whom it sells any shares a notice containing
substantially the same statements as are contained in this sentence.
Hong Kong
- it has not offered or sold and will not offer to sell in Hong Kong, by
means of any document, any shares of common stock other than to persons
whose ordinary business it is to buy or sell shares or
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<PAGE> 85
debentures, whether as principal or agent, or in circumstances which do
not constitute an offer to the public within the meaning of the Companies
Ordinance (Cap. 32) of Hong Kong, and
- it has not issued and will not issue any invitation or advertisement
relating to the shares of common stock in Hong Kong (unless permitted to
do so under the securities laws of Hong Kong) other than with respect to
shares of common stock intended to be disposed of to persons outside Hong
Kong or to be disposed of in Hong Kong, or only to persons whose business
involves the acquisition, disposal or holding of securities, whether as
principal or agent.
Singapore
- it has not and will not offer or sell any shares of common stock or
distribute any document or other material relating to the shares, either
directly or indirectly, to the public or any member of the public in
Singapore other than (1) to an institutional investor or other person
specified in Section 106C of the Companies Act, Chapter 50 of Singapore
(the "Singapore Companies Act") (2) to a sophisticated investor, and in
accordance with the conditions specified in Section 106D of the Singapore
Companies Act, or (3) otherwise pursuant to, and in accordance with the
conditions of any other provisions of the Companies Act, Chapter 50 of
Singapore, and
- a copy of this prospectus has been lodged with the Registrar of Companies
ad Businesses in Singapore as an information memorandum for the purposes
of Section 106D of the Companies Act, Chapter 50 of Singapore. The
Registrar of Companies and Businesses in Singapore takes no
responsibility as to the contents of this document.
Purchasers of the shares of common stock in this offering may be required
to pay stamp duties and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price per share on the
cover page of this prospectus.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws, which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing the common stock in Canada and accepting a purchase
confirmation, a purchaser is representing to us and the dealer from whom such
purchase confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, that the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgement against the issuer or such persons in Canada
or to enforce a judgement obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Milbank, Tweed, Hadley & McCloy LLP will
pass upon certain legal matters in connection with the offering for the
underwriters.
EXPERTS
The consolidated financial statements of Asia Online, Ltd. as of December
31, 1998, 1999 and for
the period from December 8, 1998 (inception) to December 31, 1998 and for the
year ended
December 31, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The combined financial statements of Asia Communications Group Limited,
Asia On-line Limited and Asia Online (Phils.) Inc. as of June 30, 1996 and 1997
and 1998 and as of February 26, 1999 and for each of the three years in the
period ended June 30, 1998 and for the period from July 1, 1998 to February 26,
1999 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of The Message Exchange Pty Limited as of June 30,
1997, 1998 and 1999 and as of September 30, 1999 and for each of the three years
in the period ended June 30, 1999 and for the three months ended September 30,
1999 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Flexit Pty Limited (business acquired by Flex
Information Technology Pty Limited) as of June 30, 1997, 1998 and 1999 and as of
September 30, 1999 and for each of the three years in the period ended June 30,
1999 and for the three months ended September 30, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Morse Corporation (Australia) Pty Limited
(business acquired by Flex Information Technology Pty Limited) as of June 30,
1997, 1998 and 1999 and as of September 30, 1999 and for each of the three years
in the period ended June 30, 1999 and for the three months ended September 30,
1999 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of InterACT Technology Group Pty Limited as of
June 30, 1997, 1998 and 1999 and as of September 30, 1999 and for the four
months ended June 30, 1997 and for each of the two years in the period ended
June 30, 1999 and for the three months ended September 30, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Internet Access Australia Unit Trust (business
acquired by Internet Access Australia Pty Limited) as of June 30, 1997, 1998 and
1999 and as of September 30, 1999 and
for each of the three years in the period ended June 30, 1999 and for the three
months ended Septem-
ber 30, 1999 included in this prospectus have been so included in reliance on
the report of PricewaterhouseCoopers, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Brisbane Internet Technology Pty Limited as of
June 30, 1997, 1998 and 1999 and as of September 30, 1999 and for each of the
three years in the period ended June 30, 1999 and for the three months ended
September 30, 1999 included in this prospectus have been so included in
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reliance on the report of PricewaterhouseCoopers, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Dove Australia Pty Limited as of June 30, 1997,
1998 and 1999 and as of September 30, 1999 and for each of the three years in
the period ended June 30, 1999 and for the three months ended September 30, 1999
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of The Internet Company of New Zealand Limited
(renamed Asia Online New Zealand Limited) as of March 31, 1998 and March 31,
1999 and as of September 30, 1999 and as of December 31, 1999 and for each of
the two years in the period ended March 31, 1999 and for the six months period
ended September 30, 1999 and for the three months period ended December 31, 1999
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Utusan Multimedia Sdn Bhd (renamed Asia Online
Utusan Sdn Bhd) as of December 31, 1997 and 1998 and 1999 and as of January 28,
2000 and for the period from November 7, 1996 (inception) to December 31, 1997
and for each of the two years in the period ended December 31, 1999 and for the
period from January 1, 2000 to January 28, 2000 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Macro Systems Limited as of March 31, 1998 and
1999 and as of January 17, 2000 and for the period from March 14, 1997
(inception) to March 31, 1998 and for the year ended March 31, 1999 and for the
period from April 1, 1999 to January 17, 2000 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Helix Web Services Limited as of December 31,
1998 and 1999 and as of February 1, 2000 and for the period from December 20,
1996 (inception) to December 31, 1998 and for the year ended December 31, 1999
and for the period from January 1, 2000 to February 1, 2000 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The combined financial statements of Metro-Link Services Company Limited
and Hope Light Trading Limited as of December 31, 1997 and 1998 and 1999 and as
of May 5, 2000 and for each of the three years in the period ended December 31,
1999 and for the period from January 1, 2000 to May 5, 2000 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of The Dzign Trust/Diezel Interactive Class Income
Unit Trust/Dzign Visual Communications Class Income Unit Trust (businesses
acquired by Avonsleigh Pty Limited) as of June 30, 1998 and 1999 and as of June
26, 2000 and for each of the two years in the period ended June 30, 1999 and for
the period from July 1, 1999 to June 26, 2000 included in this prospectus have
been so included in reliance on the report of Lord & Brown, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other
84
<PAGE> 89
document are not necessarily complete. In each instance, please refer to the
copy of that contract, agreement or document filed as an exhibit to the
registration statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing interim financial information.
85
<PAGE> 90
ASIA ONLINE, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Asia Online, Ltd.
Report of Independent Accountants......................... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Operations..................... F-5
Consolidated Statements of Changes in Stockholders'
Deficit................................................ F-6
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements................ F-9
Unaudited Pro Forma Condensed Combined Financial Statements
Overview.................................................. F-26
Unaudited Pro Forma Condensed Combined Balance Sheet...... F-27
Unaudited Pro Forma Condensed Combined Statement of
Operations............................................. F-28
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements............................................. F-30
Asia Communications Group Limited, Asia On-Line Limited and
Asia Online (Phils.), Inc. (combining the businesses of
Asia Online International Inc.)
Report of the Independent Auditors........................ F-37
Combined Profit and Loss Accounts......................... F-38
Combined Balance Sheets................................... F-39
Combined Cash Flow Statements............................. F-40
Notes on the Accounts..................................... F-41
The Message Exchange Pty Limited
Report of Independent Accountants......................... F-48
Profit and Loss Statements................................ F-49
Balance Sheets............................................ F-50
Statements of Cash Flows.................................. F-51
Notes to and Forming Part of the Financial Statements..... F-52
Flexit Pty Limited (acquired by Flex Information Technology
Pty Limited)
Report of Independent Accountants......................... F-62
Profit and Loss Account................................... F-63
Balance Sheet............................................. F-64
Statements of Cash Flows.................................. F-65
Notes to and Forming Part of the Financial Statements..... F-66
Morse Corporation (Australia) Pty Limited
(acquired by Flex Information Technology Pty Limited)
Report of Independent Accountants......................... F-77
Profit and Loss Statement................................. F-78
Balance Sheet............................................. F-79
Statements of Cash Flows.................................. F-80
Notes to and Forming Part of the Financial Statements..... F-81
InterACT Technology Group Pty Limited
Report of Independent Accountants......................... F-93
Profit and Loss Statement................................. F-94
Balance Sheet............................................. F-95
Statement of Cash Flows................................... F-96
Notes to and Forming Part of the Financial Statements..... F-97
Internet Access Australia Pty Limited
Report of Independent Accountants......................... F-113
Profit and Loss Statement................................. F-114
Balance Sheet............................................. F-115
Statements of Cash Flows.................................. F-116
Notes to and Forming Part of the Financial Statements..... F-117
</TABLE>
F-1
<PAGE> 91
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Brisbane Internet Technology Pty Limited
Report of Independent Accountants......................... F-130
Profit and Loss Statements................................ F-131
Balance Sheets............................................ F-132
Statements of Cash Flows.................................. F-133
Notes to and Forming Part of the Financial Statements..... F-134
Dove Australia Pty Limited
Report of Independent Accountants......................... F-145
Profit and Loss Statements................................ F-146
Balance Sheets............................................ F-147
Statements of Cash Flows.................................. F-148
Notes to and Forming Part of the Accounts................. F-149
The Internet Company of New Zealand Limited
Report of Independent Auditors............................ F-163
Statement of Financial Performance........................ F-164
Statement of Financial Position........................... F-165
Retained Earnings/Statement of Movements in Equity........ F-166
Notes to Financial Statements............................. F-167
Utusan Multimedia Sdn Bhd
Report of the Independent Auditors........................ F-171
Statements of Income...................................... F-172
Balance Sheets............................................ F-173
Statements of Cash Flow................................... F-174
Statement of Changes in Equity............................ F-175
Notes to the Accounts..................................... F-176
Macro Systems Limited
Report of the Independent Auditors........................ F-181
Profit and Loss Accounts.................................. F-182
Balance Sheets............................................ F-183
Notes to the Accounts..................................... F-184
Helix Web Services Limited
Report of the Independent Auditors........................ F-188
Profit and Loss Accounts.................................. F-189
Balance Sheets............................................ F-190
Notes to the Accounts..................................... F-191
Metro-Link Services Company Limited and Hope Light Trading
Limited
Report of the Independent Auditors........................ F-196
Combined Profit and Loss Accounts......................... F-197
Combined Balance Sheets................................... F-198
Combined Cash Flow Statements............................. F-199
Notes to the Accounts..................................... F-200
The Dzign Trust, Diezel Interactive Class Income Unit Trust
and Dzign Visual Communications Class Income Unit Trust
(businesses acquired by Avonsleigh Pty Limited)
Report of the Independent Accountants..................... F-205
Profit and Loss Statements................................ F-206
Balance Sheets............................................ F-207
Statements of Cash Flows.................................. F-208
Notes to the Accounts..................................... F-209
</TABLE>
F-2
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Asia Online, Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' deficit and cash
flows present fairly, in all material respects, the financial position of Asia
Online, Ltd. and its subsidiaries at December 31, 1998 and December 31, 1999 and
the results of their operations and their cash flows for the period from
December 8, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS
Hong Kong, SAR China
July 28, 2000
F-3
<PAGE> 93
ASIA ONLINE, LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
2000
-------------
DECEMBER 31, JUNE 30, PRO FORMA
------------------- ------------------------- STOCKHOLDERS'
1998 1999 1999 2000 EQUITY
-------- -------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 17,207 $ 5,407 $ 63,336
Short-term investments.................................... -- -- -- 21,299
Accounts receivable, net of provisions of $--, $726, $393
and $1,007 respectively................................. -- 1,777 563 5,623
Prepayments............................................... -- 818 70 3,311
Deposits and other receivables............................ -- 852 238 1,862
Inventory................................................. -- -- -- 621
-------- -------- ------- --------
Total current assets................................ -- 20,654 6,278 96,052
======== ======== ======= ========
Property and equipment, net................................. -- 3,405 693 13,522
Goodwill and other intangible assets, net................... -- 21,227 3,870 33,041
-------- -------- ------- --------
Total assets........................................ $ -- $ 45,286 $10,841 $142,615
======== ======== ======= ========
LIABILITIES, MINORITY INTEREST, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ -- $ 3,111 $ 139 $ 3,452
Accrued expenses.......................................... -- 1,164 1,313 5,070
Other payables............................................ -- 806 3,848 3,922
Deferred revenue.......................................... -- 802 376 1,503
Current portion of capital lease obligations.............. -- 151 -- 634
-------- -------- ------- --------
Total current liabilities........................... -- $ 6,034 $ 5,676 $ 14,581
======== ======== ======= ========
Capital lease obligations................................... -- 99 -- 855
-------- -------- ------- --------
Total liabilities................................... -- 6,133 5,676 15,436
======== ======== ======= ========
Minority interest in consolidated subsidiaries.............. -- 4,465 2 4,213
======== ======== ======= ========
Preferred stock
Series A voting, $0.001 par value; 8,600,000 shares
authorized; none, 8,030,689, 7,942,970, 8,030,689 shares
issued and outstanding.................................. -- 9,155 9,055 9,155 --
Series B-1 voting, $0.001 par value; 12,000,000 shares
authorized; none, 8,669,910, none and 8,669,910 shares
issued and outstanding.................................. -- 27,538 -- 27,538 --
Series B-2 non-voting, $0.001 par value; 12,000,000 shares
authorized; none, 2,349,139, none and 2,349,139 shares
issued and outstanding.................................. -- 7,462 -- 7,462 --
Series C voting, $0.001 par value; 11,500,000 shares
authorized; none, none, none and 11,401,700 shares
issued and outstanding.................................. -- --...... -- 99,411 --
-------- -------- ------- -------- --------
-- 44,155 9,055 143,566 --
======== ======== ======= ======== ========
Stockholders' deficit:
Common stock
Class A voting, $0.001 par value; 100,000,000 shares
authorized; 10, 2,638,390, 2,608,390 and 2,599,501
shares issued and
outstanding........................................... -- 3 3 3 33
Class B non-voting, $0.001 par value; 25,000,000 shares
authorized; no shares issued and outstanding.......... -- -- --
Class C non-voting, $0.001 par value; 30,000,000 shares
authorized; none, 385,274, none and 1,005,751 shares
issued and outstanding................................ -- -- -- 1 1
Additional paid-in capital................................ -- 7,499 3,448 22,897 166,433
Accumulated deficit....................................... -- (12,507) (4,517) (32,684) (32,684)
Deferred compensation..................................... -- (4,387) (2,826) (10,975) (10,975)
Accumulated other comprehensive income/(loss)............. -- (75) -- 158 158
-------- -------- ------- -------- --------
Total stockholders' deficit......................... -- (9,467) (3,892) (20,600) 122,966
======== ======== ======= ======== ========
Total liabilities, minority interest, preferred
stock and stockholders' deficit................... $ -- $ 45,286 $10,841 $142,615
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 94
ASIA ONLINE, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 8, 1998 SIX-MONTH PERIODS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
---------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Internet access........................ $ -- $ 4,979 $ 1,431 $ 7,306
Web hosting............................ -- 265 51 762
Professional services.................. -- 1,848 359 6,320
---------- ---------- ---------- ----------
-- 7,092 1,841 14,388
Operating costs and expenses:
Service costs.......................... -- 3,332 987 8,602
Selling, general and administrative.... -- 11,237 3,887 17,918
Depreciation........................... -- 910 397 1,489
Amortization........................... -- 2,964 567 5,628
Stock-based compensation............... 1,769 521 3,512
---------- ---------- ---------- ----------
Total operating costs and
expenses..................... -- 20,212 6,359 37,149
========== ========== ========== ==========
Loss from operations..................... -- (13,120) (4,518) (22,761)
Interest income.......................... -- 420 10 1,618
Interest expense......................... (20) (9) (112)
---------- ---------- ---------- ----------
Loss before minority interest and income
taxes.................................. -- (12,720) (4,517) (21,255)
Income tax............................... -- (26) -- (125)
Minority interest in consolidated
subsidiaries........................... -- 239 -- 1,203
---------- ---------- ---------- ----------
Net loss attributable to common
stockholders........................... $ -- $ (12,507) $ (4,517) $ (20,177)
========== ========== ========== ==========
Basic and diluted loss per share
attributable to common stockholders (in
dollars):.............................. -- $ (5.53) $ (2.57) $ (6.01)
========== ========== ========== ==========
Shares used in computing basic and
diluted loss per share:................ -- 2,261,744 1,758,057 3,356,805
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 95
ASIA ONLINE, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA WHICH IS IN THOUSANDS OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
CLASS A CLASS C
------------------- ------------------- ADDITIONAL
NO OF NO OF PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
-------- -------- -------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION DECEMBER 8,
1998........................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock......... 0.01 -- -- -- -- -- --
-------- -------- -------- -------- ------- -------- --------
Balance at December 31, 1998..... 0.01 -- -- -- -- -- --
Issuance of common stock......... 3,100 3 385 -- 1,343 -- --
Cancellation of common stock..... (462) -- -- -- -- -- --
Net loss......................... -- -- -- -- -- (12,507) --
Foreign currency translation
adjustment..................... -- -- -- -- -- -- --
Comprehensive loss.......
Grant of restricted stock and
employee stock options......... -- -- -- -- 6,156 -- (6,156)
Amortization of deferred
compensation................... -- -- -- -- -- -- 1,769
-------- -------- -------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1999..... 2,638 $ 3 385 $ -- $ 7,499 $(12,507) $ (4,387)
======== ======== ======== ======== ======= ======== ========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME/
(LOSS) TOTAL
------------- --------
<S> <C> <C>
BALANCE AT INCEPTION DECEMBER 8,
1998........................... $ -- $ --
Issuance of common stock......... -- --
-------- --------
Balance at December 31, 1998..... -- --
Issuance of common stock......... -- 1,346
Cancellation of common stock..... -- --
Net loss......................... -- (12,507)
Foreign currency translation
adjustment..................... (75) (75)
--------
Comprehensive loss....... (12,582)
--------
Grant of restricted stock and
employee stock options......... -- --
Amortization of deferred
compensation................... -- 1,769
-------- --------
BALANCE AT DECEMBER 31, 1999..... $ (75) $ (9,467)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 96
ASIA ONLINE, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA WHICH IS IN THOUSANDS OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS C ACCUMULATED
--------------- --------------- ADDITIONAL OTHER
NO OF NO OF PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION INCOME/ (LOSS)
------ ------ ------ ------ ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE AT DECEMBER 31,
1998........................ 0.01 $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock...... 2,608 3 -- -- 101 --
Net loss...................... -- -- -- -- -- (4,517) -- --
Comprehensive loss....
Grant of restricted stock and
employee stock options...... -- -- -- -- 3,347 -- (3,347) --
Amortization of deferred
compensation................ -- -- -- -- -- -- 521 --
----- ------ ----- ------ ------- -------- -------- ----
BALANCE AT JUNE 30, 1999...... 2,608 $ 3 -- $ -- $ 3,448 $ (4,517) $ (2,826) $ --
===== ====== ===== ====== ======= ======== ======== ====
(UNAUDITED)
BALANCE AT DECEMBER 31,
1999........................ 2,638 $ 3 385 $ -- $ 7,499 $(12,507) $ (4,387) $(75)
Issuance of common stock...... 26 -- 621 1 5,298 -- -- --
Cancellation of common
stock....................... (64) -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- (20,177) -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- 233
----- ------ ----- ------ ------- -------- -------- ----
Comprehensive loss....
----- ------ ----- ------ ------- -------- -------- ----
Grant of restricted stock and
employee stock options...... -- -- -- -- 10,100 -- (10,100) --
Amortization of deferred
compensation................ -- -- -- -- -- -- 3,512 --
----- ------ ----- ------ ------- -------- -------- ----
BALANCE AT JUNE 30, 2000...... 2,600 $ 3 1,006 $ 1 $22,897 $(32,684) $(10,975) $158
===== ====== ===== ====== ======= ======== ======== ====
<CAPTION>
TOTAL
--------
<S> <C>
(UNAUDITED)
BALANCE AT DECEMBER 31,
1998........................ $ --
Issuance of common stock...... 104
Net loss...................... (4,517)
--------
Comprehensive loss.... (4,517)
--------
Grant of restricted stock and
employee stock options...... --
Amortization of deferred
compensation................ 521
--------
BALANCE AT JUNE 30, 1999...... $ (3,892)
========
(UNAUDITED)
BALANCE AT DECEMBER 31,
1999........................ $ (9,467)
Issuance of common stock...... 5,299
Cancellation of common
stock....................... --
Net loss...................... (20,177)
Foreign currency translation
adjustment.................. 233
--------
Comprehensive loss.... (19,944)
--------
Grant of restricted stock and
employee stock options...... --
Amortization of deferred
compensation................ 3,512
--------
BALANCE AT JUNE 30, 2000...... $(20,600)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 97
ASIA ONLINE, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 8,
1998 FOR THE YEAR SIX-MONTH PERIODS ENDED
(INCEPTION) TO ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common stockholders..... $-- $(12,507) $(4,517) $(20,177)
Adjustments to net loss:
Amortization and depreciation.................. -- 3,874 964 7,117
Loss on disposal of fixed assets............... -- 71 -- --
Stock-based compensation....................... -- 1,769 521 3,512
Minority interest in consolidated
subsidiaries................................ -- (239) -- (1,203)
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable............................ -- (783) (399) (3,079)
Inventory...................................... -- -- -- (388)
Prepayments and other current assets........... -- (1,486) 613 (1,850)
Deferred revenue and other current
liabilities................................. -- 1,567 454 2,441
Accounts payable, tax payable and accrued
expenses.................................... -- 1,444 414 2,912
--- -------- ------- --------
Net cash used in operating activities............ -- (6,290) (1,950) (10,715)
--- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries, net of cash
acquired....................................... -- (17,176) (3,655) (9,420)
Purchase of property and equipment............... -- (2,351) (222) (9,760)
Purchase of short term investments............... -- -- -- (21,169)
--- -------- ------- --------
Net cash used in investing activities............ -- (19,527) (3,877) (40,349)
--- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net... -- 42,730 7,630 99,411
Proceeds from issuance of common stock........... -- 299 3,604 --
Professional fees associated with future equity
funding........................................ -- -- -- (1,947)
Repayment of capital lease obligations........... -- -- -- (301)
--- -------- ------- --------
Net cash provided by financing activities........ -- 43,029 11,234 97,163
--- -------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ -- 17,212 5,407 46,099
Effect of exchange rate changes.................. -- (5) -- 30
Cash and cash equivalents at beginning of
period/year.................................... -- -- -- 17,207
--- -------- ------- --------
Cash and cash equivalents at end of
period/year.................................... $-- $ 17,207 5,407 63,336
=== ======== ======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period/year for:
Interest....................................... $-- $ 20 $ 9 $ 112
Non-cash activities:
Series A preferred stock issued for
acquisitions................................ $-- $ 1,425 $ 1,425 $ --
Class C common stock issued for acquisitions... -- 1,048 --
Assets acquired under capital leases........... -- -- -- 1,363
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 98
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and nature of operations
Asia Online, Ltd. ("Asia Online" or the "Company", references to which
include all subsidiaries unless the context otherwise requires) was
incorporated under the laws of the state of Delaware, United States of
America, on December 8, 1998 as Conrad ISP Inc. and subsequently changed its
name to Asia Online, Ltd. In 1998, the Company earned no income and incurred
no expenses. In 1999, the Company acquired nine businesses and in the
six-month period ended June 30, 2000 acquired a further six businesses. As of
June 30, 2000, the Company provides internet access, web hosting and
professional services in Hong Kong, Australia, New Zealand, Malaysia, the
Philippines and the United States and is expanding through internal growth and
acquisitions in the Asia-Pacific region.
(b) Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated on consolidation.
(c) Initial public offering
In August 2000, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If
the initial public offering is closed under the terms presently anticipated,
all of the preferred stock as of June 30, 2000, will automatically convert
into approximately 30,451,000 shares of common stock. Unaudited pro forma
stockholders' equity, as adjusted for the assumed conversion of the preferred
stock, is set forth on the balance sheet.
(d) Risks and uncertainties
The Company has a limited operating history and its operations are subject
to certain risks and uncertainties, including those associated with: its
ability to meet its obligations; its continuing losses, negative cash flow and
fluctuations in operating results; funding expansion; negotiating,
consummating and implementing acquisitions and strategic alliances, including
their integration; managing rapid growth and expansion; international business
activities; suppliers; financing arrangement terms that may restrict
operations; regulatory issues; competition in the internet services industry;
technology trends, and evolving industry standards.
Furthermore, the Company operates in a business that is characterized by
rapid technological advances, changes in customer requirements and evolving
regulatory requirements and industry standards. Any failure by the Company to
anticipate or to respond adequately to technological changes in its industry
segments, changes in customer requirements or changes in regulatory
requirements or industry standards could have a material adverse effect on the
Company's business and operating results.
The Company's operations are concentrated in the Asia-Pacific region and are
subject to the laws, regulations and statutes of the countries in which it
does business. Changes in, or new interpretations of, existing laws or
regulations or other consequences of doing business in the Asia-Pacific region
may have a material adverse effect on the Company's business and operating
results.
(e) Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of
F-9
<PAGE> 99
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets and liabilities, revenues and expenses and disclosure of contingencies.
Actual results could differ from those estimates.
(f) Revenue recognition
Revenue from internet access, web hosting and professional services is
recognized as the services are provided. The Company records deferred revenue
for amounts billed and/or collected in advance, with the amount deferred being
based on the underlying product and pricing plan. Access and hosting services
are typically billed in advance and revenue is recognized as the services are
provided, while time and data fees are billed in arrears and recognized when
billed, except for the access plans with prepaid hours where income is
recognized on usage of the hours. Professional services can be billed in
advance, arrears or installments, and revenue is recognized over the life of
the assignment.
(g) Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity at the date of purchase of three months or less to be cash
equivalents.
(h) Short term investments
Short term investments consist of commercial paper with maturities at
acquisition exceeding three months but less than twelve months. The Company
has classified its short term investments as held-to-maturity as management
intend and are able to hold these investments to maturity. Held-to-maturity
securities are stated at amortized cost. Amortization of premiums and
accretions of discounts to maturity are included in interest income. As at
June 30, 2000 (unaudited), short term investments consisted entirely of
commercial paper. No short term investments were held as at June 30, 1999
(unaudited) and December 31, 2000.
(i) Inventory
Inventory consists of hardware for systems integration projects and is
valued at the lower of cost and net realizable value.
(j) Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts receivable and investment in corporate securities. The Company
manages its credit exposure to cash and investments by limiting this to
financial institutions which management believes are of high credit quality,
and to short term, investment grade instruments.
The Company believes that the risk associated with accounts receivable is
mitigated by the breadth of the customer base and lack of concentration of
customers. The Company maintains an allowance for potential credit losses that
it believes to be adequate. No individual customer accounted for more than 10%
of net revenues for the year ended December 31, 1999 or more than 10% of
accounts receivable at December 31, 1999.
(k) Property and equipment
Property and equipment is stated at cost net of accumulated depreciation.
Costs for internal use software that are incurred in the preliminary project
stage and in the post-implementation/operational stage are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized over the useful lives of the software. Depreciation
is computed using the straight line
F-10
<PAGE> 100
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method incorporating estimated useful lives of the assets, generally three to
five years, and is calculated from the date assets are ready for use.
Expenditure for maintenance and repairs is expensed as incurred. The carrying
value of property and equipment is assessed annually and/or when factors
indicating a possible impairment are present. If an impairment is present, the
assets are reported at the lower of carrying value or fair value.
(l) Goodwill and other intangible assets
Goodwill and other intangible assets -- customer relationships, arise from
purchases of companies. Goodwill and customer relationships are amortized on a
straight-line basis over a period of three years. The Company periodically
reviews goodwill and other intangibles to assess recoverability based upon
undiscounted cash flow analyses when factors indicating an impairment are
present. If such circumstances arise the carrying value of goodwill and other
intangible assets will be reduced by the estimated shortfall in discounted
cash flows or other appropriate methods to determine the difference between
the carrying value and fair value of goodwill and other intangibles. Any
impairment would be recognized in the operating results of the period in which
an impairment of value is determined.
(m) Income taxes
The Company accounts for income taxes using the asset and liability method
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. The Company provides a
valuation allowance on deferred tax assets when it is more likely than not
that such assets will not be realized. In conjunction with business
acquisitions, the Company records acquired deferred tax assets and
liabilities. Future reversals of the valuation allowance on acquired deferred
tax assets will first be applied against goodwill and other intangibles before
recognition of a benefit in the consolidated statements of operations.
(n) Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees", and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock Based Compensation". Under APB No. 25,
compensation cost is, in general, recognized based on the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock. Deferred compensation is
amortized over the vesting periods, generally three to four years, on an
accelerated basis using the model presented in paragraph 24 of Financial
Accounting Standards Board ("FASB") Interpretation No. 28. Accordingly, the
percentages of deferred compensation amortized in the first, second, third and
fourth years following the grant date are approximately 52%, 27%, 15% and 6%,
respectively.
(o) Minority interests
Minority interests represent the proportionate equity interests of other
shareholders in the Company's consolidated subsidiaries which are not
wholly-owned.
(p) Foreign currency translation
Foreign currency financial statements of foreign operations, where the local
currency is the functional currency, are translated using year-end exchange
rates for assets and liabilities and average exchange
F-11
<PAGE> 101
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates during the year for results of operations and cash flows. Translation
gains and losses are reported as a component of common stockholders' deficit.
(q) Earnings per share
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" which requires the dual presentation of basic and
diluted earnings per share. Basic earnings per share is computed by dividing
net income by the weighted average number of shares of common stock
outstanding during each period. Diluted earnings per share is computed by
dividing net income, as adjusted, by the weighted average number of shares of
common stock, common stock equivalents and other potentially dilutive
securities outstanding during each period.
(r) Comprehensive income/loss
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and displaying comprehensive income or loss and its components.
Comprehensive income or loss consists of net loss and foreign currency
translation adjustments as presented in the consolidated statements of changes
in stockholders' deficit.
(s) Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. SFAS No. 133 was to be effective for fiscal
years beginning after June 15, 1999, with earlier application permitted as of
the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be reassessed and documented
pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS
No. 133, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133", which defers the effective date of
SFAS No. 133 to periods beginning after June 15, 2000. The Company has not
committed to, and does not expect to commit to, any derivative instrument
transactions and thus does not anticipate that this pronouncement will have a
significant effect on its results.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. The Company believes that its current
revenue recognition policy is in compliance with SAB 101.
F-12
<PAGE> 102
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2 ACQUISITIONS OF BUSINESSES
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OWNERSHIP
NAME OF COMPANY LOCATION ACQUISITION DATE PURCHASE PRICE INTEREST
--------------- -------- ---------------- -------------- ----------
(IN THOUSANDS OF US
DOLLARS,
EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
ACQUISITIONS IN 1999
Asia Online International Inc. .......... Hong Kong & Philippines February 26, 1999 $5,425 100
The Message Exchange Pty Ltd............. Australia October 1, 1999 1,874 100
Flex Information Technology
Pty Ltd................................ Australia October 14, 1999 4,078 51
Interact Technology Group
Pty Ltd................................ Australia October 1, 1999 2,307 60
Internet Access Australia Pty Ltd........ Australia September 24, 1999 3,585 51
Brisbane Internet Technology
Pty Ltd................................ Australia October 7, 1999 1,545 67
Dove Australia Pty Ltd................... Australia October 5, 1999 2,216 100
The Internet Company of New Zealand
Ltd.................................... New Zealand September 27, 1999 5,557 100
ACQUISITIONS FROM JANUARY 1 TO JUNE 30,
2000
Utusan Multimedia Sdn. Bhd............... Malaysia January 28, 2000 $4,275 51
Macro Systems Ltd........................ Hong Kong January 17, 2000 1,356 100
Helix Web Services Ltd................... Hong Kong February 1, 2000 916 100
Fast Access Network Pty Ltd.............. Australia February 22, 2000 3,310 100
Metrolink Services Co Ltd and Hopelight
Trading Ltd............................ Hong Kong May 5, 2000 6,826 100
Avonsleigh Pty Ltd....................... Australia June 26, 2000 2,031 100
</TABLE>
The companies acquired offer a mix of internet services. Revenues are
derived from internet access, web hosting and professional services.
Professional services include web design and development and systems integration
services.
Consideration for the acquisitions comprised a combination of cash,
promissory notes, newly issued Series A voting preferred stock and newly issued
Class C non-voting common stock. Each of the acquisitions was accounted for
using the purchase method of accounting. Accordingly, the net assets and results
of operations of the acquired companies have been included in the Company's
consolidated financial statements from their respective acquisition dates, and
the assets and liabilities were recorded based upon their fair values at the
date of acquisition. The Company has allocated the excess purchase price over
the fair value of net tangible assets acquired to identifiable customer
relationships and goodwill.
In addition, at the time of the 1999 Australian acquisitions, put and call
options contingent upon an event variously termed completion event or trigger
event, were entered into with the minority shareholders of the four subsidiary
companies in which the Company did not purchase a 100% interest. These four
subsidiary companies were Flex Information Technology Pty Ltd, Interact
Technology Group Pty Ltd, Internet Access Australia Pty Ltd, and Brisbane
Internet Technology Pty Ltd. Under the agreements, a completion event or a
trigger event arises as a result of a public offering of Asia Online, Ltd. on a
US exchange or contemplation by the Company of such offering, at which point
both the Company and the minority shareholders have the right to effect an
exchange of the remaining minority shares for a predetermined number of common
shares in Asia Online, Ltd. The aggregate number of common shares in Asia
Online, Ltd which are subject to such exchange is 2,777,727. For two of the
acquisitions, the minority shareholders have the right, but not the obligation,
to receive cash in lieu of shares with the amount of cash to be calculated using
the initial offer price of the public offering.
In April 2000, the Company exercised its right to acquire the minority
interests in the above four companies. The estimated aggregate cost of the
acquisition of these minority interests is $33.1 million
F-13
<PAGE> 103
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consisting of estimated cash payments of $15.6 million with the balance being
payable by the issuance of common stock. The acquisitions through the issuance
of common stock are expected to be completed by mid-August 2000 and the cash
payments are expected to be made in October 2000.
The following presents the unaudited pro forma results of the Company for
the year ended December 31, 1999 as if the acquisitions made in 1999 had been
consummated on January 1, 1999. The unaudited pro forma results of operations
include certain pro forma adjustments, including the amortization of goodwill
relating to the acquisitions. The pro forma financial information is not
necessarily indicative of the combined results that would have occurred had the
acquisitions taken place at the beginning of the period, nor is it necessarily
indicative of results that may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------------
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C>
Revenue..................................................... $15,997
Net loss.................................................... (16,859)
Basic and diluted loss per share............................ (6.68)
=======
</TABLE>
3 PROVISION FOR DOUBTFUL ACCOUNTS RECEIVABLE
Movements on the provision for doubtful accounts receivable are as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 8,
1998 SIX-MONTH
(INCEPTION) FOR THE PERIODS ENDED
TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Beginning balance.................... -- $ -- $ -- $ 726
Charged to expenses.................. -- 314 95 357
Acquisitions of subsidiaries......... -- 524 326 155
Debts written off.................... -- (28) (28) (92)
Reversals............................ -- (84) -- (39)
---- ---- ---- ------
Ending balance....................... -- $726 $393 $1,007
==== ==== ==== ======
</TABLE>
4 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------- -------------------------
1998 1999 1999 2000
------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Computer software and network equipment...... -- $3,845 $ 775 $13,454
Furniture and office equipment............... -- 345 233 1,368
Leasehold improvements....................... -- 125 82 873
------ ------ ------ -------
-- 4,315 1,090 15,695
Accumulated depreciation..................... -- (910) (397) (2,173)
------ ------ ------ -------
Property and equipment, net.................. -- $3,405 $ 693 $13,522
====== ====== ====== =======
</TABLE>
F-14
<PAGE> 104
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment includes the following amounts acquired under
capital leases:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------- -------------------------
1998 1999 1999 2000
------ ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Computer software and network equipment........ -- $524 $261 $1,475
Accumulated depreciation....................... -- (64) (42) (70)
------ ---- ---- ------
-- $460 $219 $1,405
====== ==== ==== ======
</TABLE>
5 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -------------------------
1998 1999 1999 2000
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Goodwill................................... $ -- $ 9,599 $ -- $19,880
Customer relationships..................... -- 14,592 4,437 21,705
------- ------- ------ -------
Total intangibles, gross................... -- 24,191 4,437 41,585
Accumulated amortization
-- goodwill.............................. -- (798) -- (3,048)
-- customer relationships................ (2,166) (567) (5,496)
------- ------- ------ -------
Total intangibles, net..................... $ -- $21,227 $3,870 $33,041
======= ======= ====== =======
Amortization expense
-- goodwill.............................. -- 798 -- 2,298
-- customer relationships................ -- 2,166 567 3,330
</TABLE>
6 INCOME TAXES
The components of loss before income taxes and minority interest are as
follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Loss subject to US income taxes
only........................... $ -- $ (4,591) $(1,620) $ (5,455)
Loss subject to foreign income
taxes.......................... -- (7,916) (2,897) (14,722)
-------- -------- ------- --------
Loss before income tax........... $ -- $(12,507) $(4,517) $(20,177)
======== ======== ======= ========
</TABLE>
F-15
<PAGE> 105
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Deferred tax assets:
-- Net operating loss carry
forward..................... $ -- $ 4,604 $ 3,130 $ 8,619
-- Employee compensation....... -- 49 -- 49
-- Depreciation and
amortization................ -- 78 98 116
-- Allowance for doubtful
accounts.................... -- 74 15 85
------- ------- ------- -------
Gross deferred tax assets........ -- 4,805 3,243 8,869
------- ------- ------- -------
Deferred tax liabilities
-- Depreciation &
amortization................ -- (22) (2) (77)
------- ------- ------- -------
Gross deferred tax liabilities... -- (22) (2) (77)
------- ------- ------- -------
Net deferred tax asset........... $ -- $ 4,783 $ 3,241 $ 8,792
------- ------- ------- -------
Valuation allowance.............. $ -- $(4,783) $(3,241) $(8,792)
------- ------- ------- -------
-- -- -- --
======= ======= ======= =======
</TABLE>
The Company has reduced the entire net deferred tax asset by a valuation
allowance because, in the opinion of management, it is more likely that such
benefits will not be currently realized.
As of December 31, 1999, the Company had US federal and state and foreign
net operating loss carryforwards of approximately $3.4 million, $1.7 million and
$18.6 million, respectively. These loss carryforwards are available to offset
future regular, alternative minimum and foreign taxable income, if any. The US
federal operating loss carryforwards expire in 2019 and the state operating loss
carryforwards expire in 2004. The US Internal Revenue Code imposes certain
limitations on the annual amount of net operating loss carryforwards which can
be utilized if certain changes in the Company's ownership occur. Foreign net
operating loss carryforwards are available indefinitely.
7 NET LOSS PER SHARE
Basic net loss per share attributable to common stockholders is computed by
dividing the net loss attributable to common stockholders by the weighted
average number of shares of common stock outstanding during the period. However,
because the Company generated net losses in all periods presented, potential
common stock, comprised of incremental shares of common stock issuable upon the
exercise of stock options and upon conversion of convertible preferred stock,
are not included in diluted net loss per share attributable to common
stockholders because such shares are anti-dilutive.
F-16
<PAGE> 106
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth for the periods indicated, the computation
of basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) JUNE 30,
TO DECEMBER 31, YEAR ENDED -------------------------
1998 DECEMBER 31, 1999 1999 2000
----------------- ----------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders................... $ -- $(12,507) $(4,517) $(20,177)
Weighted average common shares
outstanding.................... -- 2,262 1,758 3,357
Basic and diluted loss per share
(in dollars)................... $ -- $ (5.53) $ (2.57) $ (6.01)
======= ======== ======= ========
</TABLE>
The following table sets forth, potential shares of common stock that are
not included in the diluted loss per share calculation because to do so would be
anti-dilutive.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) JUNE 30,
TO DECEMBER 31, YEAR ENDED -------------------------
1998 DECEMBER 31, 1999 1999 2000
---------------- ----------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C> <C>
Weighted average effect of
common stock equivalents:
Options to purchase common
stock........................ -- 3 1 120
Shares resulting from the
conversion of:
Series A preferred stock....... -- 6,564 5,160 8,031
Series B-1 preferred stock..... -- 3,587 -- 8,670
Series B-2 preferred stock..... -- 972 -- 2,349
Series C preferred stock....... -- -- -- 6,236
------ ------ ----- ------
-- 11,126 5,161 25,406
====== ====== ===== ======
</TABLE>
8 PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share attributable to common stockholders for the
year ended December 31, 1999 and the six months ended June 30, 2000 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the automatic conversion of convertible preferred stock
into common stock effective upon the closing of the Company's initial public
offering as if such conversion occurred on January 1, 1999, or at the date of
original issuance, if later.
F-17
<PAGE> 107
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of pro forma basic and
diluted net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD
DECEMBER 31, ENDED JUNE 30,
1999 2000
------------ ----------------
(IN THOUSANDS OF US DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net loss attributable to common
stockholders.......................................... $(12,507) $(20,177)
======== ========
Weighted average shares used in computing basic and
diluted net loss per share attributable to common
stockholders.......................................... 2,262 3,357
Adjustment to reflect assumed conversion of all
preferred stock from date of issuance................. 11,123 25,286
-------- --------
Shares used in computing pro forma basic and diluted net
loss per share available to common stockholders....... 13,385 28,643
======== ========
Basic and diluted pro forma net loss per share
attributable to common stockholders................... $ $(0.93) $ (0.70)
======== ========
</TABLE>
9 SEGMENT REPORTING
The Company evaluates performance and makes operational decisions primarily
by reference to its geographic markets. The Company has four geographical
segments:
- Australasia
- Greater China
- South-East Asia
- Pacific Islands
Financial information for these segments is generally prepared in
accordance with the accounting policies set out in Note 1. The Company evaluates
the performance of its geographic segments based on revenue and earnings or loss
before interest, tax depreciation and amortization, non cash compensation and
share of corporate costs ("EBITDA"). The Company also has a corporate segment
for corporate costs and certain long-lived assets which benefit all geographical
segments.
F-18
<PAGE> 108
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about reportable segments is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) TO YEAR ENDED JUNE 30
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS
<S> <C> <C> <C> <C>
Revenues:
- Australasia................. -- $ 2,684 $ -- $ 7,352
- Greater China............... -- 3,834 1,648 5,327
- South-East Asia............. -- -- -- 1,210
- Pacific Islands............. -- 574 193 885
-------- ------- ------- --------
-- $ 7,092 $ 1,841 $ 14,774
======== ======= ======= ========
Segment EBITDA:
- Australasia................. -- $ (426) $ -- $ (3,565)
- Greater China............... -- (1,849) (1,114) (1,591)
- South-East Asia............. -- -- -- (9)
- Pacific Islands............. -- (845) (371) (759)
- Corporate................... -- (4,357) (1,548) (6,208)
-------- ------- ------- --------
-- $(7,477) $(3,033) $(12,132)
======== ======= ======= ========
Long-lived assets:
- Australasia................. -- $ 1,306 $ -- $ 5,377
- Greater China............... -- 660 630 1,036
- South-East Asia............. -- -- -- 117
- Pacific Islands............. -- 93 63 439
- Corporate................... -- 1,346 -- 6,553
-------- ------- ------- --------
-- $ 3,405 $ 693 $ 13,522
======== ======= ======= ========
</TABLE>
Reconciliations of geographic segment revenues and EBITDA to consolidated
revenues and loss before interest, income tax and minority interest are as
follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 8, SIX-MONTH PERIODS ENDED
1998 (INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Reconciliation of segment
revenues:
Total revenues for reportable
segments.................... $ -- $ 7,092 $ 1,841 $ 14,774
Inter-segmental revenues....... -- -- -- (386)
---- -------- ------- --------
Consolidated revenues.......... $ -- $ 7,092 $ 1,841 $ 14,388
==== ======== ======= ========
Reconciliation of segment EBITDA:
Total profit for reportable
segments.................... $ -- $ (7,477) $(3,033) $(12,132)
Depreciation and
amortization................ -- (3,874) (964) (7,117)
Stock compensation expense..... -- (1,769) (521) (3,512)
---- -------- ------- --------
Loss from operations........... $ -- $(13,120) $(4,518) $(22,761)
==== ======== ======= ========
</TABLE>
F-19
<PAGE> 109
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10 CAPITAL ACCOUNTS
The Company is authorized to issue common and preferred stock. Key features
of each class of stock are:
Common stock:
Class A is voting stock while Classes B and C are non-voting stock. Each
share of Class C non-voting stock will be converted automatically into one
share of Class A voting common stock on the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the US
Securities Act of 1933 covering the offer and sale of common stock or when the
Company becomes subject to the periodic reporting requirements of Section
12(g) or 15(d) of the US Securities Exchange Act of 1934.
Preferred stock:
Under the Company's restated certificate of incorporation, the Company's
convertible preferred stock is issuable in series and the Company's Board of
Directors is authorized to fix or alter the rights, preferences, privileges
and other terms of each series.
At various dates in 1999, the Company issued 8,030,689 shares of Series A
preferred stock at a price of $1.14 per share for gross proceeds of
approximately $9.2 million.
On August 2, 1999 the Company issued 8,669,910 shares of Series B-1
voting preferred stock at a price of $3.18 per share for gross proceeds of
approximately $27.5 million and 2,349,139 shares of Series B-2 non-voting
preferred stock at a price of $3.18 per share for gross proceeds of
approximately $7.5 million.
On March 24, 2000 the Company issued 11,401,700 shares of Series C
preferred stock at a price of $8.77 per share for gross proceeds of
approximately $100 million.
Voting
The holder of each share of Series A, B-1 and C preferred stock is
entitled to the number of votes equal to the whole number of shares of voting
common stock into which such stock is convertible on the date of the vote.
Series B-2 preferred stock is non-voting.
Dividends
The holders of Series A, B and C are entitled to receive non-cumulative
annual cash dividends, in preference to the holders of any other stock of the
company, at the rate of 8% of the original issue price of each outstanding
Series A, B and C preferred shares. The Series C preferred stock has
preference over the Series B preferred stock which in turn has preference over
Series A preferred stock in the payment of dividends.
As of December 31, 1999 and June 30, 2000, no dividends on convertible
preferred stock or common stock have been declared.
Liquidation
Upon any liquidation, dissolution or winding up of the Company, the
holders of preferred stock are entitled to receive an amount equal to the
original issue price of each preferred share (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like) plus any
declared but unpaid dividends, in preference to holders of common stock.
Series C preferred shares have preference to
F-20
<PAGE> 110
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B preferred shares which have preference to Series A preferred shares
in respect of such payments. After the payment of the above amounts, the
assets of the Company available for distribution shall be distributed ratably
to the holders of common stock and preferred stock on an as-if-converted to
common stock basis. The consolidation or merger of the Company with or into
another entity where the holders of all voting securities of the Company own
less than 50% of the outstanding voting power of the surviving entity
following the consolidation or merger, or the sale or disposition of all or
substantially all the assets of the Company, are each regarded as a
liquidation.
Conversion
Preferred stock of any series may at any time, at the option of the
holder, be converted into fully paid voting common stock or Class B common
stock.
The closing of a firmly underwritten public offering pursuant to an
effective registration statement under the US Securities Act of 1933 covering
the offer and sale of common stock automatically results in conversion of all
preferred stock to common stock if the price per share in the public offering
is at least $12 and the gross proceeds to the Company are at least $20
million. Series A, B-1 and C preferred stock will be converted to Series A
voting common stock and Series B-2 to Class B common stock.
Redemption
The Company is obligated to redeem any series of preferred shares if a
majority of holders of that series so require. Redemption will be in three
equal annual installments beginning in February 2004 for the amount of the
original issue price of each share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) plus any declared but
unpaid dividends.
11 STOCK COMPENSATION PLAN AND ISSUANCE OF RESTRICTED STOCK
In February 1999 the Company adopted an equity incentive plan, the general
purpose of which is to secure and retain key employees, directors and
consultants and to provide incentives for such persons to exert maximum efforts
for the success of the Company. Recipients are given an opportunity to benefit
from increases in the value of the Company's common stock through the granting
of stock awards.
Incentive stock options have been awarded by the Board, which is
administering the plan. As of June 30, 2000, the Company has reserved 3,554,120
(unaudited) common shares for issuance under the plan. Options become
exercisable based on a vesting schedule determined by the Board at the grant
date, generally over four years with 25% vesting following the first year of
employment and 2.08% per month in each of the subsequent 36 months of
employment. The options expire ten years after the grant date.
The Company authorized the sale of 2,970,880 shares of restricted stock to
ten employees on dates between February 10, 1999 and April 30, 1999 at $0.02 and
$0.11 per share pursuant to a founder stock purchase agreement. The first 33%
vested one year after the initial purchase with the remainder vesting monthly
over the following two-year period. The Company repurchased 526,389 shares of
unvested stock upon the termination of three of the employees.
As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123, the Company has elected to account for compensation expense in respect of
awards of stock options to employees using the intrinsic-value method of
accounting for stock-based awards. The following table reflects the Company's
pro forma net loss and loss per share had the Company elected to adopt the fair
value approach of SFAS No. 123 (which charges earnings for the estimated fair
value of stock options). The fair value of these
F-21
<PAGE> 111
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock options was estimated using the Black Scholes option-pricing model and the
following assumptions; expected volatility of 0%; a risk free interest rate of
6%, a dividend yield of 0% and expected option life of 6 years.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 8, SIX-MONTH
1998 (INCEPTION) TO YEAR ENDED PERIODS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1998 1999 1999 2000
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net loss as reflected in the
statements of operations.......... $ -- $(12,507) $(4,517) $(20,177)
Additional compensation costs....... -- (95) (5) (145)
-------- -------- ------- --------
Pro forma net loss.................. $ -- $(12,602) $(4,522) $(20,322)
======== ======== ======= ========
Basic and diluted net loss per share
(in dollars)
-- As reported.................... $ -- $ (5.53) $ (2.57) $ (6.01)
======== ======== ======= ========
Pro forma basic and diluted net loss
per share (in dollars)............ $ -- $ (5.57) $ (2.57) $ (6.05)
======== ======== ======= ========
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts.
A summary of the changes in restricted stock awards and stock options
outstanding during the period from December 8, 1998 to June 30, 2000 is set out
below:
<TABLE>
<CAPTION>
WEIGHTED OPTIONS
AVERAGE EXERCISABLE AT
RESTRICTED OPTIONS EXERCISE THE END OF
STOCK OUTSTANDING PRICE PER PRICE THE PERIOD
(NO. OF SHARES) (NO. OF SHARES) SHARE PER SHARE (NO. OF SHARES)
--------------- --------------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 8, 1988.......... -- -- -- -- --
Granted.............................. -- -- -- -- --
Canceled/forfeited................... -- -- -- -- --
Exercised............................ -- -- -- -- --
--------- --------- ----- ------
BALANCE AT DECEMBER 31, 1998......... -- -- -- -- --
--------- --------- ----- ------
Granted.............................. 2,970,880 110,000 $0.02-0.11 $0.05 --
Canceled/forfeited................... -- -- -- -- --
Exercised............................ -- (100,000) $ 0.11 $0.11 10,000
--------- --------- ----- ------
BALANCE AT JUNE 30, 1999............. 2,970,880 10,000 $0.05 10,000
--------- --------- ----- ------
Granted.............................. -- 577,500 $0.11-0.32 $0.27 --
Canceled/forfeited................... (462,500) (30,000) $0.11-0.32 $0.12 --
Exercised............................ -- (30,000) $ 0.32 $0.32 --
--------- --------- ----- ------
BALANCE AT DECEMBER 31, 1999......... 2,508,380 527,500 $0.08 10,000
--------- --------- ----- ------
Granted (unaudited).................. -- 2,116,782 $0.32-8.00 $1.02 --
Canceled/forfeited (unaudited)....... (63,889) (317,496) $0.02-8.00 $0.46 --
Exercised (unaudited)................ -- (25,000) $0.11-0.32 $0.24 --
--------- --------- ----- ------
BALANCE AT JUNE 30, 2000
(UNAUDITED)........................ 2,444,491 2,301,786 $0.47 10,000
========= ========= ===== ======
</TABLE>
F-22
<PAGE> 112
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the restricted stock and stock options outstanding at December
31, 1999 and June 30, 2000 (unaudited) is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE NUMBER PRICE
-------------- ----------- ------------ -------- ------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1999
$0.02........................................ 2,033,380 2.15 $0.02 -- --
$0.11........................................ 615,000 2.56 $0.11 10,000 $0.11
$0.32........................................ 387,500 3.83 $0.32 -- --
--------- ----- ------
3,035,880 2.45 10,000
========= ===== ======
June 30, 2000 (unaudited)
$0.02........................................ 1,969,491 1.66 $0.02 -- --
$0.11........................................ 605,000 2.06 $0.11 -- --
$0.32........................................ 1,941,194 3.52 $0.32 -- --
$4.40........................................ 101,327 3.81 $4.40 -- --
$8.00........................................ 129,265 3.92 $8.00 -- --
--------- ----- ------
4,746,277 2.21 --
========= ===== ======
</TABLE>
The weighted average fair value of restricted stock and options granted
during each of the years ended December 31, 1998 and December 31, 1999 and the
six-month period ended June 30, 1999 and June 30, 2000 was $0, $1.80, $1.22 and
$6.11 respectively.
12 RELATED PARTY TRANSACTIONS
(a) The Company pays fees for marketing, business development and
management consulting to Randolphs.com LLC pursuant to a consulting agreement
with a 60-day notification for termination by either party. These services,
which are charged at hourly or daily rates, amounted to $0 for the period from
December 8, 1998 (inception) to December 31, 1998, $472,329 in the year ended
December 31, 1999, $189,794 (unaudited) in the six-month period ended June 30,
1999 and $78,313 (unaudited) in the six-month period ended June 30, 2000. Kevin
Randolph, the Chief Executive Officer and a director of the Company, is the sole
owner of all of the membership interests in Randolphs.com LLC.
(b) The Company has entered into a Customlink Virtual Private Network
Services Agreement, dated as of July 19, 1999, and a Concentric Network
Corporation OEM Agreement, dated as of July 19, 1999, each by and between the
Company and Concentric Network Corporation ("Concentric"). The Company has
agreed to a minimum revenue commitment of $125,000 which may be combined over
both agreements.
The Company is party to a Concentric DSL Agreement, dated as of March 26,
1999, with Concentric. The Company paid Concentric $5,644 in the year ended
December 31, 1999, $2,822 (unaudited) in the six-month period ended June 30,
1999 and $2,451 (unaudited) in the six-month period ended June 30, 2000 under
this contract.
Henry Nothhaft is the chief executive officer of Concentric and is also a
director of the Company. Concentric is also a stockholder of the Company.
(c) On June 2, 2000, the Company executed a one year Master Agreement with
Interliant, Inc. describing the terms of a strategic relationship between the
parties whereby, among other things, Interliant Inc. will provide the Company
with a branded web hosting platform. In consideration for use of
F-23
<PAGE> 113
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the web hosting platform, the Company agrees to pay an annual license fee of
$100,000 and an amount equal to the higher of 15% of revenue derived from the
web hosting platform, or $4 per customer of the web hosting platform per month.
The Company is party to a Master Consulting Agreement, with Interliant
Consulting & Professional Services Inc., an affiliate of Interliant, Inc., under
which the Company receives consulting services for the period from January 3,
2000 to December 31, 2000. These services, which are charged at the rate of $150
per hour with a minimum of four hours amounted to $71,546 (unaudited) in the
six-month period ended June 30, 2000.
Bradley A. Feld is a director and co-chairman of Interliant, Inc. and is
also a director of the Company. Interliant Inc. is also a stockholder of the
Company.
(d) During 1999, the Company engaged JP Morgan as a financial advisor in
the review of two acquisition opportunities. For the year ended December 31,
1999, the Company paid JP Morgan a total of $110,125 representing a combination
of retainer fees and engagement fees. The Company paid $0 (unaudited) in the
six-month period ended June 30, 1999 and, $0 (unaudited) in the six-month period
ended June 30, 2000
JP Morgan International Capital Corporation is a stockholder of the
Company.
(e) The Company has entered into an ISP Service Agreement, dated as of
April 27, 1999, and First Amendment to ISP Service Agreement, dated as of
November 1, 1999, with E-Centric Corporation. The Company has agreed to pay a
$75,000 initial royalty fee for the nine months period commencing November 1,
1999, another $60,000 for any six month extension or $10,000 per month for a
longer renewal term, and $100 per hour for the engineering services provided.
Gross revenues will be split 50%/50% for engineering services between the two
parties. The Company paid $75,000 initial royalty fee and services amount to an
additional $37,900 in the year ended December 31, 1999, $0 (unaudited) in the
six-month period ended June 30, 1999 and, $6,200(unaudited) in the six-month
period ended June 30, 2000.
Kevin Randolph, the Chief Executive Officer and a director of the Company,
is also the interim Chief Executive Officer and stockholder of E-Centric.
13 COMMITMENTS AND CONTINGENCIES
(a) Operating leases
The Company rents offices and communication equipment under operating
lease agreements. The net aggregate future lease payments under
non-cancellable operating leases at December 31, 1999 and June 30, 2000
(unaudited) are payable as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, (IN THOUSANDS OF
------------------------- US DOLLARS)
<S> <C>
2000...................................................... $1,021
2001...................................................... 836
2002...................................................... 471
2003...................................................... 63
2004 and thereafter....................................... 139
------
$2,530
======
</TABLE>
F-24
<PAGE> 114
ASIA ONLINE, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
--------------------- (UNAUDITED)
<S> <C>
2001...................................................... $1,916
2002...................................................... 1,324
2003...................................................... 817
2004...................................................... 263
2005 and thereafter....................................... 295
------
$4,615
======
</TABLE>
(b) Capital leases
Future minimum payments under capital lease obligations consist of the
following at December 31, 1999 and June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999:
YEARS ENDING DECEMBER 31, (IN THOUSANDS OF
------------------------- US DOLLARS)
<S> <C>
2000...................................................... $173
2001...................................................... 114
----
Total minimum lease payments................................ 287
Amount representing interest................................ (37)
----
Present value of capital lease obligations.................. 250
Current portion............................................. (151)
----
Capital lease obligations, non-current portion.............. $ 99
====
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000:
YEARS ENDING JUNE 30,
--------------------- (UNAUDITED)
<S> <C>
2001...................................................... $ 740
2002...................................................... 575
2003...................................................... 323
2004...................................................... 23
------
Total minimum lease payments................................ 1,661
Amount representing interest................................ (172)
------
Present value of capital lease obligations.................. 1,489
Current portion............................................. (634)
------
Capital lease obligations, non-current portion.............. $ 855
======
</TABLE>
F-25
<PAGE> 115
ASIA ONLINE, LTD
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
During the period beginning February 26, 1999 through July 31, 2000, Asia
Online, Ltd. (the "Company") completed fifteen business acquisitions, whereby
the Company acquired either 100% or a majority of the voting stock of companies
operating in businesses in the Asia-Pacific region (the "Completed
Acquisitions"). Additionally, the Company has entered into agreements to acquire
Spirit Networks Pty Ltd and India Domain Web Services Private Limited (the
"Pending Acquisitions"). All of the Completed and Pending Acquisitions have been
or will be accounted for using the purchase method of accounting. The Completed
and Pending Acquisitions are described in Note 1-Basis of Presentation, to the
accompanying unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet as of June 30,
2000 gives effect to the acquisition of the minority interests in Flex
Information Technology Pty Ltd, Interact Technology Group Pty Ltd, Internet
Access Australia Pty Ltd and Brisbane Internet Technology Pty Ltd all of which
occurred or will occur subsequent to June 30, 2000, and the conversion of
preferred stock into common stock. The unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1999 and for the
six-month period ended June 30, 2000 give effect to the Completed and Pending
Acquisitions, as though these acquisitions had occurred on January 1, 1999.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1999 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of the Company, and the financial
statements of certain of the Completed Acquisitions, included herein.
F-26
<PAGE> 116
ASIA ONLINE, LTD
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
------------------------
COMPLETED
AND
PENDING
ACQUISITIONS PRO FORMA
SUBSEQUENT TO ADJUSTMENTS
ASIA JUNE 30, 2000 (SEE
ONLINE (SEE NOTE 2) NOTE 5) PRO FORMA
-------- ------------- ----------- ---------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 63,336 $ 4 $(15,642)(d) $ 46,910
(788)(a)
Short-term investments.................................... 21,299 -- 21,299
Accounts receivable....................................... 5,623 29 5,652
Prepayments............................................... 3,311 28 3,339
Deposits and other receivables............................ 1,862 25 1,887
Inventory................................................. 621 -- 621
-------- -------- -------- --------
Total current assets............................... 96,052 86 (16,430) 79,708
-------- -------- -------- --------
Property and equipment, net................................. 13,522 36 13,558
Goodwill and other intangibles, net......................... 33,041 -- 832(b) 64,169
30,296(d)
-------- -------- -------- --------
Total assets....................................... $142,615 $ 122 $ 14,698 $157,435
======== ======== ======== ========
LIABILITIES, MINORITY INTEREST, PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT)/EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,452 $ 51 $ 3,503
Accrued expenses.......................................... 5,070 -- 5,070
Other payables............................................ 3,922 13 3,935
Deferred revenue.......................................... 1,503 -- 1,503
Current portion of capital leases obligations............. 634 -- 634
Bank overdraft............................................ -- 4 -- 4
-------- -------- -------- --------
Total current liabilities.......................... 14,581 68 14,649
-------- -------- -------- --------
Capital lease obligations................................... 855 -- 855
-------- -------- -------- --------
Total liabilities.................................. 15,436 68 15,504
-------- -------- -------- --------
Minority interest in consolidated subsidiaries.............. 4,213 -- (2,848)(d) 1,378
13(f)
-------- -------- -------- --------
Preferred stock............................................. 143,566 -- (143,566)(c) --
-------- -------- -------- --------
Stockholders' (deficit)/equity:
Common stock................................................ 4 15 30(c) 36
(15)(f)
2(d)
Additional paid in capital.................................. 22,897 22 85(a) 184,018
143,536(c)
17,500(d)
(22)(f)
Accumulated (deficit)/profit................................ (32,684) 17 (17)(f) (32,684)
Deferred compensation....................................... (10,975) -- (10,975)
Accumulated other comprehensive income...................... 158 -- 158
-------- -------- -------- --------
Total stockholders' (deficit)/equity............... (20,600) 54 161,099 140,553
-------- -------- -------- --------
Total liabilities, minority interest, preferred
stock and stockholders' equity................... $142,615 $ 122 $ 14,698 $157,435
======== ======== ======== ========
</TABLE>
See accompanying notes to pro forma statements.
F-27
<PAGE> 117
ASIA ONLINE, LTD
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
COMPLETED
AND PENDING PRO FORMA
ACQUISITIONS ADJUSTMENTS
ASIA ONLINE (SEE NOTE 3) (SEE NOTE 5) PRO FORMA
----------- ------------ ------------ -----------
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUE
Internet access..................... $ 4,979 $ 10,564 $ -- $ 15,543
Web hosting......................... 265 624 -- 889
Professional services............... 1,848 8,810 -- 10,658
---------- ----------- ----------- -----------
7,092 19,998 -- 27,090
---------- ----------- ----------- -----------
Operating costs and expenses:
Service costs..................... 3,332 11,368 -- 14,700
Selling, general and
administrative................. 11,237 8,003 -- 19,240
Depreciation...................... 910 665 -- 1,575
Amortization...................... 2,964 -- 20,400(e) 23,364
Stock-based compensation.......... 1,769 -- -- 1,769
---------- ----------- ----------- -----------
Total operating costs and
expenses................ 20,212 20,036 20,400 60,648
---------- ----------- ----------- -----------
Loss from operations................ (13,120) (38) (20,400) (33,558)
Interest income..................... 420 9 -- 429
Interest expense.................... (20) (90) -- (110)
---------- ----------- ----------- -----------
Loss before minority interest and
income taxes...................... (12,720) (119) (20,400) (33,239)
Income tax.......................... (26) (69) -- (95)
Minority interest in consolidated
subsidiaries...................... 239 -- (239)(d) (44)
(44)(f)
---------- ----------- ----------- -----------
Net loss attributable to common
stockholders...................... $ (12,507) $ (188) $ (20,683) $ (33,378)
========== =========== =========== ===========
Basic and diluted loss per share
attributable to common
stockholders (in dollars):........ $ (5.53) $ (2.03)
========== ===========
Shares used in computing basic and
diluted loss per share:........... 2,261,744 14,205,551(g) 16,467,295
========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-28
<PAGE> 118
ASIA ONLINE, LTD
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX-MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------
COMPLETED
AND PENDING PRO FORMA
ACQUISITIONS ADJUSTMENTS
ASIA ONLINE (SEE NOTE 4) (SEE NOTE 5) PRO FORMA
------------ ------------- -------------- ------------
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUE
Internet access...................... $ 7,306 $ 580 $ -- $ 7,886
Web hosting.......................... 762 112 -- 874
Professional services................ 6,320 1,997 -- 8,317
---------- ---------- ------------- -----------
14,388 2,689 -- 17,077
---------- ---------- ------------- -----------
Operating costs and expenses:
Service costs...................... 8,602 1,615 -- 10,217
Selling, general and
administrative.................. 17,918 1,147 -- 19,065
Depreciation....................... 1,489 72 -- 1,561
Amortization....................... 5,628 -- 5,884(e) 11,512
Stock-based compensation........... 3,512 -- -- 3,512
---------- ---------- ------------- -----------
Total operating costs and
expenses................. 37,149 2,834 5,884 45,867
---------- ---------- ------------- -----------
Loss from operations................. (22,761) (145) (5,884) (28,790)
Interest income...................... 1,618 1 -- 1,619
Interest expense..................... (112) (32) -- (144)
---------- ---------- ------------- -----------
Loss before minority interest and
income taxes....................... (21,255) (176) (5,884) (27,315)
Income tax........................... (125) -- -- (125)
Minority interest in consolidated
subsidiaries....................... 1,203 -- (1,193)(d) --
(10)(f)
---------- ---------- ------------- -----------
Net loss attributable to common
stockholders....................... $ (20,177) $ (176) $ (7,087) $ (27,440)
========== ========== ============= ===========
Basic and diluted loss per share
attributable to common stockholders
(in dollars):...................... $ (6.01) $ (0.89)
========== ===========
Shares used in computing basic and
diluted loss per share:............ 3,356,805 27,601,863(g) 30,958,668
========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-29
<PAGE> 119
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Through July 31, 2000, the Company has completed or anticipates completing
the following acquisitions. All of the Completed and Pending Acquisitions have
been or will be accounted for using the purchase method of accounting. Under the
purchase method of accounting the purchase price is allocated to assets
acquired, including intangibles, and liabilities assumed based on their
respective fair values on the acquisition date.
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
FOR THE CONSIDERATION
COMPLETED --------------------------------------------------------
AND PENDING CLASS C
ACQUISITIONS NON-VOTING
THROUGH PROMISSORY COMMON PREFERRED
COMPLETED ACQUISITIONS ACQUISITION DATE(S) JULY 31, 2000 CASH NOTES STOCK STOCK TOTAL
---------------------- ------------------- ------------- ------- ---------- ---------- --------- -------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Asia Online International Inc.
("ACGL")(a)................. February 26, 1999 100 $ 4,000 $ -- $ -- $1,425 $ 5,425
The Message Exchange Pty Ltd
("TMX")..................... October 1, 1999 100 1,640 -- -- -- 1,640
Flex Information.............. October 14, 1999 51 2,297 1,482 -- -- 3,779
Technology Pty Ltd
("Flex").................. July 14, 2000 24.5 -- -- 4,973 -- 4,973
To be determined 24.5 11,340(b) -- -- -- 11,340
---- ------- ------ ------ ------ -------
100 13,637 1,482 4,973 -- 20,092
---- ------- ------ ------ ------ -------
Interact Technology........... October 1, 1999 60 1,380 690 -- -- 2,070
Group Pty Ltd
("Interact").............. July 25, 2000 40 -- -- 3,786 -- 3,786
---- ------- ------ ------ ------ -------
100 1,380 690 3,786 -- 5,856
---- ------- ------ ------ ------ -------
Internet Access............... September 24, 1999 51 -- 3,320 -- -- 3,320
Australia Pty Ltd ("IAA")... To be determined 49 -- -- 8,743 -- 8,743
---- ------- ------ ------ ------ -------
100 -- 3,320 8,743 -- 12,063
---- ------- ------ ------ ------ -------
Brisbane Internet............. October 7, 1999 67 1,307 -- -- -- 1,307
Technology Pty Ltd
("BIT")................... To be determined 33 4,302(b) -- -- -- 4,302
---- ------- ------ ------ ------ -------
100 5,609 -- -- -- 5,609
---- ------- ------ ------ ------ -------
Dove Australia Pty Ltd
("Dove").................... October 5, 1999 100 1,980 -- -- -- 1,980
The Internet Company of New
Zealand Ltd ("ICONZ")....... September 27, 1999 100 4,190 -- 1,050 -- 5,240
Utusan Multimedia Sdn Bhd
("Utusan").................. January 28, 2000 51 4,111 -- -- -- 4,111
Macro Systems Ltd ("Macro")... January 17, 2000 100 1,218 -- 76 -- 1,294
Helix Web Services Ltd
("Helix")................... February 1, 2000 100 770 -- 87 -- 857
Fast Access Network Pty Ltd
("FAN")..................... February 22, 2000 100 1,523 -- 1,716 -- 3,239
Metro-Link Services Co Ltd and
Hopelight Trading Limited
("Metro-Link").............. May 5, 2000 100 3,307 -- 3,466 -- 6,773
</TABLE>
---------------
(a) Consists of an ISP business in Hong Kong and a web design business in the
Philippines.
(b) Estimated cash consideration to be determined ultimately by the initial
public offering price of the Company's common stock.
F-30
<PAGE> 120
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
FOR THE CONSIDERATION
COMPLETED -------------------------------------------------------
AND PENDING CLASS C
ACQUISITIONS NON-VOTING
THROUGH PROMISSORY COMMON PREFERRED
COMPLETED ACQUISITIONS ACQUISITION DATE(S) JULY 31, 2000 CASH NOTES STOCK STOCK TOTAL
---------------------- ------------------- ------------- ------- ---------- ---------- --------- -------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Avonsleigh Pty Ltd
("Avonsleigh")......... June 26, 2000 100 1,977 -- -- -- 1,977
Spirit Networks Pty Ltd
("Spirit")............. To be determined 100 229 -- -- -- 229
India Domain Web Services
Private Limited ("India
Domain")............... To be determined 67 559 -- 85 -- 644
------- ------ ------- ------ -------
$46,130 $5,492 $23,982 $1,425 $77,029
======= ====== ======= ====== =======
</TABLE>
The total consideration, including acquisition costs, for the Completed and
Pending Acquisitions has been allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
OF US DOLLARS)
<S> <C>
Total consideration......................................... $77,029
Acquisition costs........................................... 2,290
-------
Total purchase price.............................. $79,319
=======
Allocated as follows:
Property and equipment and other tangible assets and
liabilities............................................ $ 6,427
Customer relationships.................................... 25,967
Goodwill.................................................. 46,925
-------
Total purchase price.............................. $79,319
=======
</TABLE>
F-31
<PAGE> 121
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: HISTORICAL CONDENSED COMBINED BALANCE SHEET INFORMATION -- ACQUISITIONS
SUBSEQUENT TO JUNE 30, 2000
Historical condensed balance sheet information at June 30, 2000 for the
pending acquisitions of Spirit and India Domain is as follows. Amounts are
presented in accordance with US GAAP and have been translated into US Dollars
using the exchange rate at June 30, 2000.
<TABLE>
<CAPTION>
SPIRIT INDIA DOMAIN TOTAL
------ ------------ -----
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1 $ 3 $ 4
Accounts receivable....................................... 29 -- 29
Prepayment................................................ 2 26 28
Deposits and other receivables............................ 1 24 25
Inventory................................................. -- -- --
--- --- ----
Total current assets.............................. 33 53 86
--- --- ----
Property and equipment, net................................. 28 8 36
--- --- ----
Total assets...................................... $61 $61 $122
=== === ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $34 $17 $ 51
Other payables............................................ 7 6 13
Bank overdraft............................................ 4 -- 4
--- --- ----
Total current liabilities......................... 45 23 68
--- --- ----
Stockholders' equity:
Common stock................................................ -- 15 15
Share Premium............................................... -- 22 22
Retained earnings........................................... 16 1 17
--- --- ----
Total stockholders' equity........................ 16 38 54
--- --- ----
Total liabilities and stockholders' equity........ $61 $61 $122
=== === ====
</TABLE>
F-32
<PAGE> 122
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: HISTORICAL CONDENSED STATEMENT OF OPERATIONS INFORMATION -- COMPLETED
AND PENDING ACQUISITIONS FOR THE YEAR ENDED DECEMBER 31, 1999
Historical condensed statements of operations information for the Completed
and Pending Acquisitions for the year ended December 31, 1999 including the
periods from January 1, 1999 to the dates of consolidation for acquisitions
occuring during 1999 and for the 12 months ended December 31, 1999 for
acquisitions occuring during 2000 are as follows. Information for Spirit and
India Domain, which are anticipated to be acquired after June 30, 2000, and all
other acquisitions is presented as though they were acquired on January 1, 1999.
Amounts are presented in accordance with US GAAP and have been translated into
US dollars using average exchange rates for the period.
<TABLE>
<CAPTION>
ACGL TMX FLEX INTERACT IAA BIT DOVE ICONZ UTUSAN MACRO HELIX
----- ---- ------ -------- ------ ---- ---- ------ ------ ------ -----
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Internet access............... $273 $297 $ 491 $ 655 $1,040 $700 $803 $2,015 $2,604 $ -- $ --
Web hosting................... 6 -- -- 74 -- 41 20 63 39 -- 231
Professional services......... 27 56 1,679 419 25 84 41 92 79 1,738 --
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
306 353 2,170 1,148 1,065 825 864 2,170 2,722 1,738 231
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
Operating costs and expenses:
Service costs................. 217 140 1,527 155 348 340 446 777 2,321 1,278 124
Selling, general and
administrative.............. 476 169 456 879 327 364 300 1,407 263 410 126
Depreciation.................. 80 -- 44 50 67 73 81 112 15 14 13
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
Total operating costs
and expenses........... 773 309 2,027 1,084 742 777 827 2,296 2,599 1,702 263
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
Profit/(Loss) from
operations.................... (467) 44 143 64 323 48 37 (126) 123 36 (32)
Interest income................ 2 -- -- -- -- -- -- -- -- -- 1
Interest expense............... (1) -- -- -- -- -- -- (1) -- -- (1)
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
Profit/(Loss) before minority
interest and income taxes..... (466) 44 143 64 323 48 37 (127) 123 36 (32)
Income tax..................... -- -- -- (75) 12 -- 3 (7) -- --
Minority interest in
consolidated
subsidiaries.................. -- -- -- -- -- -- -- -- -- -- --
----- ---- ------ ------ ------ ---- ---- ------ ------ ------ ----
Net profit/(loss) attributable
to common stockholders........ $(466) $44 $ 143 $ 64 $ 248 $ 60 $37 $(124) $ 116 $ 36 $(32)
===== ==== ====== ====== ====== ==== ==== ====== ====== ====== ====
<CAPTION>
INDIA
FAN METRO-LINK AVONSLEIGH SPIRIT DOMAIN TOTAL
------ ---------- ---------- ------ ------ -------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Internet access............... $1,352 $ -- $ 25 $309 $-- $10,564
Web hosting................... 50 -- 7 27 66 624
Professional services......... 88 3,205 1,214 63 -- 8,810
------ ------ ------ ---- --- -------
1,490 3,205 1,246 399 66 19,998
------ ------ ------ ---- --- -------
Operating costs and expenses:
Service costs................. 620 2,355 451 257 12 11,368
Selling, general and
administrative.............. 686 1,296 680 117 47 8,003
Depreciation.................. 33 18 48 16 1 665
------ ------ ------ ---- --- -------
Total operating costs
and expenses........... 1,339 3,669 1,179 390 60 20,036
------ ------ ------ ---- --- -------
Profit/(Loss) from
operations.................... 151 (464) 67 9 6 (38)
Interest income................ -- 4 2 -- -- 9
Interest expense............... -- (71) (16) -- -- (90)
------ ------ ------ ---- --- -------
Profit/(Loss) before minority
interest and income taxes..... 151 (531) 53 9 6 (119)
Income tax..................... -- -- -- -- (2) (69)
Minority interest in
consolidated
subsidiaries.................. -- -- -- -- -- --
------ ------ ------ ---- --- -------
Net profit/(loss) attributable
to common stockholders........ $ 151 $ (531) $ 53 $ 9 $ 4 $ (188)
====== ====== ====== ==== === =======
</TABLE>
F-33
<PAGE> 123
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: HISTORICAL CONDENSED STATEMENT OF OPERATIONS INFORMATION -- COMPLETED
AND PENDING ACQUISITIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000
Historical condensed statements of operations information for the Completed
Acquisitions for the six-month period ended June 30, 2000 including the periods
from January 1, 2000 to the dates of consolidation for acquisitions occuring
during this period and for the six-months ended June 30, 2000 for acquisitions
occuring after June 30, 2000 are as follows. Information for Spirit and India
Domain which are anticipated to be acquired after June 30, 2000, and all other
acquisitions is presented as though they were acquired on January 1, 1999.
Amounts are presented in accordance with US GAAP and have been translated into
US dollars using average exchange rates for the period.
<TABLE>
<CAPTION>
INDIA
UTUSAN MACRO HELIX FAN METRO-LINK AVONSLEIGH SPIRIT DOMAIN TOTAL
------ ----- ----- ---- ---------- ---------- ------ ------ ------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Internet access.................. $162 $-- $-- $198 $ -- $ 9 $211 $-- $ 580
Web hosting...................... 5 -- 30 -- -- 4 31 42 112
Professional services............ 31 82 1 13 1,317 516 37 -- 1,997
---- --- --- ---- ------ ---- ---- --- ------
198 82 31 211 1,317 529 279 42 2,689
---- --- --- ---- ------ ---- ---- --- ------
Operating costs and expenses:
Service costs.................. 145 60 10 85 1,020 151 142 2 1,615
Selling, general and
administrative............... 27 18 14 107 420 406 112 43 1,147
Depreciation................... 3 1 3 12 6 24 23 -- 72
---- --- --- ---- ------ ---- ---- --- ------
Total operating costs
and expenses.......... 175 79 27 204 1,446 581 277 45 2,834
---- --- --- ---- ------ ---- ---- --- ------
Profit/(loss) from operations.... 23 3 4 7 (129) (52) 2 (3) (145)
Interest income.................. -- -- -- -- 1 -- -- -- 1
Interest expense................. -- -- (1) -- (25) (6) -- -- (32)
---- --- --- ---- ------ ---- ---- --- ------
Loss before minority interest and
income taxes................... 23 3 3 7 (153) (58) 2 (3) (176)
Income tax....................... -- -- -- -- -- -- -- --
Minority interest in consolidated
subsidiaries................... -- -- -- -- -- -- -- --
---- --- --- ---- ------ ---- ---- --- ------
Net loss attributable to common
stockholders................... $ 23 $ 3 $ 3 $ 7 $ (153) $(58) $ 2 $(3) $ (176)
==== === === ==== ====== ==== ==== === ======
</TABLE>
NOTE 5: PRO FORMA ADJUSTMENTS
(a) To reflect cash and acquisition costs of completed acquisitions
subsequent to June 30, 2000.
<TABLE>
<CAPTION>
CLASS C
CASH NON-VOTING ACQUISITION TOTAL
ACQUISITION DATE PAYMENT COMMON STOCK COSTS COSTS
---------------- ------- ------------ ----------- -----
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C>
Spirit Networks Pty Ltd.... To be determined $229 -- -- $229
India Domain Web Services
Private Ltd.............. To be determined $559 $85 -- $644
</TABLE>
F-34
<PAGE> 124
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(b) To reflect the allocation of the purchase price in excess of historical
book value of companies acquired or anticipated to be acquired after June 30,
2000.
<TABLE>
<CAPTION>
CUSTOMER
GOODWILL RELATIONSHIPS TOTAL
-------- ------------- -----
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
India Domain Web Services Private Ltd.................... $596 $ 23 $619
Spirit Networks Pty Ltd.................................. $ -- $213 $213
</TABLE>
(c) To reflect the conversion of preferred stock into common stock.
(d) To eliminate the historical minority interests in Flex, Interact, IAA
and BIT which have been acquired or will be acquired by the Company subsequent
to June 30, 2000, and to reflect both the allocation of the purchase price in
excess of the share of the tangible net assets acquired and the consideration
for these acquisitions.
(e) To reflect amortization of goodwill and other intangibles. These
amortization expenses have been translated using average exchange rates during
the applicable periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------
CUSTOMER
GOODWILL RELATIONSHIPS TOTAL
-------- ------------- -------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Pro forma goodwill and other intangibles for completed
and pending acquisitions............................ $46,925 $25,967 $72,892
Amortization.......................................... 14,685 8,656 23,341
Exchange rate changes................................. 57 (34) 23
------- ------- -------
Pro forma amortization................................ 14,742 8,622 23,364
Amortization reflected in historic consolidated
statement of operations............................. (798) (2,166) (2,964)
------- ------- -------
Total adjustment............................ $13,944 $ 6,456 $20,400
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JUNE 30, 2000
-------------------------------------
CUSTOMER
GOODWILL RELATIONSHIPS TOTAL
--------- -------------- --------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Pro forma goodwill and other intangibles for completed
and pending acquisitions............................ $46,740 $25,967 $72,707
Amortization.......................................... 7,788 4,316 12,104
Exchange rate changes................................. (209) (383) (592)
------- ------- -------
Pro forma amortization................................ 7,579 3,933 11,512
Amortization reflected in historic consolidated
statement of operations............................. (2,298) (3,330) (5,628)
------- ------- -------
Total adjustment............................ $ 5,281 $ 603 $ 5,884
======= ======= =======
</TABLE>
(f) To eliminate the historic stockholders' equity of the pending
acquisitions of India Domain and Spirit, and to reflect the minority interests
in India Domain and Utusan.
F-35
<PAGE> 125
ASIA ONLINE, LTD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(g) Earnings per share calculation
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------
<S> <C> <C>
Weighted average number of shares of common stock issued in
conjunction with acquisitions............................. 2,889,997 2,315,836
Weighted average number of shares of common stock issued on
conversion of preferred stock in conjunction with the
offering.................................................. 11,315,554 25,286,027
---------- ----------
14,205,551 27,601,863
========== ==========
</TABLE>
F-36
<PAGE> 126
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Asia Communications Group Limited
Asia On-line Limited
Asia Online (Phils.), Inc.
We have audited the accompanying combined balance sheets of Asia
Communications Group Limited, Asia On-line Limited and Asia Online (Phils.),
Inc. (the "Companies") as of 30th June 1996, 30th June 1997, 30th June 1998 and
26th February 1999 and the related combined profit and loss accounts and
combined cash flow statements for each of the three years in the period ended
30th June 1998 and for the period from 1st July 1998 to 26th February 1999, all
expressed in US dollars which have been prepared in accordance with accounting
principles generally accepted in Hong Kong. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements, based on our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar in all material respects,
to those generally accepted in the United States of America. Those Standards
require that the audit is planned and performed to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of the Companies at 30th June 1996, 30th June
1997, 30th June 1998 and 26th February 1999, and the results of their operations
and cash flows for each of the three years in the period ended 30th June 1998
and for the period from 1st July 1998 to 26th February 1999, and have been
properly prepared in accordance with accounting principles generally accepted in
Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net loss, expressed in US dollars, for each of the three years
in the period ended 30th June 1998 and for the period from 1st July 1998 to 26th
February 1999 and the determination of the financial position and shareholders'
equity at 30th June 1996, 30th June 1997, 30th June 1998 and 26th February 1999
also expressed in US dollars to the extent summarised in note 12 to the
financial statements.
PRICEWATERHOUSECOOPERS
Hong Kong, SAR China
28th July 2000
F-37
<PAGE> 127
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
COMBINED PROFIT AND LOSS ACCOUNTS
FOR THE PERIOD FROM 1ST JULY 1998 TO 26TH FEBRUARY 1999 AND
THE YEARS ENDED 30TH JUNE 1998, 1997 AND 1996
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM 1ST JULY FOR THE YEAR FOR THE YEAR FOR THE YEAR
1998 TO ENDED ENDED ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
NOTE 1999 US$ 1998 US$ 1997 US$ 1996 US$
---- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Turnover........................... 3 2,446,802 3,906,275 3,084,268 1,440,292
Operating costs and expenses:
Operating costs.................. 1,059,608 1,122,565 1,897,145 793,922
Selling, general and
administrative................ 2,473,621 4,552,292 9,278,573 3,510,750
Depreciation..................... 521,489 1,099,945 1,028,746 206,880
----------- ----------- ----------- ----------
Total operating costs and
expenses......................... 4,054,718 6,774,802 12,204,464 4,511,552
----------- ----------- ----------- ----------
Loss from operations............... (1,607,916) (2,868,527) (9,120,196) (3,071,260)
Interest income.................... 1,713 1,523 113 12,125
Interest expense................... (8,641) (3,574) (12,823) (8,300)
----------- ----------- ----------- ----------
Loss for the period/year........... 4 (1,614,844) (2,870,578) (9,132,906) (3,067,435)
Accumulated losses brought
forward.......................... (15,137,674) (12,267,096) (3,134,190) (66,755)
----------- ----------- ----------- ----------
Accumulated losses carried
forward.......................... (16,752,518) (15,137,674) (12,267,096) (3,134,190)
=========== =========== =========== ==========
</TABLE>
F-38
<PAGE> 128
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
COMBINED BALANCE SHEETS
AS AT 26TH FEBRUARY 1999, 30TH JUNE 1998, 30TH JUNE 1997 AND 30TH JUNE 1996
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
NOTE 1999 US$ 1998 US$ 1997 US$ 1996 US$
---- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Fixed assets....................... 6 862,772 1,435,233 2,379,390 667,094
Current assets
Trade and other receivables...... 740,021 990,574 1,043,458 535,739
Amount due from previous holding
company and affiliates........ 7 -- 266,734 1,508,057 320,249
Bank balances and cash........... 334,772 746,841 385,443 74,056
----------- ----------- ----------- ----------
1,074,793 2,004,149 2,936,958 930,044
----------- ----------- ----------- ----------
Current liabilities
Trade and other payables......... 987,813 748,310 1,119,787 4,099,747
Customer deposits................ 143,570 127,335 108,679 66,397
Deferred revenue................. 49,250 31,243 74,465 20,337
Amount due to previous holding
company and affiliates........ 7 171,238 381,141 398,034 53,463
Bank overdraft................... -- -- -- 37,882
----------- ----------- ----------- ----------
1,351,871 1,288,029 1,700,965 4,277,826
----------- ----------- ----------- ----------
Net current (liabilities)/assets... (277,078) 716,120 1,235,993 (3,347,782)
----------- ----------- ----------- ----------
585,694 2,151,353 3,615,383 (2,680,688)
=========== =========== =========== ==========
Financed by:
Share capital.................... 8 2,794,299 2,794,299 2,794,299 1
Accumulated losses............... (16,752,518) (15,137,674) (12,267,096) (3,134,190)
----------- ----------- ----------- ----------
Deficit on shareholders' funds... (13,958,219) (12,343,375) (9,472,797) (3,134,189)
Long term liabilities
Obligations under finance
leases........................ 9 -- 9,751 107,851 53,501
Amount due to previous holding
company....................... 7 14,543,913 14,484,977 12,980,329 400,000
----------- ----------- ----------- ----------
585,694 2,151,353 3,615,383 (2,680,688)
=========== =========== =========== ==========
</TABLE>
F-39
<PAGE> 129
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
COMBINED CASH FLOW STATEMENTS
FOR THE PERIOD FROM 1ST JULY 1998 TO 26TH FEBRUARY 1999 AND
THE YEARS ENDED, 30TH JUNE 1998, 1997 AND 1996
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JULY 1998 FOR THE YEAR FOR THE YEAR FOR THE YEAR
TO ENDED ENDED ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
NOTE 1999 US$ 1998 US$ 1997 US$ 1996 US$
---- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (outflow)/inflow from
operating activities............... 10(a) (491,761) (862,623) (10,990,534) 767,734
======== ========== =========== ==========
Returns on investments and servicing
of finance:
Interest received.................. 1,713 1,523 113 12,125
Interest paid...................... (8,641) (3,574) (12,823) (8,300)
-------- ---------- ----------- ----------
Net cash inflow from returns on
investments........................ (6,928) (2,051) (12,710) 3,825
======== ========== =========== ==========
Investing activities
Purchase of fixed assets........... (33,169) (221,922) (3,382,441) (886,204)
Sales of fixed assets.............. 70,604 41,446 155,700 12,230
Software development cost.......... -- -- (849,723) (316,753)
-------- ---------- ----------- ----------
Net cash outflow from investing
activities...................... 37,435 (180,476) (4,076,464) (1,190,727)
======== ========== =========== ==========
Net cash (outflow) before
financing....................... (461,254) (1,045,150) (15,079,708) (419,168)
-------- ---------- ----------- ----------
Financing
Issue of ordinary shares........... -- -- 2,794,298 --
Share issue expenses............... -- -- -- (3,877)
Advances........................... 10(b) 49,185 1,406,548 12,634,679 453,501
-------- ---------- ----------- ----------
Net cash inflow from financing..... 49,185 1,406,548 15,428,977 449,624
(Decrease)/increase in cash and
cash equivalents................ (412,069) 361,398 349,269 30,456
Cash and cash equivalents at
beginning of the period/year.... 746,841 385,443 36,174 5,718
-------- ---------- ----------- ----------
Cash and cash equivalents at end of
period/year..................... 334,772 746,841 385,443 36,174
======== ========== =========== ==========
Analysis of the balances of cash and
cash equivalents:
Bank balances and cash............. 334,772 746,841 385,443 74,056
Bank overdrafts.................... -- -- -- (37,882)
-------- ---------- ----------- ----------
334,772 746,841 385,443 36,174
======== ========== =========== ==========
</TABLE>
F-40
<PAGE> 130
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS
1 BASIS OF PREPARATION OF ACCOUNTS
The accounts have been prepared in accordance with accounting principles
generally accepted in Hong Kong and comply with accounting standards issued by
the Hong Kong Society of Accountants. These financial statements include the
results and assets and liabilities of the following individual companies
- Asia Communications Group Limited
- Asia On-line Limited
- Asia Online (Phils.), Inc.
(the "companies") on a combined basis. Transactions and amounts due to and from
the companies have been eliminated. These financial statements are prepared
under the historical cost convention and are presented in US dollars.
2 PRINCIPAL ACCOUNTING POLICIES
(a) Revenue recognition
Revenue from internet access, web hosting and other internet related
services is recognised as the services are provided. The companies record
deferred revenue for amounts billed and/or collected in advance, with the amount
deferred being based on the underlying product and pricing plan. Access and
hosting services are typically billed in advance and revenue is recognised as
the services are provided, while time and data fees are billed in arrears and
recognised when billed, except for the access plans with prepaid hours where
income is recognised on usage of the hours.
(b) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and are
depreciated at rates sufficient to write off their costs over their estimated
useful lives on a straight line basis at the following annual rates.
<TABLE>
<S> <C>
Leasehold improvements...................................... 33%
Furniture and fixtures...................................... 25%
Network equipment........................................... 33%
Motor vehicles.............................................. 33%
</TABLE>
(c) Assets under leases
(i) Finance leases
Leases that substantially transfer to the company all the rewards and risks
of ownership of assets, other than legal title, are accounted for as finance
leases. At the inception of a finance lease, the fair value of the asset is
recorded together with the obligation, excluding the interest element, to pay
future rentals.
Payments to the lessor are treated as consisting of capital and interest
elements. Finance charges are debited to the profit and loss account in
proportion to the capital balances outstanding.
Assets held under finance leases are depreciated over the shorter of their
estimated useful lives or lease periods.
F-41
<PAGE> 131
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
(ii) Operating leases
Leases where substantially all the rewards and risks of ownership of assets
remain with the leasing company are accounted for as operating leases. Rentals
applicable to such operating leases are charged to the profit and loss account
on a straight line basis over the lease term.
(d) Deferred taxation
Deferred taxation is provided at the current tax rate in respect of timing
differences between profit as computed for taxation purposes and profit as
stated in the accounts to the extent that a liability or asset is expected to be
payable or recoverable in the foreseeable future.
(e) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates ruling
at the transaction dates. Monetary assets and liabilities expressed in foreign
currencies at the balance sheet date are translated at rates of exchange ruling
at the balance sheet date. All exchange differences are dealt with in the profit
and loss account.
3 REVENUE AND TURNOVER
Turnover comprises internet access, web hosting and other internet related
services.
4 LOSS FOR THE PERIOD/YEAR
<TABLE>
<CAPTION>
PERIOD FROM FOR THE FOR THE FOR THE
1ST JULY 1998 TO YEAR ENDED YEAR ENDED YEAR ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loss for the period/year is stated
after crediting and charging the
following:
CREDITING
Interest income................................ 1,713 1,523 113 12,125
======= ========= ======= =======
CHARGING
Depreciation
-- owned assets.............................. 521,489 1,001,498 847,327 165,376
-- assets held under finance leases.......... -- 98,447 181,419 41,504
Operating lease charges........................ 370,239 622,873 671,978 393,067
Loss on disposals of fixed assets.............. 13,537 24,688 485,699 --
======= ========= ======= =======
</TABLE>
5 TAXATION
Hong Kong profits tax has not been provided as the companies have no
estimated assessable profit for the period/year.
F-42
<PAGE> 132
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
A deferred taxation credit for the period/year has not been provided as
follows:
<TABLE>
<CAPTION>
PERIOD FROM FOR THE FOR THE FOR THE
1ST JULY 1998 TO YEAR ENDED YEAR ENDED YEAR ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accelerated depreciation allowances............ 22,103 104,095 (168,626) --
Tax loss....................................... 499,991 645,808 1,507,350 115,036
------- ------- --------- -------
522,094 749,903 1,338,724 115,036
======= ======= ========= =======
</TABLE>
The potential asset/(liability) for deferred taxation for which no
provision has been made in the accounts amounts to:
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accelerated depreciation allowances............. (42,428) (64,531) (168,626) --
Unutilised tax losses........................... 2,768,185 2,268,194 1,622,386 115,036
--------- --------- --------- -------
2,725,757 2,203,663 1,453,760 115,036
========= ========= ========= =======
</TABLE>
6 FIXED ASSETS
<TABLE>
<CAPTION>
FURNITURE
LEASEHOLD AND NETWORK MOTOR
IMPROVEMENTS FIXTURES EQUIPMENT VEHICLES TOTAL
US$ US$ US$ US$ US$
------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
COST
At 1st July 1995...................... -- -- -- -- --
Additions........................... 7,103 109,683 707,375 62,043 886,204
Disposals........................... -- (16,306) -- -- (16,306)
------- ------- --------- -------- ---------
At 30th June 1996..................... 7,103 93,377 707,375 62,043 869,898
======= ======= ========= ======== =========
Additions........................... 95,198 276,129 2,801,676 209,438 3,382,441
Disposals........................... -- (41,096) (730,490) (182,742) (954,328)
------- ------- --------- -------- ---------
At 30th June 1997..................... 102,301 328,410 2,778,561 88,739 3,298,011
======= ======= ========= ======== =========
Additions........................... 139,446 12,340 70,136 -- 221,922
Disposals........................... (7,103) (4,902) (101,069) (44,783) (157,857)
------- ------- --------- -------- ---------
At 30th June 1998..................... 234,644 335,848 2,747,628 43,956 3,362,076
======= ======= ========= ======== =========
Additions........................... -- -- 33,169 -- 33,169
Disposals........................... (47,531) (12,192) -- (43,956) (103,679)
------- ------- --------- -------- ---------
At 26th February 1999................. 187,113 323,656 2,780,797 -- 3,291,566
======= ======= ========= ======== =========
</TABLE>
F-43
<PAGE> 133
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FURNITURE
LEASEHOLD AND NETWORK MOTOR
IMPROVEMENTS FIXTURES EQUIPMENT VEHICLES TOTAL
US$ US$ US$ US$ US$
------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
ACCUMULATED DEPRECIATION
At 1st July 1995...................... -- -- -- -- --
Charge for the year................. 466 21,953 169,430 15,031 206,880
Disposals........................... -- (4,076) -- -- (4,076)
------- ------- --------- -------- ---------
At 30th June 1996..................... 466 17,877 169,430 15,031 202,804
======= ======= ========= ======== =========
Charge for the year................. 15,694 67,783 882,169 63,100 1,028,746
Disposals........................... -- (15,469) (250,339) (47,121) (312,929)
------- ------- --------- -------- ---------
At 30th June 1997..................... 16,160 70,191 801,260 31,010 918,621
======= ======= ========= ======== =========
Charge for the year................. 31,999 80,775 972,519 14,652 1,099,945
Disposals........................... (5,202) (1,215) (59,182) (26,124) (91,723)
------- ------- --------- -------- ---------
At 30th June 1998..................... 42,957 149,751 1,714,597 19,538 1,926,843
======= ======= ========= ======== =========
Charge for the period............... 19,502 42,859 459,128 -- 521,489
Disposals........................... -- -- -- (19,538) (19,538)
------- ------- --------- -------- ---------
At 26th February 1999................. 62,459 192,610 2,173,725 -- 2,428,794
======= ======= ========= ======== =========
NET BOOK VALUE
At 26th February 1999................. 124,654 131,046 607,072 -- 862,772
======= ======= ========= ======== =========
At 30th June 1998..................... 191,687 186,097 1,033,031 24,418 1,435,233
======= ======= ========= ======== =========
At 30th June 1997..................... 86,141 258,219 1,977,301 57,729 2,379,390
======= ======= ========= ======== =========
At 30th June 1996..................... 6,637 75,500 537,945 47,012 667,094
======= ======= ========= ======== =========
</TABLE>
Fixed assets include the following amounts acquired under finance leases:
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Motor vehicles........................... -- 39,560 253,824 60,523
Office equipment......................... 257,224 257,690 443,677 157,609
-------- -------- -------- -------
257,224 297,250 697,501 218,132
Accumulated depreciation................. (198,533) (168,322) (230,929) (25,632)
-------- -------- -------- -------
58,691 128,928 466,572 192,500
======== ======== ======== =======
</TABLE>
7 AMOUNTS DUE FROM/TO PREVIOUS HOLDING COMPANY AND AFFILIATES OF PREVIOUS
HOLDING COMPANY
Previously the companies were wholly owned subsidiaries of Asia
Communication Global Ltd. Pursuant to an asset purchase agreement dated 4
February 1999, the companies became wholly owned subsidiaries of Asia Online,
Ltd. Amounts due from/to Asia Communication Global Ltd. and its affiliates are
unsecured, interest-free and have no fixed terms of repayment.
F-44
<PAGE> 134
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
8 SHARE CAPITAL
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Authorised:
7,800,000 "A" shares of 1 Hong Kong dollar
each....................................... 1,008,403 1,008,403 1,008,403 --
10,218,000 "B" shares of 1 Hong Kong dollar
each....................................... 1,321,007 1,321,007 1,321,007 --
12,000 ordinary shares of 1 Hong Kong dollar
each....................................... 1,553 1,553 1,553 1,293
2,030,000 ordinary shares of 1 Hong Kong
dollar each................................ 262,441 262,441 262,441 --
53,000 ordinary shares of 100 Philippine Pesos
each....................................... 202,742 202,742 202,742 --
--------- --------- --------- -----
2,796,146 2,796,146 2,796,146 1,293
========= ========= ========= =====
Issued and fully paid:
7,800,000 "A" shares of 1 Hong Kong dollar
each....................................... 1,008,403 1,008,403 1,008,403 --
10,218,000 "B" shares of 1 Hong Kong dollar
each....................................... 1,321,007 1,321,007 1,321,007 --
2 ordinary shares of 1 Hong Kong dollar
each....................................... 1 1 1 1
2,030,000 ordinary shares of 1 Hong Kong
dollar each................................ 262,441 262,441 262,441 --
52,923 ordinary shares of 100 Philippine Pesos
each....................................... 202,447 202,447 202,447 --
--------- --------- --------- -----
2,794,299 2,794,299 2,794,299 1
========= ========= ========= =====
</TABLE>
All the "A" and "B" shareholders carry a right to receive notice of and
attend general meetings of the company. The "A" shareholders are entitled to one
vote for every ten A shares held while the "B" shareholders are entitled to one
vote for every twelve B shares held.
The "A" and "B" shareholders are entitled to receive non-cumulative
dividends at a rate of 10% and 5% per annum, respectively.
The share capital has been translated using the rate of exchange at the
date the shares were issued.
F-45
<PAGE> 135
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
9 OBLIGATIONS UNDER FINANCE LEASES
Obligations under finance leases are repayable as follows:
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Within 1 year............................. 43,044 104,240 171,667 96,837
After 1 year but within 2 years........... -- 11,006 115,893 51,006
After 2 years but within 5 years.......... -- -- 11,006 11,652
------- ------- -------- -------
43,044 115,246 298,566 159,495
Finance charges relating to future
periods................................. -- (16,642) (42,693) (22,136)
------- ------- -------- -------
43,044 98,604 255,873 137,359
Amount due within one year included in
trade and other Payables................ (43,044) (88,853) (148,022) (83,858)
------- ------- -------- -------
-- 9,751 107,851 53,501
======= ======= ======== =======
</TABLE>
10 NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of loss before taxation to net cash (outflow)/inflow from
operating activities.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JULY FOR THE FOR THE FOR THE
1998 TO YEAR ENDED YEAR ENDED YEAR ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating activities
Loss before taxation....................... (1,614,844) (2,870,578) (9,132,906) (3,067,435)
Depreciation of fixed assets............... 521,489 1,099,945 1,028,746 206,880
Loss on disposals of fixed assets.......... 13,537 24,688 485,699 --
Write off of software development cost..... -- -- 849,723 316,753
Interest income............................ (1,713) (1,523) (113) (12,125)
Interest expenses.......................... 8,641 3,574 12,823 8,300
Decrease/(increase) in trade and other
receivables.............................. 250,553 52,884 (507,719) (460,303)
Increase/(decrease) in trade and other
payables................................. 239,503 (371,477) (2,979,960) 3,843,928
Increase in customer deposits.............. 16,235 18,656 42,282 66,397
Increase/(decrease) in deferred revenue.... 18,007 (43,222) 54,128 16,726
(Decrease)/increase in net amount due
to/from previous holding company and
affiliates............................... 56,831 1,224,430 (843,237) (151,387)
---------- ---------- ----------- ----------
Net cash (outflow)/inflow from operating
activities............................... (491,761) (862,623) (10,990,534) 767,734
========== ========== =========== ==========
</TABLE>
F-46
<PAGE> 136
ASIA COMMUNICATIONS GROUP LIMITED
ASIA ON-LINE LIMITED
ASIA ONLINE (PHILS.), INC.
NOTES ON THE ACCOUNTS -- (CONTINUED)
(b) Analysis of changes in financing
<TABLE>
<CAPTION>
LONG TERM LIABILITIES
----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
At beginning of the period/year.............. 14,494,728 13,088,180 453,501 --
Cash inflows from previous holding company... 49,185 1,406,548 12,580,329 400,000
Inception of finance leases.................. -- -- 54,350 53,501
---------- ---------- ---------- -------
At end of the period/year.................... 14,543,913 14,494,728 13,088,180 453,501
========== ========== ========== =======
</TABLE>
11 OPERATING LEASE COMMITMENT
The company had a commitment to make payments in the next twelve months
under an operating lease which expires as follows:
<TABLE>
<CAPTION>
26TH FEBRUARY 30TH JUNE 30TH JUNE 30TH JUNE
1999 1998 1997 1996
US$ US$ US$ US$
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Lease expiring:
Within 1 year.............................. -- -- 61,304 84,418
After 1 year but within 5 years............ 510,320 565,840 565,840 776,410
------- ------- ------- -------
510,320 565,840 627,144 860,828
======= ======= ======= =======
</TABLE>
12 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Hong Kong ("Hong Kong GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30th June 1998 and period from 1st July 1998 to
26th February 1999 there were no material adjustments required to reconcile net
income/loss and shareholders' equity/deficit for differences between Hong Kong
GAAP and U.S. GAAP.
F-47
<PAGE> 137
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of The Message Exchange Pty Limited:
We have audited the accompanying balance sheet of The Message Exchange Pty
Limited as of 30 June 1997, 1998 and 1999 and 30 September 1999 and the related
statement of income and of cash flows for the years ended 30 June 1997, 1998 and
1999 and for the three month period ended 30 September 1999 which, as described
in Note 1, have been prepared on the basis of accounting principles generally
accepted in Australia. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Message Exchange Pty
Limited as at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results
of its operations and its cash flows for the years ended 30 June 1997, 1998 and
1999 and for the three month period ended 30 September 1999 in conformity with
accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September 1999 to the extent summarised
in note 21 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-48
<PAGE> 138
THE MESSAGE EXCHANGE PTY LIMITED
PROFIT AND LOSS STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 TO -------------------------------
30TH SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ---------------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... 2 338,213 1,313,532 1,059,610 988,864
======= ========= ========= =======
Operating profit/(loss) before income
tax................................... 3 32,676 191,196 133,223 126,668
Income tax benefit/(expense)
attributable to operating profit...... 4 (11,763) (68,831) (47,960) (45,600)
------- --------- --------- -------
Operating profit/(loss) after income
tax................................... 20,913 122,365 85,263 81,068
Retained profits/(loss) at the beginning
of the financial year................. 248,711 126,346 41,083 (39,985)
------- --------- --------- -------
Retained profits/(loss) at the end of
the financial year.................... 269,624 248,711 126,346 41,083
======= ========= ========= =======
</TABLE>
The above profit and loss account should be read in conjunction with the
accompanying notes.
F-49
<PAGE> 139
THE MESSAGE EXCHANGE PTY LIMITED
BALANCE SHEETS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30TH JUNE
---------------------------
30TH SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash........................................ 20,616 68,866 100,072 7,953
Receivables................................. 5 235,273 221,300 126,836 177,167
Inventory................................... 6 -- -- 9,429 7,282
Other....................................... 7 26,533 27,485 11,879 7,867
------- ------- ------- -------
TOTAL CURRENT ASSETS.............. 282,422 317,651 248,216 200,269
------- ------- ------- -------
NON-CURRENT ASSETS
Other....................................... 7 37,744 29,263 19,965 21,319
Property, plant and equipment............... 8 231,086 227,084 186,499 40,390
------- ------- ------- -------
TOTAL NON-CURRENT ASSETS.......... 268,830 256,347 206,464 61,709
------- ------- ------- -------
TOTAL ASSETS...................... 551,252 573,998 454,680 261,978
------- ------- ------- -------
CURRENT LIABILITIES
Creditors................................... 9 144,184 101,900 101,646 118,874
Borrowings.................................. 10 1,688 112,328 132,328 6,409
Provisions.................................. 11 108,381 85,687 76,706 80,967
------- ------- ------- -------
TOTAL CURRENT LIABILITIES......... 254,253 299,915 310,680 206,250
------- ------- ------- -------
NON CURRENT LIABILITIES
Provisions.................................. 11 27,373 25,370 17,652 14,643
------- ------- ------- -------
TOTAL NON-CURRENT LIABILITIES..... 27,373 25,370 17,652 14,643
------- ------- ------- -------
TOTAL LIABILITIES................. 281,626 325,285 328,332 220,893
------- ------- ------- -------
NET ASSETS........................ 269,626 248,713 126,348 41,085
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share capital............................... 12 2 2 2 2
Retained profits............................ 269,624 248,711 126,346 41,083
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY........ 269,626 248,713 126,348 41,085
======= ======= ======= =======
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-50
<PAGE> 140
THE MESSAGE EXCHANGE PTY LIMITED
STATEMENTS OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 TO ---------------------------------
30TH SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ---------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from trade and other debtors.... 324,526 1,198,821 1,105,661 898,254
Payments to suppliers and employees...... (245,896) (1,016,327) (923,378) (739,549)
Interest received........................ 8,824 4,641 3,564 1,807
Income taxes paid........................ -- (73,820) (47,068) (25,080)
-------- ---------- --------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING ACTIVITIES.... 15(b) 87,454 113,315 138,779 135,432
-------- ---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and
equipment.............................. (25,002) (124,583) (172,579) (43,609)
-------- ---------- --------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING ACTIVITIES.... (25,002) (124,583) (172,579) (43,609)
-------- ---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of advances from related
parties................................ (110,702) (19,938) -- (97,389)
Advances from related parties............ -- -- 125,919 --
-------- ---------- --------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM FINANCING ACTIVITIES.... (110,702) (19,938) 125,919 (97,389)
-------- ---------- --------- --------
NET INCREASE/(DECREASE) IN CASH HELD..... (48,250) (31,206) 92,119 (5,566)
Cash at the beginning of the financial
year................................... 68,866 100,072 7,953 13,519
-------- ---------- --------- --------
Cash at the end of the financial year.... 15(a) 20,616 68,866 100,072 7,953
======== ========== ========= ========
</TABLE>
F-51
<PAGE> 141
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views).
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation.
(b) Receivables and Revenue Recognition
(i) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days overdue.
(ii) Revenue
DIAL UP/LEASED LINE
Revenues derived from subscriptions are recognised in the period in which
the services are provided. The company records deferred revenue for any amounts
received in advance of the completion of the subscription period.
Products relate to the sale of pre-packaged software. Revenue is recognised
on delivery and when all other obligations due under the contract have been
completed.
Other income relates to revenue earning activities including: technical
support for customers with special requests, onsite servicing and training, and
dividend income.
(c) Inventories
Stock on hand is stated at the lower of cost and net realisable value.
Costs are assigned to individual items of stock mainly on the basis of weighted
average costs. A provision for obsolescence is booked to ensure that the net
inventory balance held is always stated at the lower of cost and net realisable
value.
(d) Recoverable Amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
(e) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the Company .
F-52
<PAGE> 142
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Estimates of remaining useful lives are made on a regular basis for all assets,
with annual reassessments for major items. The expected useful lives are as
follows:
<TABLE>
<S> <C>
Plant and equipment......................................... 5 years
Office furniture and equipment.............................. 5 years
Computer equipment.......................................... 3 years
</TABLE>
(f) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
Company prior to the end of the financial year and which are unpaid. The amounts
are unsecured and are usually paid within 30-60 days of recognition.
(g) Borrowings
Loans are carried at their principal amounts which represent the present
value of future cash flows associated with servicing the debt. All borrowings
are made with related entities and are interest free.
(h) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(i) Employee Entitlements
(i) Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured as the amount unpaid at the reporting date at
current pay rates in respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured as the
present value of expected future payments to be made in respect of services
provided by employees up to the reporting date. Consideration is given to
expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using interest rates
on national government guaranteed securities with terms to maturity that match,
as closely as possible, the estimated future cash outflows.
(j) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 TO -------------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
------------------- --------- --------- -------
<S> <C> <C> <C> <C>
Leased Lines................................. 6,320 108,566 51,115 111,460
Dial Up...................................... 289,639 1,121,967 948,985 812,693
Products..................................... 600 400 4,000 1,200
Other income................................. 41,654 82,599 55,510 63,511
------- --------- --------- -------
338,213 1,313,532 1,059,610 988,864
======= ========= ========= =======
</TABLE>
F-53
<PAGE> 143
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 TO -------------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
------------------- --------- --------- -------
<S> <C> <C> <C> <C>
(a) OPERATING PROFIT BEFORE INCOME TAX HAS
BEEN DETERMINED AFTER:
CHARGING AS EXPENSE
Depreciation............................ 21,000 84,000 26,470 3,218
Superannuation.......................... 5,962 14,526 12,046 12,123
Equipment Hire.......................... 15,270 68,350 70,771 72,000
Consultants............................. 19,463 119,451 109,382 113,379
Rent.................................... 1,909 40,029 34,294 35,096
Other Expenses.......................... 241,933 795,980 673,424 626,380
------- --------- --------- -------
305,537 1,122,336 926,387 862,196
======= ========= ========= =======
(b) AUDITORS' REMUNERATION
Amounts received, or due and receivable,
by the auditors for:
Auditing the financial statements (Audit
fees for the periods outlined above
are paid by the parent entity Asia
Online, Ltd in Hong Kong and have not
been recharged)....................... -- -- -- --
======= ========= ========= =======
</TABLE>
NOTE 4 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the financial
year differs from the amount prima facie payable on
the operating loss. The differences are reconciled
as follows:
Operating profit/(loss) before income tax............. 32,676 191,196 133,223 126,668
------ ------- ------- -------
Income tax calculated @ 36%........................... 11,763 68,831 47,960 45,600
Under/(over) provision in previous year............... -- -- -- --
------ ------- ------- -------
Income tax expense/(benefit) attributable to operating
profit.............................................. 11,763 68,831 47,960 45,600
====== ======= ======= =======
</TABLE>
NOTE 5 RECEIVABLES
<TABLE>
<CAPTION>
30TH JUNE
---------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CURRENT
Trade debtors......................................... 256,516 238,500 135,765 193,139
Less: Provision for Doubtful Debts.................... (21,243) (17,200) (8,929) (15,972)
------- ------- ------- -------
235,273 221,300 126,836 177,167
======= ======= ======= =======
</TABLE>
F-54
<PAGE> 144
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INVENTORY
<TABLE>
<CAPTION>
30TH JUNE
---------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Stock on hand......................................... 24,173 12,882 18,858 14,564
Less: Provision for Obselescence...................... (24,173) (12,882) (9,429) (7,282)
------- ------- ------- -------
-- -- 9,429 7,282
======= ======= ======= =======
</TABLE>
NOTE 7 ASSETS -- OTHER
<TABLE>
<CAPTION>
30TH JUNE
---------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CURRENT
Prepaid expenses...................................... 26,533 27,485 11,879 7,867
======= ======= ======= =======
NON CURRENT
Future Tax Benefit.................................... 37,744 29,263 19,965 21,319
======= ======= ======= =======
</TABLE>
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30TH JUNE
----------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- -------- ------
<S> <C> <C> <C> <C>
CURRENT
Furniture and fittings
Cost............................................ 29,410 28,985 26,235 2,897
Accumulated depreciation........................ (22,569) (21,069) (15,069) (93)
-------- -------- -------- ------
6,841 7,916 11,166 2,804
-------- -------- -------- ------
Computer equipment
Cost............................................ 478,420 453,843 332,008 40,711
Accumulated depreciation........................ (254,175) (234,675) (156,675) (3,125)
-------- -------- -------- ------
224,245 219,168 175,333 37,586
-------- -------- -------- ------
Total
Cost............................................ 507,830 482,828 358,243 43,608
Accumulated depreciation........................ (276,744) (255,744) (171,744) (3,218)
-------- -------- -------- ------
231,086 227,084 186,499 40,390
======== ======== ======== ======
</TABLE>
NOTE 9 CREDITORS
<TABLE>
<CAPTION>
30TH JUNE
---------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Trade creditors.................................... 107,853 52,534 55,007 79,711
Accruals........................................... 9,811 6,040 4,326 2,400
Deferred revenue................................... 26,520 43,326 42,313 36,763
------- ------- ------- -------
144,184 101,900 101,646 118,874
======= ======= ======= =======
</TABLE>
F-55
<PAGE> 145
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 BORROWINGS
<TABLE>
<CAPTION>
30TH JUNE
-------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -----
<S> <C> <C> <C> <C>
CURRENT
Loans from related entities.......................... 1,688 112,328 132,328 6,409
===== ======= ======= =====
</TABLE>
NOTE 11 PROVISIONS
<TABLE>
<CAPTION>
30TH JUNE
------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Employee entitlements................................. 31,797 29,690 19,399 21,754
Taxation.............................................. 76,584 55,997 57,307 59,213
------- ------ ------ ------
108,381 85,687 76,706 80,967
------- ------ ------ ------
NON CURRENT
Employee entitlements................................. 17,821 15,475 13,376 11,811
Deferred Tax Provision................................ 9,552 9,895 4,276 2,832
------- ------ ------ ------
27,373 25,370 17,652 14,643
======= ====== ====== ======
</TABLE>
NOTE 12 SHARE CAPITAL
<TABLE>
<CAPTION>
30TH JUNE
------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
PAID UP CAPITAL
Ordinary shares fully paid.................................. 2 2 2 2
== == == ==
</TABLE>
NOTE 13 FINANCIAL INSTRUMENTS
(a) Credit risk exposures
The maximum exposure to credit risk, excluding the value of any collateral
or other security, at balance date to recognised financial assets is the
carrying amount of those assets, net of any provisions for doubtful debts, as
disclosed in the balance sheet and notes to the financial report.
The Company does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into by the
Company.
F-56
<PAGE> 146
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Interest rate risks
The Company's exposure to interest rate risk, which is the risk that a
financial instrument's value will fluctuate as a result of changes in market
interest rates and the effective weighted average interest rates on those
financial assets and financial liabilities, is as follows:
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------------
FLOATING NON
INTEREST 1 YEAR INTEREST
RATE OR LESS 1 TO 5 YEARS OVER 5 YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 JULY 1999 TO 30 SEPT
1999
FINANCIAL ASSETS
Cash..................... 20,616 -- -- -- -- 20,616
Trade debtors............ 5 -- -- -- -- 235,273 235,273
------ -------- -------- -------- ------- -------
20,616 -- -- -- 235,273 255,889
====== ======== ======== ======== ======= =======
Weighted average interest
rate................... 2.6%
FINANCIAL LIABILITIES
Trade creditors.......... 9 -- -- -- -- 107,853 107,853
------ -------- -------- -------- ------- -------
-- -- -- -- 107,853 107,853
====== ======== ======== ======== ======= =======
------ -------- -------- -------- ------- -------
Net financial assets
(liabilities).......... 20,616 -- -- -- 127,420 148,036
====== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR INTEREST
RATE LESS 1 TO 5 YEARS OVER 5 YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
FINANCIAL ASSETS
Cash...................... 68,866 -- -- -- -- 68,866
Trade debtors............. 5 -- -- -- -- 221,300 221,300
------ ------- ------- ------- ------- -------
68,866 -- -- -- 221,300 290,166
====== ======= ======= ======= ======= =======
Weighted average interest
rate.................... 3.3%
FINANCIAL LIABILITIES
Trade creditors........... 9 -- -- -- -- 52,534 52,534
------ ------- ------- ------- ------- -------
-- -- -- -- 52,534 52,534
====== ======= ======= ======= ======= =======
------ ------- ------- ------- ------- -------
Net financial assets
(liabilities)........... 68,866 -- -- -- 168,766 237,632
====== ======= ======= ======= ======= =======
</TABLE>
F-57
<PAGE> 147
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR INTEREST
RATE LESS 1 TO 5 YEARS OVER 5 YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
FINANCIAL ASSETS
Cash..................... 100,072 -- -- -- -- 100,072
Trade debtors............ 5 -- -- -- -- 126,836 126,836
------- ------- ------- ------- ------- -------
100,072 -- -- -- 126,836 226,908
======= ======= ======= ======= ======= =======
Weighted average interest
rate................... 2.8%
FINANCIAL LIABILITIES
Trade creditors.......... 9 -- -- -- -- 55,007 55,007
------- ------- ------- ------- ------- -------
-- -- -- -- 55,007 55,007
======= ======= ======= ======= ======= =======
------- ------- ------- ------- ------- -------
Net financial assets
(liabilities).......... 100,072 -- -- -- 71,829 171,901
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR INTEREST
RATE LESS 1 TO 5 YEARS OVER 5 YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
FINANCIAL ASSETS
Cash...................... 7,953 -- -- -- -- 7,953
Trade debtors............. 5 -- -- -- -- 177,167 177,167
----- ------ ------ ------ ------- -------
7,953 -- -- -- 177,167 185,120
===== ====== ====== ====== ======= =======
Weighted average interest
rate.................... 4.3%
FINANCIAL LIABILITIES
Trade creditors........... 9 -- -- -- -- 79,711 79,711
----- ------ ------ ------ ------- -------
-- -- -- -- 79,711 79,711
===== ====== ====== ====== ======= =======
----- ------ ------ ------ ------- -------
Net financial assets...... 7,953 -- -- -- 97,456 105,409
===== ====== ====== ====== ======= =======
</TABLE>
F-58
<PAGE> 148
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF NET FINANCIAL ASSETS TO NET ASSETS
The net fair value of financial assets and liabilities of the economic
entity approximates their carrying value.
<TABLE>
<CAPTION>
30TH JUNE
-----------------------------
30TH SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net financial assets as above............. 148,036 237,632 171,901 105,409
Non-financial assets and liabilities
Inventory............................... 6 -- -- 9,429 7,282
Property, plant and equipment........... 8 231,086 227,084 186,499 40,390
Other assets............................ 7 64,277 56,748 31,844 29,186
Provisions.............................. 11 (135,754) (111,057) (94,358) (95,610)
Other liabilities....................... 9,10 (38,019) (161,194) (178,967) (45,572)
-------- -------- -------- -------
Net assets per balance sheet.............. 269,626 248,713 126,348 41,085
======== ======== ======== =======
</TABLE>
NOTE 14 REMUNERATION OF DIRECTORS
The names of persons who were directors of The Message Exchange Pty Ltd
during the financial years ending 30 June 1997, 30 June 1998, 30 June 1999 and
for the 3 months ended 30 September 1999 are as follows:
<TABLE>
<CAPTION>
DATE
APPOINTED DATE RESIGNED
----------- -------------
<S> <C> <C>
Richard Counsins......................................... August 1991 October 1999
Robert Kummerfield....................................... August 1991 October 1999
Piers Dick-Lauder........................................ June 1994 October 1999
James Converse........................................... June 1997 --
</TABLE>
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 TO ------------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
---------------- -------- -------- --------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made
available in connection with the management of
affairs of the entity........................... 46,000 109,800 114,000 114,000
====== ======= ======= =======
The numbers of directors whose total income from
the Company or related parties was within the
specified bands are as follows:
$ 0-$ 9,999................................... 3 1 -- --
$10,000-$19,999................................... -- 2 3 3
$30,000-$39,999................................... 1 -- -- --
$70,000-$79,999................................... -- 1 1 1
</TABLE>
NOTE 15 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30TH JUNE
------------------------
30TH SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------- -----
<S> <C> <C> <C> <C>
Cash.................................................. 20,616 68,866 100,072 7,953
</TABLE>
F-59
<PAGE> 149
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 -------------------------------
TO 30TH SEPT 1999 1999 1998 1997
$ $ $ $
------------------- --------- -------- --------
<S> <C> <C> <C> <C>
Operating profit after income tax.............. 20,913 122,365 85,263 81,068
Depreciation................................... 21,000 84,000 26,470 3,218
Amounts credited to provisions against
assets.......................................
Changes in operating assets and liabilities:
Increase/(decrease) in income tax payable.... 20,587 (1,310) (1,906) 39,007
Decrease/(increase) in trade and other
debtors................................... (4,197) (121,949) 58,198 (88,803)
Decrease/(increase) in Future Tax Benefit.... (8,481) (9,298) 1,354 (21,319)
Decrease/(increase) in other operating
assets.................................... -- 11,879 (11,879) --
Decrease/(increase) in inventory............. -- 9,429 (2,147) (7,282)
Increase/(decrease) in trade and other
creditors................................. 37,975 12,580 (18,018) 126,711
Increase/(decrease) in Deferred Tax
Liability................................. (343) 5,619 1,444 2,832
------ -------- ------- -------
Net cash inflow/(outflow) from operating
activities................................ 87,454 113,315 138,779 135,432
====== ======== ======= =======
</TABLE>
NOTE 16 RELATED PARTIES
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED 30TH JUNE
1ST JULY 1999 -----------------------------
TO 30TH SEPT 1999 1999 1998 1997
$ $ $ $
------------------- -------- -------- -------
<S> <C> <C> <C> <C>
Amounts payable to directors and director related
entities..........................................
Aggregate amounts payable at balance date to:
Message Handling Services Pty Ltd................. 1,688 67,375 97,375 6,409
Robert Kummerfield................................ -- 14,984 14,984 8,578
Piers Lander...................................... -- 14,984 14,984 8,578
Counsins & Associates............................. -- 14,984 14,984 8,578
</TABLE>
Loans made to related entities were unsecured and interest free.
No other transactions have occurred with related entities except for the
repayment or extension of the loan facilities disclosed above.
NOTE 17 SEGMENT INFORMATION
The entity operates predominantly in one industry being the provision of
internet services in Australia.
NOTE 18 SUBSEQUENT EVENTS
Subsequent to the financial year ended 30 September 1999, Asia Online
Australia Pty Ltd acquired 51% of the shares in The Message Exchange Pty Ltd for
consideration of $2,470,000
NOTE 19 COMMITMENTS AND CONTINGENCIES
As at 30 September 1999, there are no material contingent liabilities or
commitments for expenditure to be reported in the financial statements.
F-60
<PAGE> 150
THE MESSAGE EXCHANGE PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and three months ended 30 September
1999 there were no material adjustments required to reconcile net income and
shareholders' equity for differences between Australian GAAP and U.S. GAAP.
F-61
<PAGE> 151
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of Flexit Pty Limited:
(business acquired by Flex Information Technology Pty Limited)
We have audited the accompanying balance sheet of Flexit Pty Limited as of
30 June 1997, 1998 and 1999 and 30 September 1999 and the related statement of
income and of cash flows for the years ended 30 June 1997,1998 and 1999 and for
the three month period ended 30 September 1999 which, as described in Note 1,
have been prepared on the basis of accounting principles generally accepted in
Australia. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flexit Pty Limited as at 30
June 1997, 1998 and 1999 and 30 September 1999 and the results of its operations
and its cash flows for the years ended 30 June 1997, 1998 and 1999 and for the
three month period ended 30 September 1999 in conformity with accounting
principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997,1998 and 1999 and
for the three month period ended 30 September 1999 to the extent summarised in
note 18 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-62
<PAGE> 152
FLEXIT PTY LTD
PROFIT AND LOSS ACCOUNT
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE......................... 2 249,931 895,246 641,791 474,614
======= ======= ======== ========
Operating profit/(loss)................... 3 (23,749) 139,614 157,625 (209,738)
Income tax benefit/(expense) attributable
to operating profit..................... 4 8,550 (50,261) (56,745) 75,506
------- ------- -------- --------
OPERATING PROFIT/(LOSS) AFTER INCOME
TAX..................................... (15,199) 89,353 100,880 (134,232)
RETAINED PROFITS/(LOSS) AT THE BEGINNING
OF THE FINANCIAL YEAR................... 13,768 (75,585) (176,465) (42,233)
------- ------- -------- --------
RETAINED PROFITS/(LOSS) AT THE END OF THE
FINANCIAL YEAR.......................... (1,431) 13,768 (75,585) (176,465)
======= ======= ======== ========
</TABLE>
The above profit and loss account should be read in conjunction with the
accompanying notes.
F-63
<PAGE> 153
FLEXIT PTY LTD
BALANCE SHEET
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 JUNE
----------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash............................................ 14a 131,669 89,397 111,017 70
Receivables..................................... 5 94,600 93,136 64,331 17,827
Other Assets.................................... 8 1,601 1,378 -- 2,800
------- ------- ------- --------
TOTAL CURRENT ASSETS.................. 227,870 183,911 175,348 20,697
------- ------- ------- --------
NON-CURRENT ASSETS
Investments..................................... 6 115,119 -- 4,000 --
Property, plant and equipment................... 7 32,371 35,459 46,058 97,350
Other Assets.................................... 8 32,630 19,355 19,648 76,393
------- ------- ------- --------
TOTAL NON-CURRENT ASSETS.............. 180,120 54,814 69,706 173,743
------- ------- ------- --------
TOTAL ASSETS.......................... 407,990 238,725 245,054 194,440
------- ------- ------- --------
CURRENT LIABILITIES
Creditors and borrowings........................ 9 141,330 91,396 215,638 163,501
Provisions...................................... 10 56,040 51,061 4,626 4,928
------- ------- ------- --------
TOTAL CURRENT LIABILITIES............. 197,370 142,457 220,264 168,429
------- ------- ------- --------
NON-CURRENT LIABILITIES
Creditors and borrowings........................ 9 196,916 67,365 85,240 202,406
------- ------- ------- --------
TOTAL NON-CURRENT LIABILITIES......... 196,916 67,365 85,240 202,406
------- ------- ------- --------
TOTAL LIABILITIES..................... 394,286 209,822 305,504 370,835
------- ------- ------- --------
NET ASSETS............................ 13,704 28,903 (60,450) (176,395)
======= ======= ======= ========
SHAREHOLDERS' EQUITY
Share capital................................... 11 15,135 15,135 15,135 70
Retained profits................................ (1,431) 13,768 (75,585) (176,465)
------- ------- ------- --------
TOTAL SHAREHOLDERS' EQUITY............ 13,704 28,903 (60,450) (176,395)
======= ======= ======= ========
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-64
<PAGE> 154
FLEXIT PTY LTD
STATEMENTS OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.................. 248,244 865,063 595,285 479,932
Payments to suppliers and employees...... (205,863) (845,615) (375,426) (505,098)
Interest received........................ 460 811 -- --
Interest paid............................ -- (2,298) -- --
Income taxes paid........................ -- (1,176) -- --
-------- -------- -------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING ACTIVITIES.... 14b 42,841 16,785 219,859 (25,166)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments................. (130,119) -- (4,000) --
Proceeds from the sale of investments.... -- 4,000 -- --
Payments for property, plant and
equipment.............................. -- (32,444) -- (3,286)
Proceeds from sale of property, plant and
equipment.............................. -- 7,914 7,161 --
-------- -------- -------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING ACTIVITIES.... (130,119) (20,530) 3,161 (3,286)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings................. 46,518 -- -- --
Repayment of borrowings.................. -- -- -- --
Advances from related parties............ 83,032 -- -- --
Repayments of advances from related
parties................................ -- (17,875) (117,165) --
Share capital issued..................... -- -- 15,065 --
-------- -------- -------- --------
NET CASH OUTFLOWS FROM
FINANCING ACTIVITIES......... 129,550 (17,875) (102,100) --
-------- -------- -------- --------
NET INCREASE/(DECREASE) IN CASH HELD..... 42,272 (21,620) 120,920 (28,452)
Cash at the beginning of the financial
year................................... 89,397 111,017 (9,903) 18,548
-------- -------- -------- --------
Cash at the end of the financial year.... 14a 131,669 89,397 111,017 (9,904)
======== ======== ======== ========
</TABLE>
F-65
<PAGE> 155
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views).
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation.
(b) Receivables and Revenue Recognition
(i) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days overdue.
(ii) Revenue
Dial up
Revenues derived from subscriptions are recognised in the period in which
the services are provided. The company records deferred revenue for any amounts
received in advance of the completion of the subscription period.
Other income relates to revenue earning activities including: technical
support for customers with special requests, onsite servicing and training, and
dividend income.
(c) Inventories
Stock on hand is stated at the lower of cost and net realisable value.
Costs are assigned to individual items of stock mainly on the basis of weighted
average costs. A provision for obsolescence is booked to ensure that the net
inventory balance held is always stated at the lower of cost and net realisable
value.
(d) Recoverable Amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
(e) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the Company.
F-66
<PAGE> 156
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Estimates of remaining useful lives are made on a regular basis for all assets,
with annual reassessments for major items. The expected useful lives are as
follows:
<TABLE>
<S> <C>
Plant and equipment......................................... 8 years
Office furniture and equipment.............................. 5 years
Computer equipment.......................................... 3 years
</TABLE>
(f) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
Company prior to the end of the financial year and which are unpaid. The amounts
are unsecured and are usually paid within 30-60 days of recognition.
(g) Borrowings
Loans are carried at their principal amounts which represent the present
value of future cash flows associated with servicing the debt. All borrowings
are made with related entities and are interest free.
(h) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(i) Employee Entitlements
(i) Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured as the amount unpaid at the reporting date at
current pay rates in respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured as the
present value of expected future payments to be made in respect of services
provided by employees up to the reporting date. Consideration is given to
expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using interest rates
on national government guaranteed securities with terms to maturity that match,
as closely as possible, the estimated future cash outflows.
(j) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
(k) Investments
Short term investments in listed securities are recorded at market value.
F-67
<PAGE> 157
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Dial Up revenue.................................... 226,359 765,813 432,112 361,728
Other income....................................... 23,572 129,433 209,679 112,886
------- ------- ------- -------
249,931 895,246 641,791 474,614
======= ======= ======= =======
</TABLE>
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
(A) OPERATING PROFIT BEFORE INCOME TAX HAS BEEN
DETERMINED AFTER:
CHARGING AS EXPENSE
Depreciation.................................. 3,089 33,329 44,131 53,348
Superannuation................................ 733 4,931 5,366 18,593
Advertising................................... 1,996 22,402 25,183 25,581
Consultants................................... 21,491 37,299 42,145 2,065
Rent.......................................... 3,000 16,200 13,000 13,000
Wages......................................... 11,145 76,668 93,692 141,604
Other Expenses................................ 232,226 564,803 260,649 430,161
------- ------- ------- -------
273,680 755,632 484,166 684,352
======= ======= ======= =======
(B) AUDITORS' REMUNERATION
Amounts received, or due and receivable, by
the auditors for:
Auditing the financial statements (Audit fees
for the periods outlined above are paid by
the parent entity Asia Online, Ltd in Hong
Kong and have not been recharged)........... -- -- -- --
======= ======= ======= =======
</TABLE>
NOTE 4 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the
financial year differs from the amount prima
facie payable on the operating loss. The
differences are reconciled as follows:
Operating profit/(loss) before income tax......... (23,749) 139,614 157,625 (209,738)
------- ------- ------- --------
Income tax calculated @ 36%....................... (8,550) 50,261 56,745 (75,506)
Under/(over) provision in previous year........... -- -- -- --
------- ------- ------- --------
Income tax expense/(benefit) attributable to
operating profit................................ (8,550) 50,261 56,745 (75,506)
======= ======= ======= ========
</TABLE>
Tax losses carried forward were $nil, $nil, $15,813 and $56,011 at 30
September 1999, and 30 June 1999, 1998 and 1997, respectively.
F-68
<PAGE> 158
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
-----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------ -------
<S> <C> <C> <C> <C>
CURRENT
Trade debtors.................................... 139,016 142,167 67,909 64,729
Less: Provision for Doubtful Debts............... (44,416) (49,031) (3,578) (46,902)
------- ------- ------ -------
94,600 93,136 64,331 17,827
======= ======= ====== =======
</TABLE>
NOTE 6 INVESTMENTS
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ----- ----- -----
<S> <C> <C> <C> <C>
INVESTMENTS
Shares in other corporations..................... 115,119 -- 4,000 --
======= ===== ===== =====
</TABLE>
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30 JUNE
------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ -------- -------- -------
<S> <C> <C> <C> <C>
Office, furniture and equipment
Cost........................................... 163,095 163,095 154,439 179,983
Accumulated depreciation....................... (138,893) (136,703) (110,758) (85,382)
-------- -------- -------- -------
24,202 26,392 43,681 94,601
-------- -------- -------- -------
Plant and equipment
Cost........................................... 2,860 2,860 2,860 2,860
Accumulated depreciation....................... (949) (854) (483) (111)
-------- -------- -------- -------
1,911 2,006 2,377 2,749
-------- -------- -------- -------
Computer Equipment
Cost........................................... 8,000 8,000 -- --
Accumulated depreciation....................... (1,742) (939) -- --
-------- -------- -------- -------
6,258 7,061 -- --
-------- -------- -------- -------
Total
Cost........................................... 173,955 173,955 157,299 182,843
Accumulated depreciation....................... (141,584) (138,496) (111,241) (85,493)
-------- -------- -------- -------
32,371 35,459 46,058 97,350
======== ======== ======== =======
</TABLE>
F-69
<PAGE> 159
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 OTHER ASSETS
<TABLE>
<CAPTION>
30 JUNE
------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Other Assets.......................................... 1,601 1,378 -- 2,800
------ ------ ------ ------
1,601 1,378 -- 2,800
====== ====== ====== ======
NON-CURRENT
Future Income Tax Benefit............................. 31,743 18,468 18,761 75,506
Other Assets.......................................... 887 887 887 887
------ ------ ------ ------
32,630 19,355 19,648 76,393
====== ====== ====== ======
</TABLE>
NOTE 9 CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------- -------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Bank overdraft...................................... -- -- -- 9,974
Trade creditors & accruals.......................... 81,383 6,812 154,155 71,636
Revenue received in advance......................... 59,947 84,584 61,483 81,891
------- ------ ------- -------
141,330 91,396 215,638 163,501
======= ====== ======= =======
NON-CURRENT
Borrowings.......................................... 46,519 -- -- --
Loans from related parties.......................... 150,397 67,365 85,240 202,406
------- ------ ------- -------
196,916 67,365 85,240 202,406
======= ====== ======= =======
</TABLE>
NOTE 10 PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
----------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ----- -----
<S> <C> <C> <C> <C>
CURRENT
Income tax.............................................. 53,517 48,792 -- --
Employee entitlements................................... 2,523 2,269 4,626 4,928
------ ------ ----- -----
56,040 51,061 4,626 4,928
====== ====== ===== =====
</TABLE>
NOTE 11 SHARE CAPITAL
<TABLE>
<CAPTION>
30 JUNE
----------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ----
<S> <C> <C> <C> <C>
PAID UP CAPITAL
Ordinary shares fully paid............................... 15,135 15,135 15,135 70
====== ====== ====== ==
</TABLE>
F-70
<PAGE> 160
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 FINANCIAL INSTRUMENTS
(a) Credit Risk Exposures
The maximum exposure to credit risk, excluding the value of any collateral
or other security, at balance date to recognised financial assets is the
carrying amount of those assets, net of any provisions for doubtful debts, as
disclosed in the balance sheet and notes to the financial report.
The Company does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into by the
Company.
(b) Interest Rate Risks
The Company's exposure to interest rate risk, which is the risk that a
financial instrument's value will fluctuate as a result of changes in market
interest rates and the effective weighted average interest rates on those
financial assets and financial liabilities, is as follows:
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR OR 1 TO 5 OVER 5 INTEREST
1 JULY 1999 TO RATE LESS YEARS YEARS BEARING TOTAL
30 SEPTEMBER 1999 NOTES $ $ $ $ $ $
----------------- ----- -------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash................................ 14a 131,669 -- -- -- -- 131,669
Investments......................... 6 -- -- -- -- 115,119 115,119
Trade debtors....................... 5 -- -- -- -- 94,600 94,600
------- ------- ------- ------- ------- -------
131,669 -- -- -- 209,719 341,388
------- ------- ------- ------- ------- -------
Weighted average interest rate...... 2.1%
(b) FINANCIAL LIABILITIES
Trade creditors & accruals.......... 9 -- -- -- -- 81,383 81,383
Borrowings.......................... 9 -- -- -- -- 46,519 46,519
Loans from related parties.......... 9 -- -- -- -- 150,397 150,397
------- ------- ------- ------- ------- -------
-- -- -- -- 278,299 278,299
------- ------- ------- ------- ------- -------
Weighted average interest rate......
Net financial assets
(liabilities)..................... 131,669 -- -- -- (68,580) 63,089
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR OR 1 TO 5 OVER 5 INTEREST
RATE LESS YEARS YEARS BEARING TOTAL
1999 NOTES $ $ $ $ $ $
---- ----- -------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash.................................. 14a 89,397 -- -- -- -- 89,397
Trade debtors......................... 5 -- -- -- -- 93,136 93,136
------ ------- ------- ------- ------ -------
89,397 -- -- -- 93,136 182,533
------ ------- ------- ------- ------ -------
Weighted average interest rate........ 2.1%
(b) FINANCIAL LIABILITIES
Trade creditors & accruals............ 9 -- -- -- -- 6,812 6,812
Loans from related parties............ 9 -- -- -- -- 67,365 67,365
------ ------- ------- ------- ------ -------
-- -- -- -- 74,177 74,177
------ ------- ------- ------- ------ -------
Weighted average interest rate........
Net financial assets (liabilities).... 89,397 -- -- -- 18,959 108,356
====== ======= ======= ======= ====== =======
</TABLE>
F-71
<PAGE> 161
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR OR 1 TO 5 OVER 5 INTEREST
RATE LESS YEARS YEARS BEARING TOTAL
1998 NOTES $ $ $ $ $ $
---- ----- -------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash............................... 14a 111,017 -- -- -- -- 111,017
Trade debtors...................... 5 -- -- -- -- 64,331 64,331
Investments........................ 6 -- -- -- -- 4,000 4,000
------- ------- ------- ------- -------- -------
111,017 -- -- -- 68,331 179,348
------- ------- ------- ------- -------- -------
Weighted average interest rate..... 2.5%
(b) FINANCIAL LIABILITIES
Trade creditors & accruals......... 9 -- -- -- -- 154,155 154,155
Loans from related parties......... 9 -- -- -- -- 85,240 85,240
------- ------- ------- ------- -------- -------
-- -- -- -- 239,395 239,395
------- ------- ------- ------- -------- -------
Weighted average interest rate.....
Net financial assets
(liabilities).................... 111,017 -- -- -- (171,064) (60,047)
======= ======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
RATE OR LESS YEARS YEARS BEARING TOTAL
1997 NOTES $ $ $ $ $ $
---- ----- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash.............................. 14a 70 -- -- -- -- 70
Trade debtors..................... 5 -- -- -- -- 17,827 17,827
------- ------- ------- ------- -------- --------
70 -- -- -- 17,827 17,897
------- ------- ------- ------- -------- --------
Weighted average interest rate.... 2.5%
(b) FINANCIAL LIABILITIES
Bank overdraft.................... 14a 9,974 -- -- -- -- 9,974
Trade creditors & accruals........ 9 -- -- -- -- 71,636 71,636
Loans from related parties........ 9 -- -- -- -- 202,406 202,406
------- ------- ------- ------- -------- --------
9,974 -- -- -- 274,042 284,016
------- ------- ------- ------- -------- --------
Weighted average interest rate.... 2.1%
Net financial assets
(liabilities)................... (9,904) -- -- -- (256,215) (266,119)
======= ======= ======= ======= ======== ========
</TABLE>
F-72
<PAGE> 162
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(c) Net Fair Value of Financial Assets and Liabilities
The net fair value of financial assets and liabilities of the economic
entity approximates their carrying value.
<TABLE>
<CAPTION>
30 JUNE
----------------------------
1999 1998 1997
NOTES 30 SEPT 1999 $ $ $
----- -------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net financial assets/(liabilities) as
above.................................... 63,089 108,356 (60,047) (266,119)
Non-financial assets and liabilities
Property, plant and equipment............ 7 32,371 35,459 46,058 97,350
Other assets............................. 8 34,231 20,733 19,648 79,193
Provisions............................... 10 (56,040) (51,061) (4,626) (4,928)
Other liabilities........................ 9 (59,947) (84,584) (61,483) (81,891)
------- ------- ------- --------
Net assets per balance sheet..... 13,704 28,903 (60,450) (176,395)
======= ======= ======= ========
</TABLE>
NOTE 13 RELATED PARTIES
(a) Directors
The names of persons who were directors of Flexit Pty Ltd during the
financial years ending 30 June 1997, 30 June 1998, 30 June 1999 and for the 3
months ended 30 September 1999 are as follows:
<TABLE>
<CAPTION>
DATE APPOINTED DATE RESIGNED
----------------- -------------
<S> <C> <C>
Barry Assaf......................................... 29 September 1995 --
Charles Assaf....................................... 7 June 1999 --
</TABLE>
(b) Directors' remuneration
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made available,
to directors by the Company or any related party in
connection with the management of the affairs of the
Company or its controlled entities.................. 6,923 25,460 22,143 19,418
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ---------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ----- ----- -----
<C> <C> <C> <S> <C> <C> <C> <C>
The number of directors whose total income from the Company or
related parties was within the specified bands are as follows:
$ $
------ ------
0 - 9,999 ................................................ 1 -- -- --
10,000 - 19,999 ................................................ -- -- -- 1
20,000 - 29,999 ................................................ -- 1 1 --
</TABLE>
(c) Other transactions with Directors and Director-related Entities
Charles Assaf is a director of Flexit Pty Limited and has the capacity to
significantly influence decision making of those companies. Flexit Pty Ltd has
rented an office building from Charles Assaf for the past three years. The
rental agreement is based on normal commercial terms and conditions.
F-73
<PAGE> 163
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate amounts paid to directors and their director-related entities
was:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Charles Assaf................................. 3,000 16,200 13,000 13,000
----- ------ ------ ------
3,000 16,200 13,000 13,000
===== ====== ====== ======
</TABLE>
(d) Transactions with other related parties
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
Amounts payable to directors and director related
entities........................................... -- -- -- --
Aggregate amounts payable at balance date to:
Morse Corporation (Australia) Pty Ltd.............. 73,249 25,799 29,799 73,703
Farmax Electronic Components Pty Ltd............... 24,995 24,995 24,995 25,000
Pamela Meza........................................ -- -- 647 30,000
Barry Assaf........................................ 270 270 29,799 73,703
Charles Assaf...................................... 51,883 16,301 -- --
------- ------ ------ -------
150,397 67,365 85,240 202,406
======= ====== ====== =======
</TABLE>
Loans made to related entities were unsecured and interest free.
No other transactions have occurred with related entities except for the
repayment or extension of the loan facilities disclosed above.
NOTE 14 CASH FLOW INFORMATION
(a) Reconciliation of cash
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash................................................. 131,669 89,397 111,017 70
Bank overdraft....................................... -- -- -- (9,974)
------- ------ ------- ------
131,669 89,397 111,017 (9,904)
======= ====== ======= ======
</TABLE>
F-74
<PAGE> 164
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- ------- --------
<S> <C> <C> <C> <C>
Operating profit/(loss) after income tax......... (15,199) 89,353 100,880 (134,232)
Depreciation..................................... 3,089 33,329 44,131 53,348
Net loss on sale of property, plant and
equipment...................................... -- 7,914 7,161 --
Amounts credited to provisions against assets
Changes in operating assets and liabilities:
Increase/(decrease) in income tax payable...... 4,725 48,792 -- --
Decrease/(increase) in trade and other
debtors..................................... (1,687) (30,183) (46,504) 5,318
Decrease/(increase) in other operating
assets...................................... -- -- -- --
Decrease/(increase) in future tax benefit...... (13,275) 293 56,745 (75,506)
Decrease/(increase) in inventory............... -- -- 2,800 13,229
Increase/(decrease) in trade and other
creditors................................... 49,934 (130,356) 54,948 107,749
Increase/(decrease) in provisions and employee
entitlements................................ 254 (2,357) (302) 4,928
Unrealised loss on investments................... 15,000 -- -- --
------- -------- ------- --------
Net cash inflow/(outflow) from operating
activities..................................... 42,841 16,785 219,859 (25,166)
======= ======== ======= ========
</TABLE>
NOTE 15 SEGMENT INFORMATION
The entity operates predominantly in one industry being the provision of
internet services in Australia.
NOTE 16 SUBSEQUENT EVENTS
Subsequent to the financial year ended 30 September 1999, Flex Information
Technology Pty Ltd was incorporated and acquired the following assets from
Flexit Pty Ltd and Morse Corporation (Australia) Pty Ltd with an effective date
of 14 October 1999:
(a) Stock and Consumables -- $172,109;
(b) Plant and Equipment -- $37,920;
(c) Computer Software -- $6,258;
(d) Records -- $1
(e) Leasehold Improvements -- $30,480
(f) Business Names, Intellectual property and Goodwill -- $4,153,231
(g) Incidental assets of the Vendor -- nil value
Consideration was in the form of an allotment of shares to:
(a) Morse Corporation (Australia) Pty Ltd -- 2,200,000 ordinary shares
at an issue price of $1 per share; and
(b) Flexit Pty Ltd -- 2,199,000 ordinary shares at an issue price of
$1 per share.
F-75
<PAGE> 165
FLEXIT PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
On that day, Asia Online Australia Pty Ltd acquired 51% of the shares in
Flexit Information Technology Pty Ltd. Consideration was in the form of cash
payments to:
(a) Morse Corporation (Australia) Pty Ltd -- $1,744,470; and
(b) Flexit Pty Ltd -- $1,744,470
NOTE 17 COMMITMENTS AND CONTINGENCIES
As at 30 September 1999, there are no contingent liabilities or commitments
for expenditure to be reported in the financial statements.
NOTE 18 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and three months ended 30 September
1999 there were no material adjustments required to reconcile net income and
shareholders' equity for differences between Australian GAAP and U.S. GAAP.
F-76
<PAGE> 166
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of Morse Corporation (Australia) Pty
Limited:
(business acquired by Flex Information Technology Pty Limited)
We have audited the accompanying balance sheet of Morse Corporation
(Australia) Pty Limited as of 30 June 1997, 1998 and 1999 and 30 September 1999
and the related statement of income and of cash flows for the years ended 30
June 1997, 1998 and 1999 and for the three month period ended 30 September 1999
which, as described in Note 1, have been prepared on the basis of accounting
principles generally accepted in Australia. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Morse Corporation
(Australia) Pty Limited as at 30 June 1997, 1998 and 1999 and 30 September 1999
and the results of its operations and its cash flows for the years ended 30 June
1997, 1998 and 1999 and for the three month period ended 30 September 1999 in
conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September 1999 to the extent summarised
in note 20 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-77
<PAGE> 167
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
PROFIT AND LOSS STATEMENT
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
1 JULY 1999 FOR THE YEARS ENDED 30 JUNE
TO 30 SEPT ---------------------------------
1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... 2 1,207,835 3,327,209 4,132,799 2,705,617
========= ========= ========= =========
Operating profit/(loss)................. 3 17,372 168,976 44,659 (41,250)
Income tax benefit/(expense)
attributable to operating profit...... 4 (6,254) (60,831) (16,077) 14,850
--------- --------- --------- ---------
OPERATING PROFIT/(LOSS) AFTER INCOME
TAX................................... 11,118 108,145 28,582 (26,400)
RETAINED PROFITS/(LOSS) AT THE BEGINNING
OF THE FINANCIAL YEAR................. 128,350 20,205 (8,377) 18,023
--------- --------- --------- ---------
RETAINED PROFITS/(LOSS) AT THE END OF
THE FINANCIAL YEAR.................... 139,468 128,350 20,205 (8,377)
========= ========= ========= =========
</TABLE>
The above profit and loss statement should be read in conjunction with the
accompanying notes.
F-78
<PAGE> 168
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
BALANCE SHEET
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash.......................................... 53,932 32,580 2 2
Receivables................................... 5 334,106 238,634 363,513 133,565
Inventory..................................... 6 120,476 59,964 45,500 101,705
Other Assets.................................. 1,906 -- -- --
------- ------- ------- -------
TOTAL CURRENT ASSETS................ 510,420 331,178 409,015 235,272
------- ------- ------- -------
NON-CURRENT ASSETS
Receivables................................... 7 78,266 30,816 29,799 73,703
Investments................................... 8 137,315 249,304 51,530 --
Property, plant and equipment................. 9 191,944 187,799 219,268 74,887
Other Assets.................................. 10 55,023 33,001 32,350 28,241
------- ------- ------- -------
TOTAL NON-CURRENT ASSETS............ 462,548 500,920 332,947 176,831
------- ------- ------- -------
TOTAL ASSETS........................ 972,968 832,098 741,962 412,103
------- ------- ------- -------
CURRENT LIABILITIES
Creditors and borrowings...................... 11 500,753 361,815 551,788 380,165
Provisions.................................... 12 129,601 97,896 41,214 22,849
------- ------- ------- -------
TOTAL CURRENT LIABILITIES........... 630,354 459,711 593,002 403,014
------- ------- ------- -------
NON-CURRENT LIABILITIES
Creditors and borrowings...................... 11 203,144 244,035 128,753 17,464
------- ------- ------- -------
TOTAL NON-CURRENT LIABILITIES....... 203,144 244,035 128,753 17,464
------- ------- ------- -------
TOTAL LIABILITIES................... 833,498 703,746 721,755 420,478
------- ------- ------- -------
NET ASSETS.......................... 139,470 128,352 20,207 (8,375)
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share capital................................. 13 2 2 2 2
Retained profits.............................. 139,468 128,350 20,205 (8,377)
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY.......... 139,470 128,352 20,207 (8,375)
======= ======= ======= =======
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-79
<PAGE> 169
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
STATEMENTS OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ------------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.............. 1,063,007 3,451,071 3,946,755 2,852,978
Payments to suppliers and
employees.......................... (1,045,024) (3,328,521) (3,903,489) (2,682,609)
Interest Paid........................ (4,280) (20,010) (9,225) (11,811)
Income taxes (paid)/received......... (1,793) (18,203) (11,263) (5,340)
----------- ---------- ---------- ----------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING
ACTIVITIES............... 19(b) 11,910 84,337 22,778 153,218
----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and
equipment.......................... (8,167) (16,917) (168,137) (52,293)
Payments for investments............. 111,989 (197,774) (51,530) --
Proceeds from sale of property, plant
and equipment...................... -- -- 2,570 --
----------- ---------- ---------- ----------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING
ACTIVITIES............... 103,822 (214,691) (217,097) (52,293)
----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Borrowings.............. (101,724) -- -- --
Proceeds from borrowings............. -- 137,253 -- --
Advances from related parties........ 61,424 -- 116,442 --
Advances to related parties.......... -- (15,298) -- (32,009)
----------- ---------- ---------- ----------
NET CASH OUTFLOWS FROM
FINANCING ACTIVITIES..... (40,300) 121,955 116,442 (32,009)
----------- ---------- ---------- ----------
NET INCREASE/(DECREASE) IN CASH
HELD............................... 75,432 (8,399) (77,877) 68,916
Cash at the beginning of the
financial year..................... (110,348) (101,949) (24,072) (92,988)
----------- ---------- ---------- ----------
Cash at the end of the financial
year............................... 19(a) (34,916) (110,348) (101,949) (24,072)
=========== ========== ========== ==========
</TABLE>
F-80
<PAGE> 170
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views).
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation.
(b) Receivables and Revenue Recognition
(i) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days overdue.
(ii) Revenue
IT Hardware and Installation Revenue refers to revenue generated when a
customer purchases a particular IT component or when technical staff complete an
installation. Revenue is recognised upon delivery and when all other obligations
due under the contract have been completed.
Other income relates to revenue earning activities including: technical
support for customers with special requests, onsite servicing and training, and
dividend income.
(c) Inventories
Stock on hand is stated at the lower of cost and net realisable value.
Costs are assigned to individual items of stock mainly on the basis of weighted
average costs. A provision for obsolescence is booked to ensure that the net
inventory balance held is always stated at the lower of cost and net realisable
value.
(d) Recoverable Amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
(e) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the Company .
F-81
<PAGE> 171
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Estimates of remaining useful lives are made on a regular basis for all assets,
with annual reassessments for major items. The expected useful lives are as
follows:
<TABLE>
<S> <C>
Plant and equipment........................................ 5 years
Office furniture and equipment............................. 5 years
Computer equipment......................................... 3 years
</TABLE>
(f) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
Company prior to the end of the financial year and which are unpaid. The amounts
are unsecured and are usually paid within 30-60 days of recognition.
(g) Borrowings
Loans are carried at their principal amounts which represent the present
value of future cash flows associated with servicing the debt. All borrowings
are made with related entities and are interest free.
(h) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(i) Employee Entitlements
(i) Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured as the amount unpaid at the reporting date
at current pay rates in respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured as
the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. Consideration
is given to expected future wage and salary levels, experience of
employee departures and periods of service. Expected future payments
are discounted using interest rates on national government guaranteed
securities with terms to maturity that match, as closely as possible,
the estimated future cash outflows.
(j) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
(k) Investments
Short term investments in listed securities are recorded at market value.
F-82
<PAGE> 172
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
IT Hardware and Installation Sales............. 1,067,671 3,193,948 4,104,531 2,698,616
Other income................................... 140,164 133,262 28,268 7,001
--------- --------- --------- ---------
1,207,835 3,327,210 4,132,799 2,705,617
========= ========= ========= =========
</TABLE>
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(a) OPERATING PROFIT BEFORE INCOME TAX HAS BEEN
DETERMINED AFTER:
CHARGING AS EXPENSE
Depreciation............................... 7,955 43,094 21,185 18,066
Superannuation............................. 5,611 21,361 19,454 13,697
Wages...................................... 82,056 315,480 335,061 236,046
Rent....................................... 6,800 44,200 34,000 40,800
Freight and cartage........................ 7,959 29,257 24,969 11,098
Other Expenses............................. 1,080,082 2,704,841 3,653,471 2,427,160
--------- --------- --------- ---------
1,190,463 3,158,233 4,088,140 2,746,867
========= ========= ========= =========
(b) AUDITORS' REMUNERATION
Amounts received, or due and receivable,
by the auditors for:
Auditing the financial statements (Audit
fees for the periods outlined above are
paid by the parent entity Asia Online, Ltd
in Hong Kong and have not been
recharged)................................. -- -- -- --
========= ========= ========= =========
</TABLE>
NOTE 4 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------ -------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the
financial year differs from the amount calculated
on the operating profit and extraordinary item.
The differences are reconciled as follows:
Operating profit/(loss) before income tax.......... 17,372 168,976 44,659 (41,250)
------ ------- ------ -------
Income tax calculated at 36%....................... 6,254 60,831 16,077 (14,850)
Under/(over) provision in previous year............ -- -- -- --
------ ------- ------ -------
Income tax expense/(benefit) attributable to
operating profit................................. 6,254 60,831 16,077 (14,850)
====== ======= ====== =======
</TABLE>
F-83
<PAGE> 173
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 CURRENT ASSETS -- RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Trade debtors....................................... 353,018 247,999 385,328 145,061
Less: Provision for Doubtful Debts.................. (18,912) (9,365) (21,815) (11,496)
------- ------- ------- -------
334,106 238,634 363,513 133,565
======= ======= ======= =======
</TABLE>
NOTE 6 CURRENT ASSETS -- INVENTORY
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Stock on hand....................................... 172,109 85,662 65,000 145,295
Less: Provision for Stock Obsolescence.............. (51,633) (25,698) (19,500) (43,590)
------- ------- ------- -------
Stock on hand....................................... 120,476 59,964 45,500 101,705
======= ======= ======= =======
</TABLE>
NOTE 7 NON-CURRENT ASSETS -- RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ------
<S> <C> <C> <C> <C>
Loans to related parties............................ 73,249 25,799 29,799 73,703
Loans to directors.................................. 5,017 5,017 -- --
------ ------ ------ ------
78,266 30,816 29,799 73,703
====== ====== ====== ======
</TABLE>
NOTE 8 NON-CURRENT ASSETS -- INVESTMENTS
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------ ------
<S> <C> <C> <C> <C>
Investments......................................... 137,315 249,304 51,530 --
======= ======= ====== ======
</TABLE>
F-84
<PAGE> 174
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 NON-CURRENT ASSETS -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Office furniture and equipment
Cost.............................................. 1,028 1,028 1,028 --
Accumulated depreciation.......................... (305) (257) -- --
------- ------- ------- -------
723 771 1,028 --
------- ------- ------- -------
Motor vehicles
Cost.............................................. 194,342 194,342 181,682 40,005
Accumulated depreciation.......................... (44,700) (38,135) (17,327) (9,914)
------- ------- ------- -------
149,642 156,207 164,355 30,091
------- ------- ------- -------
Plant and equipment
Cost.............................................. 54,619 42,519 76,128 56,516
Accumulated amortisation.......................... (13,040) (11,698) (22,243) (11,720)
------- ------- ------- -------
41,579 30,821 53,885 44,796
------- ------- ------- -------
Total
Cost.............................................. 249,989 237,889 258,838 96,521
Accumulated depreciation and amortisation......... (58,045) (50,090) (39,570) (21,634)
------- ------- ------- -------
191,944 187,799 219,268 74,887
======= ======= ======= =======
</TABLE>
NOTE 10 NON-CURRENT ASSETS
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Other Assets........................................ 1,906 -- -- --
------ ------ ------ ------
1,906 -- -- --
====== ====== ====== ======
NON-CURRENT
Other Assets........................................ 750 750 750 750
Future Tax Benefit.................................. 54,273 32,251 31,600 27,491
------ ------ ------ ------
55,023 33,001 32,350 28,241
====== ====== ====== ======
</TABLE>
F-85
<PAGE> 175
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
CURRENT (SECURED)
Bank Overdraft..................................... 88,848 142,928 101,951 24,074
Trade Creditors and Accruals....................... 399,489 207,062 444,685 356,091
Lease Liability.................................... 12,416 11,825 5,152 --
------- ------- ------- -------
500,753 361,815 551,788 380,165
======= ======= ======= =======
NON-CURRENT
Borrowings......................................... 35,529 137,253 -- --
Loans from Related Parties......................... 73,249 -- 33,905 17,464
Lease Liability.................................... 94,366 106,782 94,848 --
------- ------- ------- -------
203,144 244,035 128,753 17,464
======= ======= ======= =======
</TABLE>
NOTE 12 PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Taxation........................................... 91,326 64,843 21,564 12,641
Employee Entitlements.............................. 38,275 33,053 19,650 10,208
------- ------ ------ ------
129,601 97,896 41,214 22,849
======= ====== ====== ======
</TABLE>
NOTE 13 SHARE CAPITAL
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
PAID UP CAPITAL
Ordinary shares fully paid......................... 2 2 2 2
== == == ==
</TABLE>
NOTE 14 FINANCIAL INSTRUMENTS
(a) Credit Risk Exposures
The maximum exposure to credit risk, excluding the value of any collateral
or other security, at balance date to recognised financial assets is the
carrying amount of those assets, net of any provisions for doubtful debts, as
disclosed in the balance sheet and notes to the financial report.
The Company does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into by the
Company.
F-86
<PAGE> 176
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Interest Rate Risks
The Company's exposure to interest rate risk, which is the risk that a
financial instrument's value will fluctuate as a result of changes in market
interest rates and the effective weighted average interest rates on those
financial assets and financial liabilities, is as follows:
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN:
FLOATING --------------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
RATE OR LESS YEARS YEARS BEARING TOTAL
30 SEPTEMBER 1999 NOTES $ $ $ $ $ $
----------------- ----- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash................................ 19 -- -- -- -- 53,932 53,932
Inventory........................... 6 -- -- -- -- 120,476 120,476
Receivables......................... 5,7 -- -- -- -- 412,372 412,372
------ ------- ------- ------- ------- --------
-- -- -- -- 586,780 586,780
------ ------- ------- ------- ------- --------
Weighted average interest rate
(b) FINANCIAL LIABILITIES
Bank Overdraft...................... 11 88,848 -- -- -- -- 88,848
Trade creditors and accruals........ 11 -- -- -- -- 399,489 399,489
Borrowings.......................... 11 -- -- -- -- 35,529 35,529
Lease Liability..................... 11 -- -- -- -- 106,782 106,782
Loans from other related entity..... 11 -- -- -- -- 73,249 73,249
------ ------- ------- ------- ------- --------
88,848 615,049 703,897
------ ------- ------- ------- ------- --------
Weighted average interest rate
Net financial assets
(liabilities)..................... 88,848 (28,269) (117,117)
====== ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN:
FLOATING --------------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
RATE OR LESS YEARS YEARS BEARING TOTAL
30 JUNE 1999 NOTES $ $ $ $ $ $
------------ ----- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash............................. 19 -- -- -- -- 32,580 32,580
Inventory........................ 6 -- -- -- -- 59,964 59,964
Receivables...................... 5,7 -- -- -- -- 269,450 269,450
-------- ------- ------- ------- -------- --------
-- -- -- -- 361,994 361,994
-------- ------- ------- ------- -------- --------
Weighted average interest rate
(b) FINANCIAL LIABILITIES
Bank Overdraft................... 11 142,928 -- -- -- -- 142,928
Trade creditors and accruals..... 11 -- -- -- -- 207,062 207,062
Borrowings....................... 11 -- -- -- -- 118,607 118,607
Lease Liability.................. 11 -- -- -- -- 137,253 137,253
-------- ------- ------- ------- -------- --------
142,928 -- -- -- 462,922 605,850
-------- ------- ------- ------- -------- --------
Weighted average interest rate
Net financial assets
(liabilities).................. (142,928) -- -- -- (100,928) (243,856)
======== ======= ======= ======= ======== ========
</TABLE>
F-87
<PAGE> 177
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
RATE OR LESS YEARS YEARS BEARING TOTAL
30 JUNE 1998 NOTES $ $ $ $ $ $
------------ ----- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash...................... 19 -- -- -- -- 2 2
Inventory................. 6 -- -- -- -- 45,500 45,500
Receivables............... 5,7 -- -- -- -- 393,312 393,312
-------- ------- ------- ------- -------- --------
2 -- -- -- 438,814 438,814
-------- ------- ------- ------- -------- --------
Weighted average interest
rate
(b) FINANCIAL LIABILITIES
Bank Overdraft............ 11 101,951 -- -- -- -- 101,951
Trade creditors and
accruals................ 11 -- -- -- -- 444,685 444,685
Lease Liability........... 11 -- -- -- -- 100,000 100,000
Loans from other related
entity.................. 11 -- -- -- -- 33,905 33,905
-------- ------- ------- ------- -------- --------
101,951 -- -- -- 578,590 680,541
Weighted average interest
rate
-------- ------- ------- ------- -------- --------
Net financial assets
(liabilities) (101,951) -- -- -- (139,776) (241,727)
======== ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURING IN
FLOATING --------------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
RATE OR LESS YEARS YEARS BEARING TOTAL
30 JUNE 1997 NOTES $ $ $ $ $ $
------------ ----- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) FINANCIAL ASSETS
Cash...................... 19 -- -- -- -- 2 2
Inventory................. 6 -- -- -- -- 101,705 101,705
Receivables............... 5,7 -- -- -- -- 207,268 207,268
-------- ------- ------- ------- -------- --------
-- -- -- -- 308,975 308,975
-------- ------- ------- ------- -------- --------
Weighted average interest
rate
(b) FINANCIAL LIABILITIES
Bank Overdraft............ 11 24,074 -- -- -- -- 24,074
Trade creditors and
accruals................ 11 -- -- -- -- 356,091 356,091
Loans from other related
entity.................. 11 -- -- -- -- 17,464 17,464
-------- ------- ------- ------- -------- --------
24,074 -- -- -- 373,555 397,629
-------- ------- ------- ------- -------- --------
Weighted average interest
rate
Net financial assets
(liabilities)........... (24,074) -- -- -- (64,580) (88,654)
======== ======= ======= ======= ======== ========
</TABLE>
F-88
<PAGE> 178
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(c) Net Fair Value of Financial Assets and Liabilities
The net fair value of financial assets and liabilities of the economic
entity approximates their carrying value.
<TABLE>
<CAPTION>
30 JUNE
30 SEPT 1999 -----------------------------
NOTES $ 1999 $ 1998 $ 1997 $
----- ------------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net financial assets as above.............. (117,117) (243,856) (241,727) (88,654)
Non-financial assets and liabilities
Investments.............................. 8 137,315 249,304 51,530 --
Property, plant and equipment............ 9 191,944 187,799 219,268 74,887
Other assets............................. 7 56,929 33,001 32,350 28,241
Provisions............................... 12 (129,601) (97,896) (41,214) (22,849)
-------- -------- -------- -------
Net assets per balance sheet............... 139,470 128,352 20,207 (8,375)
======== ======== ======== =======
</TABLE>
NOTE 15 SEGMENT INFORMATION
The entity operates predominantly in one industry being the provision of
internet services in Australia.
NOTE 16 SUBSEQUENT EVENTS
Subsequent to the financial year ended 30 September 1999, Flex Information
Technology Pty Ltd was incorporated and acquired the following assets from Flex
Pty Ltd and Morse Corporation (Australia) Pty Ltd with an effective date of 14
October 1999:
(a) Stock and Consumables -- $172,109;
(b) Plant and Equipment -- $37,920;
(c) Computer Software -- $6,258;
(d) Records -- $1
(e) Leasehold Improvements -- $30,480
(f) Business Names, Intellectual property and Goodwill -- $4,153,231
(g) Incidental assets of the Vendor -- nil value
Consideration was in the form of an allotment of shares to:
(a) Morse Corporation (Australia) Pty Ltd -- 2,200,000 ordinary shares
at an issue price of $1 per share; and
(b) Flexit Pty Ltd -- 2,199,000 ordinary shares at an issue price of
$1 per share.
On that day, Asia Online Australia Pty Ltd acquired 51% of the shares in
Flexit Information Technology Pty Ltd . Consideration was in the form of cash
payments to:
(a) Morse Corporation (Australia) Pty Ltd -- $1,744,470; and
(b) Flexit Pty Ltd -- $1,744,470
F-89
<PAGE> 179
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 COMMITMENTS AND CONTINGENCIES
As at 30 September 1999, there are no contingent liabilities or capital
commitments to be reported in the financial statements.
<TABLE>
<CAPTION>
30 JUNE
-----------------------------
1999 1998 1997
FINANCE LEASE COMMITMENTS 30 SEPT 1999 $ $ $
------------------------- ------------ -------- -------- -------
<S> <C> <C> <C> <C>
Commitments in relation to finance leases
contracted for at the reporting date payable as
follows:
Not later than one year........................... 12,416 11,825 5,152 --
Later than one year but not later than two
years........................................ 12,416 12,416 7,404 --
Later than two years but not later than five
years........................................ 81,950 94,366 87,444 --
Later than five years........................... -- -- -- --
-------- -------- -------- -------
106,782 118,607 100,000 --
-------- -------- -------- -------
Lease liabilities provided for in the financial
statements:
Current......................................... 12,416 11,825 5,152 --
Non-current..................................... 94,366 106,782 94,848 --
-------- -------- -------- -------
Total lease liability................... 106,782 118,607 100,000 --
======== ======== ======== =======
</TABLE>
NOTE 18 RELATED PARTIES
(a) Directors
The names of persons who were directors of Morse Corporation (Australia)
Pty Ltd during the financial years ending 30 June 1997, 30 June 1998, 30 June
1999 and for the 3 months ended 30 September 1999 are as follows:
<TABLE>
<CAPTION>
DATE APPOINTED DATE RESIGNED
----------------- -------------
<S> <C> <C>
Pamela Meza........................................ 29 September 1995 7 June 1999
Barry Assaf........................................ 29 September 1995 --
Vincent Chow....................................... 25 January 1996 11 May 1998
Charles Assaf...................................... 7 June 1999 --
</TABLE>
(b) Remuneration of Directors
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made available,
to directors by the Company or any related party in
connection with the management of the affairs of the
Company or its controlled entities.................. 6,923 25,460 22,143 19,418
</TABLE>
F-90
<PAGE> 180
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ---------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ----- ----- -----
<S> <C> <C> <C> <C>
The number of directors whose total income from the Company or
related parties was within the specified bands are as follows:
$ 0 - $ 9,999 ............................................... 2 1 1 1
$10,000 - $19,999 ............................................... -- -- -- 1
$20,000 - $29,999 ............................................... -- 1 1 --
</TABLE>
(c) Other transactions with Directors and Director-related Entities
Charles Assaf is a director of Morse Corporation (Australia) Pty Limited
and has the capacity to significantly influence decision making of those
companies. Morse Corporation (Australia) Pty Limited has rented an office
building from Charles Assaf for the past four years. The rental agreement is
based on normal commercial terms and conditions.
During the year ended 30 June 1999 Pamela Meza (Charles Assaf's wife)was
paid a salary of $37,000 for secretarial service performed for the
company -- whilst she was employed by the company.
Aggregate amounts paid to directors and their director-related entities
was:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Charles Assaf: Rental of Office Building...... 6,800 44,200 34,000 40,800
----- ------ ------ ------
6,800 44,200 34,000 40,800
===== ====== ====== ======
</TABLE>
(d) Amounts payable to directors and director related entities
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------- -------
<S> <C> <C> <C> <C>
Amounts payable to directors and director
related entities........................... -- -- -- --
Aggregate amounts receivable/(payable) at
balance date to:
Flexit Pty Ltd............................... 73,249 25,799 29,799 73,703
Barry Assaf.................................. (43,249) -- (17,250) (2,464)
Charles Assaf................................ (24,983) 5,017 (16,655) (15,000)
------- ------ ------- -------
5,017 30,816 (4,106) 56,239
======= ====== ======= =======
</TABLE>
Loans made to related entities were unsecured and interest free.
No other transactions have occurred with related entities except for the
repayment or extension of the loan facilities disclosed above.
F-91
<PAGE> 181
MORSE CORPORATION (AUSTRALIA) PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 JUNE
-----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ -------- -------- -------
<S> <C> <C> <C> <C>
Cash...................................... 53,932 32,580 2 2
Bank overdraft............................ (88,848) (142,928) (101,951) (24,074)
------- -------- -------- -------
(34,916) (110,348) (101,949) (24,072)
======= ======== ======== =======
</TABLE>
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- -------- -------
<S> <C> <C> <C> <C>
Operating profit after income tax........ 11,118 108,145 28,582 (26,400)
Depreciation and amortisation............ 4,052 27,482 21,185 18,066
Amounts credited to provisions against
assets.................................
Changes in operating assets and
liabilities:
Increase/(decrease) in income tax
payable................................ 26,483 43,279 8,923 7,301
Decrease/(increase) in trade and other
debtors................................ (97,378) 124,879 (229,948) 219,876
Decrease/(increase) in Future Tax
Benefits............................... (22,022) (651) (4,109) (27,491)
Decrease/(increase) in Other Assets...... (47,450) (1,017) 43,904 (73,703)
Net loss/(profit) on sale of non-current
assets................................. -- 20,904 2,570 1,181
Decrease/(increase) in inventory......... (60,512) (14,464) 56,205 40,285
Increase/(decrease) in trade and other
creditors and employee entitlements.... 197,619 (224,220) 95,466 (5,897)
------- -------- -------- -------
Net cash inflow/(outflow) from operating
activities............................. 11,910 84,337 22,778 153,218
======= ======== ======== =======
</TABLE>
NOTE 20 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and three months ended 30 September
1999 there were no material adjustments required to reconcile net income and
shareholders' equity for differences between Australian GAAP and U.S. GAAP.
F-92
<PAGE> 182
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of InterACT Technology Group Pty Limited:
We have audited the accompanying balance sheet of InterACT Technology Group
Pty Limited as at 30 June 1997, 1998 and 1999 and 30 September 1999 and the
related statement of income and of cash flows for the four months ended 30 June
1997, the years ended 30 June 1998 and 1999 and for the three month period ended
30 September 1999 which, as described in Note 1, have been prepared on the basis
of accounting principles generally accepted in Australia. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterACT Technology Group
Pty Limited as at 30 June 1997, 1998 and 1999 and 30 September 1999 and the
related statement of income and of cash flows for the four months ended 30 June
1997, the years ended 30 June 1998 and 1999 and for the three month period ended
30 September 1999 in conformity with accounting principles generally accepted in
Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the related statement
of income and of cash flows for the four months ended 30 June 1997, the years
ended 30 June 1998 and 1999 and for the three month period ended 30 September
1999 to the extent summarised in note 19 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-93
<PAGE> 183
INTERACT TECHNOLOGY GROUP PTY LIMITED
PROFIT AND LOSS STATEMENT
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT --------------------- TO 30 JUNE
1999 1999 1998 1997
NOTES $ $ $ $
----- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE......................... 2 572,313 2,030,466 1,047,110 196,178
======= ========= ========= =======
Operating profit/(loss)................... 3 (29,903) (28,596) (9,464) (17,212)
Income tax benefit/(expense) attributable
to operating profit..................... 4 -- -- -- --
------- --------- --------- -------
OPERATING PROFIT/(LOSS) AFTER INCOME
TAX..................................... (29,903) (28,596) (9,464) (17,212)
RETAINED PROFITS AT THE BEGINNING OF THE
FINANCIAL YEAR.......................... (55,272) (26,676) (17,212) --
------- --------- --------- -------
RETAINED PROFITS AT THE END OF THE
FINANCIAL YEAR.......................... (85,175) (55,272) (26,676) (17,212)
======= ========= ========= =======
</TABLE>
The above profit and loss account should be read in conjunction with the
accompanying notes.
F-94
<PAGE> 184
INTERACT TECHNOLOGY GROUP PTY LIMITED
BALANCE SHEET
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ----------------- 30 JUNE
1999 1999 1998 1997
NOTES $ $ $ $
----- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash......................................... 21,721 33,158 49,816 21,001
Receivables.................................. 5 89,715 93,298 16,999 --
Other........................................ 6 3,462 -- 423 7,400
------- ------- ------- -------
TOTAL CURRENT ASSETS............... 114,898 126,456 67,238 28,401
------- ------- ------- -------
NON-CURRENT ASSETS
Property, plant and equipment................ 7 427,703 431,397 303,592 63,202
Intangibles.................................. 8 11,631 11,631 980 980
------- ------- ------- -------
TOTAL NON-CURRENT ASSETS........... 439,334 443,028 304,572 64,182
------- ------- ------- -------
TOTAL ASSETS....................... 554,232 569,484 371,810 92,583
------- ------- ------- -------
CURRENT LIABILITIES
Creditors.................................... 9 291,247 279,945 166,955 7,874
Borrowings................................... 10 118,971 121,976 79,910 74,156
Provisions................................... 11 42,670 29,677 9,771 2,428
------- ------- ------- -------
TOTAL CURRENT LIABILITIES.......... 452,888 431,598 256,636 84,458
------- ------- ------- -------
NON CURRENT LIABILITIES
Borrowings................................... 10 199,015 205,654 141,846 25,333
------- ------- ------- -------
TOTAL NON CURRENT
LIABILITIES...................... 199,015 205,654 141,846 25,333
------- ------- ------- -------
TOTAL LIABILITIES.................. 651,903 637,252 398,482 109,791
------- ------- ------- -------
NET ASSETS......................... (97,671) (67,768) (26,672) (17,208)
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share capital................................ 12 (12,496) (12,496) 4 4
Retained profits............................. (85,175) (55,272) (26,676) (17,212)
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY......... (97,671) (67,768) (26,672) (17,208)
======= ======= ======= =======
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-95
<PAGE> 185
INTERACT TECHNOLOGY GROUP PTY LIMITED
STATEMENT OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
1 JULY 1999 FOR THE YEARS ENDED 30 JUNE 1 MAR 1997
TO 30 SEPT ---------------------------- TO 30 JUNE
1999 1999 1998 1997
NOTES $ $ $ $
----- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and other
debtors................................ 575,678 1,954,439 1,028,808 196,168
Payments to suppliers and employees...... (536,730) (1,756,275) (811,599) (209,178)
Interest received........................ 218 546 604 10
Interest and finance charges............. (8,536) (30,829) (13,025) --
-------- ---------- --------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING ACTIVITIES.... 17 30,630 167,881 204,788 (13,000)
-------- ---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and
equipment.............................. (7,375) (137,073) (79,844) (28,512)
Payments for intangibles................. -- (11,631) -- (980)
Proceeds from sale of property, plant and
equipment.............................. -- 16,144 1,869 --
-------- ---------- --------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING ACTIVITIES.... (7,375) (132,560) (77,975) (29,492)
-------- ---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans to related parties................. (9,904) (19,846) (43,436) --
Loan repayments from related parties..... -- 10,000 50,186 13,000
Proceeds from borrowings................. -- 50,673 -- --
Repayments on finance leases and hire
purchases.............................. (24,788) (80,306) (53,164) (1,095)
Share capital issued..................... -- -- -- 4
Payments for share bought-back........... -- (12,500) -- --
-------- ---------- --------- --------
NET CASH OUTFLOWS FROM
FINANCING ACTIVITIES......... (34,692) (51,979) (46,414) 11,909
-------- ---------- --------- --------
NET INCREASE/(DECREASE) IN CASH HELD..... (11,437) (16,658) 80,399 (30,583)
Cash at the beginning of the financial
year................................... 33,158 49,816 (30,583) 0
-------- ---------- --------- --------
Cash at the end of the financial year.... 17 21,721 33,158 49,816 (30,583)
======== ========== ========= ========
</TABLE>
F-96
<PAGE> 186
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, other authoritative pronouncements of the AASB
and/or PSASB, other mandatory professional reporting requirements (Urgent Issues
Group Consensus Views) and the Corporations Law.
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation. Income tax on cumulative timing differences is set aside
to the deferred income tax or the future income tax benefit accounts at the
rates which are expected to apply when those timing differences reverse.
Future income tax benefits attributable to timing differences are only
brought to account when it is considered appropriate to regard realisation of
future income tax benefits as assured beyond reasonable doubt.
(b) Revenue Recognition and Receivables
(i) ISP Income/Web Hosting
Revenues derived from subscriptions are recognised in the period in which
the services are provided. The company records deferred revenue for any amounts
received in advance of the completion of the subscription period.
(ii) Web design/Systems Integration
Revenue is recognised using the completed contract method.
(iii) Hardware and Software
Revenue is recognised upon delivery and when all other obligation due under
the contract have been completed.
(iv) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days over due.
(c) Inventories
Inventories are stated at the lower of cost and net realisable value and
consist of computer software and/or hardware purchased for re-sale on the basis
of specific orders placed by customers.
F-97
<PAGE> 187
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
(d) Acquisition of Assets
The cost method of accounting is used for all acquisitions of assets, the
cost being determined as the fair value of the assets given up, shares issued or
liabilities undertaken at the date of acquisition, plus costs incidental to the
acquisition.
(e) Recoverable amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
Where the carrying amount of a non-current asset is greater than its
recoverable amount the asset is revalued to its recoverable amount. Where net
cash inflows are derived from a group of assets working together, recoverable
amount is determined on the basis of the relevant group of assets. To the extent
that a revaluation decrement reverses a revaluation increment previously
credited to, and still included in the balance of, the asset revaluation
reserve, the decrement is debited directly to that reserve. Otherwise the
decrement is recognised as an expense in the profit and loss account.
The expected net cash flows included in determining recoverable amounts of
non-current assets are discounted to their present values using a
market-determined, risk-adjusted discount rate.
(f) Revaluation of Non-Current Assets
Where applicable, land and buildings are revalued at three yearly
intervals. Revaluations reflect independent assessments of the fair market value
of land and buildings based on existing use. Revaluation increments are credited
directly to the asset revaluation reserve, unless they are reversing a previous
decrement charged to the profit and loss account, in which case the increment is
credited to the profit and loss account
Potential capital gains tax is not taken into account in determining
revaluation amounts unless there is an intention to sell the assets concerned.
(g) Depreciation of Property, Plant and Equipment
Depreciation is calculated on either a straight line or reducing balance
basis to write off the net cost or revalued amount of each item of property,
plant and equipment (excluding land) over its expected useful life to the
company. Estimates of remaining useful lives are made on a regular basis for all
assets, with annual reassessments for major items. The expected useful lives are
as follows:
<TABLE>
<S> <C>
Office furniture and equipment.............................. 5 years
Computer hardware........................................... 2.5 years
Computer software........................................... 2.5 years
Plant and equipment......................................... 2.5-5 years
</TABLE>
(h) Leasehold Improvements
The cost of improvements to or on leasehold properties is amortised over
the unexpired period of the lease or the estimated useful life of the
improvement to the company, whichever is the shorter.
(i) Leased Non-Current Assets
Leases of fixed assets where substantially all the risks and benefits of
ownership incidental to the ownership of the asset, but not the legal ownership,
are transferred to the company are classified as finance leases. Finance leases
are capitalised recording an asset and liability equal to the present value of
the
F-98
<PAGE> 188
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
minimum lease payments, including any guaranteed residual value. Leased assets
are amortised over their useful lives. Lease payments are allocated between the
reduction of the lease liability and the lease interest expense for the period.
Lease payments for operating leases, where substantially all the risks and
benefits remain with the lessor, are charged as expenses to the profit and loss
statement in the periods in which they are incurred.
(j) Intangible Assets
Goodwill
On acquisition of some, or all, of the assets of another entity, the
identifiable net assets acquired are measured at fair value. The excess of
the fair value of the cost of acquisition over the fair value of the
identifiable net assets acquired, including any liability for restructuring
costs, is bought to account as goodwill. Any amortisation of goodwill is
made on a straight line basis over a maximum period of 20 years.
(k) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to
the company prior to the end of the financial year and which are unpaid.
The amounts are unsecured.
(l) Borrowings
Loans are carried at their principal amounts, which represent the
present value of future cash flows associated with servicing the debt.
Interest, if applicable, is accrued over the period it becomes due and is
recorded as part of other creditors.
(m) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses
as incurred.
(n) Employee Entitlements
Provision is made for the company's liability for employee
entitlements arising from services rendered by employees to balance date.
Employee entitlements expected to be settled within one year together with
entitlements arising from wages, salaries and annual leave which will be
settled after one year, have been measured at their nominal amount. Other
employee entitlements payable later than one year have been measured at the
present value of the future estimated cash outflows to be made for those
entitlements.
A liability for long service leave is recognised where an employee has
reached five years of service, and is measured as the present value of
expected future payments to be made in respect of services provided by
employees up to the reporting date.
Contributions are made by the company to employee superannuation funds
and are charged as expenses where incurred.
(o) Cash
For purposes of the statement of cash flows, cash includes deposits at
call which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
F-99
<PAGE> 189
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
(p) Going Concern
Notwithstanding the deficiency of net assets, the financial report has
been prepared on a going concern basis as the directors have received a
commitment of continued financial support and the directors believe that
such financial support will continue to be made available. This commitment
of continued financial support has been obtained from the Parent entity
Asia Online, Limited in Hong Kong.
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT --------------------- TO 30 JUNE
1999 1999 1998 1997
$ $ $ $
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
CREDITING AS OPERATING REVENUE:
ISP income....................................... 366,460 1,388,583 693,157 125,634
Web design and hosting........................... 154,190 345,941 266,441 34,609
Systems integration.............................. 18,576 56,055 32,141 7,950
Sales -- hardware/software....................... 20,379 201,861 11,433 27,975
Training income.................................. -- 16,373 33,065 --
Rental -- office space........................... -- 4,305 3,160 --
All other revenues............................... 12,708 17,348 7,713 10
------- --------- --------- -------
572,313 2,030,466 1,047,110 196,178
======= ========= ========= =======
</TABLE>
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT --------------------- TO 30 JUNE
1999 1999 1998 1997
$ $ $ $
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
(A) OPERATING PROFIT BEFORE INCOME TAX HAS BEEN
DETERMINED AFTER:
CHARGING AS EXPENSE
Depreciation..................................... 10,888 53,416 29,035 1,118
Amortisation of finance leases/intangibles....... 25,229 84,243 29,514 192
Finance lease charges............................ 7,096 24,454 13,025 --
Interest on hire purchase agreements............. 1,440 6,375 -- --
Rental expense of operating leases............... 13,085 47,953 3,610 --
Employee leave provisions........................ 12,993 19,906 7,343 2,428
Bad debts expense................................ -- 232 847 --
Other Expenses................................... 531,485 1,822,483 973,200 209,652
------- --------- --------- -------
602,216 2,059,062 1,056,574 213,390
======= ========= ========= =======
(B) AUDITORS' REMUNERATION
Amounts received, or due and receivable, by the
auditors for:
(a) audit or review of the financial
accounts.................................... -- -- -- --
(b) other services............................. -- -- -- --
======= ========= ========= =======
</TABLE>
Audit fees for all the years/period covered by these financial statements
have been paid by Asia Online, Limited in Hong Kong and have not been recharged
to the company.
F-100
<PAGE> 190
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
NOTE 4 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT -------------------- TO 30 JUNE
1999 1999 1998 1997
$ $ $ $
----------- --------- -------- ----------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the financial year differs from the amount calculated on the
operating profit/(loss). The differences are reconciled as follows:
OPERATING PROFIT BEFORE INCOME TAX................... (29,903) (28,596) (9,464) (17,212)
PRIMA FACIE INCOME TAX @ 36%......................... (10,765) (10,295) (3,407) (6,196)
Tax effect of permanent differences:
Non-deductible expenses............................ -- 353 -- --
------- ------- ------ -------
Prima facie income tax expense adjusted for permanent
differences........................................ (10,765) (9,942) (3,407) (6,196)
Adjusting tax expense:
Recovery of loss not virtually certain............. 10,765 9,942 3,407 6,196
Tax losses recouped................................ -- -- -- --
------- ------- ------ -------
INCOME TAX (BENEFIT) ATTRIBUTABLE TO OPERATING
PROFIT............................................. -- -- -- --
======= ======= ====== =======
</TABLE>
Potential future income tax benefits attributable to tax losses carried
forward ($57,606) have not been brought to account because the directors do not
believe it is appropriate to regard realisation of future income tax benefits as
virtually certain. Tax losses incurred comprises:
<TABLE>
<S> <C>
30 June 1997:............................................... $23,088
30 June 1998:............................................... $18,791
30 June 1999:............................................... $ 3,350
30 Sept 1999:............................................... $12,377
-------
$57,606
=======
</TABLE>
The benefits will only be obtained if:
(i) the company derives future assessable income of a nature and
amount sufficient to enable the benefit from the deductions for the loss to
be realised;
(ii) the company continues to comply with the conditions for
deductibility imposed by the law; and
(iii) no changes in the tax legislation adversely affects the company
in realising the benefits from the deductions for the loss.
NOTE 5 RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ----------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ----------
<S> <C> <C> <C> <C>
CURRENT
Trade debtors....................................... 88,689 90,606 16,999 --
Related parties (note 14)........................... 216 1,882 -- --
Sundry debtor -- Australian taxation office......... 810 810 -- --
------ ------ ------ ------
89,715 93,298 16,999 --
====== ====== ====== ======
</TABLE>
F-101
<PAGE> 191
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
NOTE 6 OTHER ASSETS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ------------------------
1999 1999 1998 1997
$ $ $ $
------------ ---- ---- ----------
<S> <C> <C> <C> <C>
Prepayments............................................. 3,462 -- 423 7,400
----- ---- --- -----
3,462 -- 423 7,400
===== ==== === =====
</TABLE>
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ----------------------------------
1999 1999 1998 1997
$ $ $ $
------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Office furniture and equipment
Cost......................................... 81,092 77,050 15,132 404
Accumulated depreciation..................... (22,538) (19,447) (2,979) (21)
-------- --------- --------- -------
58,554 57,603 12,153 383
======== ========= ========= =======
Furniture and fittings
Cost......................................... 24,784 24,784 21,769 4,302
Accumulated depreciation..................... (14,251) (13,611) (8,237) (14)
-------- --------- --------- -------
10,533 11,173 13,532 4,288
======== ========= ========= =======
ISP hardware
Cost......................................... 60,158 60,158 31,484 12,918
Accumulated depreciation..................... (27,262) (23,569) (8,742) (251)
-------- --------- --------- -------
32,896 36,589 22,742 12,667
======== ========= ========= =======
Computers
Cost......................................... 50,812 50,812 38,801 10,888
Accumulated depreciation..................... (26,739) (24,294) (10,195) (832)
-------- --------- --------- -------
24,073 26,518 28,606 10,056
======== ========= ========= =======
Computer software
Cost......................................... 11,607 8,296 -- --
Accumulated depreciation..................... (3,074) (2,055) -- --
-------- --------- --------- -------
8,533 6,241 -- --
======== ========= ========= =======
Leasehold improvements
Cost......................................... 13,590 13,590 -- --
Accumulated depreciation..................... -- -- -- --
-------- --------- --------- -------
13,590 13,590 -- --
======== ========= ========= =======
Plant and equipment under lease
Cost......................................... 422,790 397,790 256,265 36,000
Accumulated amortisation..................... (143,266) (118,107) (29,706) (192)
-------- --------- --------- -------
279,524 279,683 226,559 35,808
======== ========= ========= =======
Total property, plant and equipment
Cost......................................... 664,833 632,480 363,451 64,512
Accumulated depreciation and amortisation.... (237,130) (201,083) (59,859) (1,310)
-------- --------- --------- -------
427,703 431,397 303,592 63,202
======== ========= ========= =======
</TABLE>
F-102
<PAGE> 192
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
NOTE 8 INTANGIBLES
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
Formation expenses............................ -- -- 980 980
Goodwill...................................... 11,631 11,631 -- --
-------- ------- ------- -------
11,631 11,631 980 980
======== ======= ======= =======
</TABLE>
NOTE 9 CREDITORS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
Trade creditors................................... 184,424 187,715 142,602 --
Accrued expenses.................................. 74,379 66,918 11,527 5,224
Deposits received................................. 6,110 -- -- --
Income in advance................................. 26,334 25,312 12,826 2,650
-------- ------- ------- -------
291,247 279,945 166,955 7,874
======== ======= ======= =======
</TABLE>
NOTE 10 BORROWINGS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER ------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
CURRENT
Bank overdraft.................................... -- -- -- 51,584
Loans -- related parties (note 14)................ -- 9,904 19,750 13,000
Lease liability (note 13)......................... 109,363 102,735 60,160 9,572
Hire purchase liability........................... 14,699 14,699 -- --
Less: unexpired interest charges.................. (5,091) (5,362) -- --
-------- ------- ------- -------
118,971 121,976 79,910 74,156
-------- ------- ------- -------
NON-CURRENT
Lease liability (note 13)......................... 160,184 164,318 141,846 25,333
Hire purchase liability........................... 46,422 50,096 -- --
Less: unexpired interest charges.................. (7,591) (8,760) -- --
-------- ------- ------- -------
199,015 205,654 141,846 25,333
-------- ------- ------- -------
317,986 327,630 221,756 99,489
======== ======= ======= =======
</TABLE>
NOTE 11 PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
Provision for annual leave.................... 42,670 29,677 9,771 2,428
-------- ------- ------- -------
42,670 29,677 9,771 2,428
======== ======= ======= =======
</TABLE>
F-103
<PAGE> 193
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
NOTE 12 SHARE CAPITAL
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
PAID-UP CAPITAL
Ordinary shares -- fully paid................. (12,496) (12,496) 4 4
-------- ------- ------- -------
(12,496) (12,496) 4 4
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NOTES SHARES ISSUE PRICE ($) $
----- ------ --------------- -------
<S> <C> <C> <C> <C>
MOVEMENTS IN SHARE CAPITAL:
22-1-97 Opening balance................................ 4 1 4
1-3-99 Share buy-back.................................. (a) (1) (12,500)
-- -------
(b) 3 (12,496)
== =======
</TABLE>
(a) Buy-back of share held by Nigel Barling -- consideration consisting of
cash $11,350 and other assets $1,150.
In accordance with section 1446 and 1447 of the Corporations Law, any
amounts standing to the credit of the share premium account on 1 July 1998
became part of share capital as a consequence of the abolition of par values,
which took effect on 1 July 1998.
In accordance with UIGA16, the premium amount of $12,499 has been debited
to share capital.
(b) Ordinary shares (after buy-back) held by:
<TABLE>
<S> <C>
John Alexander Bruce Hendry................................. 1 (One)
Cubic Pty Limited........................................... 1 (One)
Craig Andrew Gibson......................................... 1 (One)
</TABLE>
NOTE 13 COMMITMENTS FOR EXPENDITURE
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
LEASE COMMITMENTS
Commitments in relation to leases contracted
at the reporting date but not recognised as
liabilities payable:
Not later than 1 year....................... 60,220 75,872 43,364 3,576
Later than 1 year but not later than 5...... 28,975 37,109 43,859 3,465
Later than 5 years.......................... -- -- -- --
-------- ------- ------- -------
89,195 112,981 87,223 7,041
======== ======= ======= =======
Representing:
Operating leases............................ 53,530 72,336 46,889 --
Future finance charges on finance leases.... 35,665 40,645 40,334 7,041
-------- ------- ------- -------
89,195 112,981 87,223 7,041
======== ======= ======= =======
</TABLE>
F-104
<PAGE> 194
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------------------
1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
FINANCE LEASES
Commitments in relation to finance leases are
payable as follows:-
Not later than 1 year....................... 129,230 126,265 81,285 13,147
Later than 1 year but not later than 5...... 175,982 181,433 161,055 28,799
Later than 5 years.......................... -- -- -- --
-------- ------- ------- -------
Minimum Lease payments...................... 305,212 307,698 242,340 41,946
Less: future finance charges................ (35,665) (40,645) (40,334) (7,041)
-------- ------- ------- -------
Total lease liabilities............. 269,547 267,053 202,006 34,905
======== ======= ======= =======
Recognising lease liabilities:-
Current (note 10)........................... 109,363 102,735 60,160 9,572
Non-current (note 10)....................... 160,184 164,318 141,846 25,333
-------- ------- ------- -------
269,547 267,053 202,006 34,905
======== ======= ======= =======
HIRE PURCHASE
Commitments in relation to hire purchases are
payable as follows:-
Not later than 1 year....................... 14,699 14,699 -- --
Later than 1 year but not later than 5...... 46,422 50,096 -- --
Later than 5 years.......................... -- -- -- --
-------- ------- ------- -------
61,121 64,795 -- --
Less: unexpired interest charges............ (12,682) (14,122) -- --
-------- ------- ------- -------
Total hire purchase liabilities..... 48,439 50,673 -- --
======== ======= ======= =======
Recognising hire purchase liabilities:-
Current (note 10)........................... 9,608 9,337 -- --
Non-current (note 10)....................... 38,831 41,336 -- --
-------- ------- ------- -------
48,439 50,673 -- --
======== ======= ======= =======
</TABLE>
NOTE 14 RELATED PARTIES
(a) Directors and Directors' Remuneration
The names of persons who were directors of InterACT Technology Pty Limited
during the relevant years/periods were as follows:
<TABLE>
<CAPTION>
DIRECTOR DATE APPOINTED DATE RESIGNED
-------- -------------- -------------
<S> <C> <C>
John Alexander Hendry............................... 22 January 1997 --
John Patrick Hayden................................. 22 January 1997 --
Craig Andrew Gibson................................. 22 January 1997 --
Nigel Scott Barling................................. 22 January 1997 6 August 1998
</TABLE>
F-105
<PAGE> 195
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT -------------------- TO 30 JUNE
1999 1999 1998 1997
$ $ $ $
----------- -------- ------- ----------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made
available, to directors by the company and
related parties in connection with the management
of the affairs of the company.................... 35,822 81,483 9,660 4,000
====== ====== ===== =====
</TABLE>
Number of directors of the company whose total income falls within the
following bands (annualised based upon amounts paid, where applicable):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1 JULY 1999 30 JUNE 1 MAR 1997
TO 30 SEPT -------------------- TO 30 JUNE
1999 1999 1998 1997
$ $ $ $
----------- -------- ------- ----------
<S> <C> <C> <C> <C>
$ 0--$ 9,999................................... -- 1 4 4
$30,000--$39,000................................... -- 2 -- --
$40,000--$49,000................................... 2 -- -- --
$50,000--$59,000................................... 1 -- -- --
</TABLE>
(b) Loans to/by Directors and Director-Related Entities
Loans advanced to the company by the directors and their director-related
entities disclosed in note 10 compromise:
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ------
<S> <C> <C> <C> <C>
OPENING BALANCES............................. 9,904 19,750 13,000 --
LOANS ADVANCED TO THE COMPANY:
J Hayden................................... -- -- 5,000 9,250
J Hendry................................... -- -- 5,000 3,250
C Gibson................................... -- -- 5,000 3,250
N Barling.................................. -- -- 5,000 3,250
LinkIT Australia Pty Limited............... -- 10,000 21,450 --
Iacom Pty Limited.......................... -- -- 8,736 --
Interact Internet Services Pty Limited..... -- -- -- 5,000
LOAN REPAYMENTS MADE:
Directors.................................. (1,668) (7,896) (23,436) (6,000)
LinkIT Australia Pty Limited............... -- (11,450) (20,000) --
Iacom Pty Limited.......................... (8,236) (500) -- --
Interact Internet services Pty Limited..... -- -- -- (5,000)
------ ------- ------- ------
-- 9,904 19,750 13,000
====== ======= ======= ======
</TABLE>
F-106
<PAGE> 196
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ------
<S> <C> <C> <C> <C>
LOAN BALANCES COMPRISING: (NOTE 10)
J Hayden................................... -- 1,668 2,532 3,250
J Hendry................................... -- -- 1,266 3,250
C Gibson................................... -- -- 1,266 3,250
N Barling.................................. -- -- 4,500 3,250
LinkIT Australia Pty Limited............... -- -- 1,450 --
Iacom Pty Limited.......................... -- 8,236 8,736 --
------ ------- ------- ------
-- 9,904 19,750 13,000
====== ======= ======= ======
</TABLE>
Loans advanced by the company to related parties in note 5 comprise:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ------------------- 1 MAR 1997 TO
30 SEPT 1999 1999 1998 30 JUNE 1997
$ $ $ $
-------------- ------- ------- -------------
<S> <C> <C> <C> <C>
OPENING BALANCES:....................... 1,882 -- -- --
LOANS ADVANCED TO RELATED PARTIES:
LinkIT Australia Pty Limited.......... -- 1,882 -- --
LOAN REPAYMENTS MADE:
LinkIT Australia Pty Limited.......... (1,666) -- -- --
------ ----- ----- -----
216 1,882 -- --
====== ===== ===== =====
</TABLE>
(c) Transactions with Directors and Director-Related Entities (other than
loans)
Payments to Iacom Pty Limited and LinkIT Australia Pty Limited ("LinkIT")
are in respect of the hire of computer hardware. LinkIT is also a reseller of IT
hardware and has sold equipment to the company.
Isecure Pty Limited ("Isecure") provides services from time to time, on an
invoice basis, in respect of web site security and other network and online
services. InterACT also invoices Isecure for administrative services.
Payments made to Canberra Internet Exchange Pty Ltd (managed by Craig
Gibson) are for the company's usage costs in relation to the downloading of
information from overseas internet data sites. Canberra Internet Exchange Pty
Ltd downloads information on behalf of three Canberra based internet service
providers.
All loans to and from related parties have been made on interest-free
terms.
F-107
<PAGE> 197
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO -------------------- 1 MAR 1997 TO
30 SEPT 1999 1999 1998 30 JUNE 1997
$ $ $ $
-------------- -------- -------- -------------
<S> <C> <C> <C> <C>
SALES OF GOODS AND SERVICES
LinkIT Australia Pty Ltd.............. 262 10,898 -- --
Isecure Pty Ltd....................... 15,900 -- -- --
------ ------ ------ ------
16,162 10,898 -- --
====== ====== ====== ======
PURCHASE OF GOODS AND SERVICES
LinkIT Australia Pty Ltd.............. 4,800 77,977 31,862 21,974
Iacom Pty Ltd......................... 1,263 7,552 5,000 7,000
Isecure Pty Ltd....................... 27,522 2,625 -- --
Canberra Internet Exchange Pty Ltd.... 1,584 8,188 -- --
------ ------ ------ ------
35,169 96,342 36,862 28,974
====== ====== ====== ======
</TABLE>
(d) Directors' shareholdings in related companies
The directors have, or have previously had, an interest in each of the
companies listed below:
<TABLE>
<CAPTION>
C GIBSON N BARLING J HENDRY J HAYDEN
-------- --------- -------- --------
<S> <C> <C> <C> <C>
LinkIT Australia Pty Ltd...................... Yes No Yes No
Iacom Pty Ltd................................. No Yes Yes Yes
Isecure Pty Ltd............................... Yes No Yes Yes
Canberra Internet Exchange Pty Limited........ Yes No No No
Interact Internet Services Pty Limited........ Yes No Yes No
</TABLE>
NOTE 15 SEGMENT INFORMATION
The company operates predominantly as an internet service provider (ISP) in
Australia.
NOTE 16 EVENTS OCCURRING AFTER REPORTING DATE
On 1 October 1999, Asia Online Australia Pty Limited entered into an
agreement to acquire 60% of the issued share capital of the company. The
financial effects of this transaction have not been brought to account as at 30
September 1999.
NOTE 17 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ -------
<S> <C> <C> <C> <C>
Cash on hand............................... 300 300 4 4
Cash -- cheque account..................... 7,170 8,124 20,352 (51,584)
Cash management account.................... 119 10,800 15,976 7,997
Term deposit............................... 14,132 13,934 13,484 13,000
------ ------ ------ -------
21,721 33,158 49,816 (30,583)
====== ====== ====== =======
</TABLE>
F-108
<PAGE> 198
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
30 JUNE
1 JULY 1999 TO ------------------- 1 MAR 1997 TO
30 SEPT 1999 1999 1998 30 JUNE 1997
$ $ $ $
-------------- -------- -------- -------------
<S> <C> <C> <C> <C>
Operating profit after income tax....... (29,903) (28,596) (9,464) (17,212)
------- ------- ------- -------
Depreciation and amortisation........... 36,117 138,639 58,549 1,310
Net loss/(profit) on sale on non-current
asset................................. -- 818 (699) --
------- ------- ------- -------
6,214 110,861 48,386 (15,902)
Changes in operating assets and
liabilities:
Decrease/(increase) in trade and other
debtors............................ 3,583 (76,299) (16,999) --
Decrease/(increase) in prepayments.... (3,462) 423 6,977 (7,400)
Increase/(decrease) in creditors and
accrued expenses................... 11,302 112,990 159,081 7,874
Increase/(decrease) in provisions and
employee entitlements.............. 12,993 19,906 7,343 2,428
------- ------- ------- -------
Net cash inflow/(outflow) from
operating activities............... 30,630 167,881 204,788 (13,000)
======= ======= ======= =======
</TABLE>
NOTE 18 FINANCIAL INSTRUMENTS
(a) Credit risk exposures
The credit risk on financial assets of the economic entity which have been
recognised on the balance sheet is generally the carrying amount, net of any
provisions for doubtful debts.
F-109
<PAGE> 199
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
(b) Interest rate risks
The economic entity's exposure to interest rate risk and the effective
weighted average interest rate for each class of financial assets and financial
liabilities is set out below.
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ---------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
NOTES RATE OR LESS YEARS YEARS BEARING TOTAL
----- -------- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 JULY 1999 TO 30 SEPT 1999
(a) FINANCIAL ASSETS
Cash and deposits................. 14,251 -- -- -- 7,470 21,721
Trade debtors..................... 5 -- -- -- -- 88,689 88,689
Related entity receivables........ 14 -- -- -- -- 216 216
Other receivables................. 5 -- -- -- -- 810 810
------ -------- -------- ------ -------- --------
14,251 -- -- -- 97,185 111,436
------ -------- -------- ------ -------- --------
Weighted average interest rate.... 3.4%
(b) FINANCIAL LIABILITIES
Creditors......................... 9 -- -- -- -- 184,424 184,424
Other creditors and accruals...... 9 -- -- -- -- 80,489 80,489
Lease liabilities................. 10 -- 109,363 160,184 -- -- 269,547
Hire purchase liabilities......... 10 -- 9,608 38,831 -- -- 48,439
------ -------- -------- ------ -------- --------
-- 118,971 199,015 -- 264,913 582,899
------ -------- -------- ------ -------- --------
Weighted average interest rate.... 11.6% 10.4%
------ -------- -------- ------ -------- --------
Net financial assets
(liabilities)................... 14,251 (118,971) (199,015) -- (167,728) (471,463)
====== ======== ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ---------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
NOTES RATE OR LESS YEARS YEARS BEARING TOTAL
----- -------- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 JULY 1998 TO 30 JUNE 1999
(a) FINANCIAL ASSETS
Cash and deposits................. 24,734 -- -- -- 8,424 33,158
Trade debtors..................... 5 -- -- -- -- 90,606 90,606
Related entity receivables........ 14 -- -- -- -- 1,882 1,882
Other receivables................. 5 -- -- -- -- 810 810
------ -------- -------- ------ -------- --------
24,734 -- -- -- 101,722 126,456
------ -------- -------- ------ -------- --------
Weighted average interest rate.... 2.4%
(b) FINANCIAL LIABILITIES
Creditors......................... 9 -- -- -- -- 187,715 187,715
Other creditors and accruals...... 9 -- -- -- -- 66,918 66,918
Lease liabilities................. 10 -- 102,735 164,318 -- -- 267,053
Hire purchase liabilities......... 10 -- 9,337 41,336 -- -- 50,673
Loans -- related parties.......... 14 -- -- -- -- 9,904 9,904
------ -------- -------- ------ -------- --------
-- 112,072 205,654 -- 264,537 582,263
------ -------- -------- ------ -------- --------
Weighted average interest rate.... 11.4% 10.4%
------ -------- -------- ------ -------- --------
Net financial assets
(liabilities)................... 24,734 (112,072) (205,654) -- (162,815) (455,807)
====== ======== ======== ====== ======== ========
</TABLE>
F-110
<PAGE> 200
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ----------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
NOTES RATE OR LESS YEARS YEARS BEARING TOTAL
----- -------- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 JULY 1997 TO 30 JUNE 1998
(a) FINANCIAL ASSETS
Cash and deposits............ 29,460 -- -- -- 20,356 49,816
Trade debtors................ 5 -- -- -- -- 16,999 16,999
------ ------- -------- ------ -------- --------
29,460 -- -- -- 37,355 66,815
------ ------- -------- ------ -------- --------
Weighted average interest
rate....................... 2.5%
(b) FINANCIAL LIABILITIES
Creditors.................... 9 -- -- -- -- 142,602 142,602
Other creditors and
accruals................... 9 -- -- -- -- 11,527 11,527
Lease liabilities............ 10 -- 60,160 141,846 -- -- 202,006
Loans -- related parties..... 14 -- -- -- -- 19,750 19,750
------ ------- -------- ------ -------- --------
-- 60,160 141,846 -- 173,879 375,885
------ ------- -------- ------ -------- --------
Weighted average interest
rate....................... 12.1% 12.1%
------ ------- -------- ------ -------- --------
Net financial assets
(liabilities).............. 29,460 (60,160) (141,846) -- (136,524) (309,070)
====== ======= ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ----------------------------- NON
INTEREST 1 YEAR 1 TO 5 OVER 5 INTEREST
NOTES RATE OR LESS YEARS YEARS BEARING TOTAL
----- -------- ------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 MARCH 1997 TO 30 JUNE 1997
(a) FINANCIAL ASSETS
Cash and deposits............ 20,997 -- -- -- 4 21,001
------ ------ ------- ------ ------- -------
20,997 -- -- -- 4 21,001
------ ------ ------- ------ ------- -------
Weighted average interest
rate....................... 3.9%
(b) FINANCIAL LIABILITIES
Bank overdraft............... -- -- -- -- 51,584 51,584
Other creditors and
accruals................... 9 -- -- -- -- 5,224 5,224
Lease liabilities............ 10 -- 9,572 25,333 -- -- 34,905
Hire purchase liabilities.... 10 -- -- -- -- -- --
Loans -- related parties..... 14 -- -- -- -- 13,000 13,000
------ ------ ------- ------ ------- -------
-- 9,572 25,333 69,808 104,713
------ ------ ------- ------ ------- -------
Weighted average interest
rate....................... 11.7% 11.7%
------ ------ ------- ------ ------- -------
Net financial assets
(liabilities).............. 20,997 (9,572) (25,333) -- (69,804) (83,712)
====== ====== ======= ====== ======= =======
</TABLE>
F-111
<PAGE> 201
INTERACT TECHNOLOGY PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL ACCOUNTS -- (CONTINUED)
(c) Net fair value of financial assets and liabilities
The net fair value of financial assets and liabilities of the economic
entity approximates their carrying value.
<TABLE>
<CAPTION>
30 JUNE
------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net financial assets as above............. (471,463) (455,807) (309,070) (83,712)
Non-financial assets and liabilities
Property, plant and equipment........... 7 427,703 431,397 303,592 63,202
Intangibles............................. 8 11,631 11,631 980 980
Other assets............................ 6 3,462 -- 423 7,400
Income in advance....................... 9 (26,334) (25,312) (12,826) (2,650)
Provisions.............................. 11 (42,670) (29,677) (9,771) (2,428)
-------- -------- -------- --------
Net assets per balance sheet.... (97,671) (67,768) (26,672) (17,208)
======== ======== ======== ========
</TABLE>
NOTE 19 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the four months ended 30 June 1997 and the two years ended 30 June 1999
and three months ended 30 September 1999 there were no material adjustments
required to reconcile net income and shareholders' equity for differences
between Australian GAAP and U.S. GAAP.
F-112
<PAGE> 202
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of Internet Access Australia Pty Limited:
(formerly the business of Internet Access Australia Unit Trust)
We have audited the accompanying balance sheet of Internet Access Australia
Pty Limited (formerly the business of Internet Access Australia Unit Trust) as
of 30 June 1997, 1998 and 1999 and 30 September 1999 and the related statement
of income and of cash flows for the years ended 30 June 1997, 1998 and 1999 and
for the three month period ended 30 September 1999 which, as described in Note
1, have been prepared on the basis of accounting principles generally accepted
in Australia. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internet Access Australia
Pty Limited (formerly the business of Internet Access Australia Unit Trust) as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September 1999 in conformity with
accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September to the extent summarised in
note 19 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-113
<PAGE> 203
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
PROFIT AND LOSS STATEMENT
FOR THE 3 MONTH PERIOD ENDED 30 SEPTEMBER 1999
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
---------------------------------
1 JULY 1999 TO 30 JUNE 30 JUNE 30 JUNE
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... 2 551,427 2,014,054 1,609,244 1,189,817
== ======= ========= ========= =========
OPERATING PROFIT/(LOSS) BEFORE ABNORMAL
ITEMS AND INCOME TAX.................. 3 95,255 491,896 313,937 172,710
Abnormal item before income tax......... 4 -- (14,630) (10,267) (133,467)
------- --------- --------- ---------
OPERATING PROFIT/(LOSS) BEFORE INCOME
TAX................................... 95,255 477,266 303,670 39,243
Income tax benefit/(expense)
attributable to operating profit...... 5 (53,744) -- -- --
------- --------- --------- ---------
OPERATING PROFIT/(LOSS) AFTER INCOME
TAX................................... 41,511 477,266 303,670 39,243
Distributions to beneficiaries.......... 13 -- (477,266) (303,670) (39,243)
------- --------- --------- ---------
RETAINED PROFITS AT THE END OF THE
FINANCIAL YEAR........................ 41,511 -- -- --
======= ========= ========= =========
</TABLE>
The above profit and loss accounts should be read in conjunction with the
accompanying notes.
F-114
<PAGE> 204
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
BALANCE SHEET
AS AT 30 SEPTEMBER 1999
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 SEPT 30 JUNE 30 JUNE 30 JUNE
1999 1999 1998 1997
NOTES $ $ $ $
----- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash.......................................... 33,918 254,555 -- 118,297
Receivables................................... 6 219,752 220,208 165,427 141,652
Other......................................... 7 275,311 19,996 13,556 4,054
--------- ------- ------- -------
TOTAL CURRENT ASSETS................ 528,981 494,759 178,983 264,003
--------- ------- ------- -------
NON-CURRENT ASSETS
Property, plant and equipment................. 8 216,776 228,049 196,508 125,137
Intangible.................................... 9 1,964,626 -- -- --
Other......................................... 7 29,578 -- -- --
--------- ------- ------- -------
TOTAL NON-CURRENT ASSETS............ 2,210,980 228,049 196,508 125,137
--------- ------- ------- -------
TOTAL ASSETS........................ 2,739,961 722,808 375,491 389,140
--------- ------- ------- -------
CURRENT LIABILITIES
Creditors..................................... 10 356,425 215,239 144,074 318,676
Provisions.................................... 11 132,207 49,753 34,901 22,348
--------- ------- ------- -------
TOTAL CURRENT LIABILITIES........... 488,632 264,992 178,975 341,024
--------- ------- ------- -------
NON-CURRENT LIABILITIES
Provisions.................................... 11 11,809 11,247 8,998 6,748
--------- ------- ------- -------
TOTAL NON-CURRENT LIABILITIES....... 11,809 11,247 8,998 6,748
--------- ------- ------- -------
TOTAL LIABILITIES................... 500,441 276,239 187,973 347,772
--------- ------- ------- -------
NET ASSETS.................................... 2,239,521 446,569 187,518 41,369
========= ======= ======= =======
EQUITY
Share capital................................. 12 2,198,010 -- -- --
Retained profits.............................. 41,511 -- -- --
Issued Units.................................. 12 -- 2,400 2,400 2,400
Unit Premium Reserve.......................... -- 80,000 80,000 80,000
Beneficiaries Current Accounts................ 13 -- 364,169 105,118 (41,031)
--------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY.......... 2,239,521 446,569 187,518 41,369
========= ======= ======= =======
</TABLE>
The above balance sheets should be read in conjunction with the accompanying
notes.
F-115
<PAGE> 205
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
STATEMENTS OF CASH FLOWS
FOR THE 3 MONTH PERIOD ENDED 30 SEPTEMBER 1999
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 -----------------------------------
TO 30 SEPT JUNE 1999 JUNE 1998 JUNE 1997
NOTES 1999 $ $ $
----- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.................... 577,153 2,024,202 1,603,864 1,180,624
Payments to suppliers and employees........ (268,495) (1,423,611) (1,302,724) (929,261)
-------- ---------- ---------- ---------
308,658 600,591 301,140 251,363
Interest received.......................... 2,483 6,254 3,540 180
-------- ---------- ---------- ---------
NET CASH INFLOWS/(OUTFLOWS) FROM OPERATING
ACTIVITIES............................... 18 311,141 606,845 304,680 251,543
-------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related parties................... (267,933) -- -- --
Repayment of loans by related parties...... -- -- 13,872 --
Payments for property, plant and
equipment................................ (9,290) (116,413) (132,675) (125,849)
-------- ---------- ---------- ---------
NET CASH INFLOWS/(OUTFLOWS) FROM INVESTING
ACTIVITIES............................... (277,223) (116,413) (118,803) (125,849)
-------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to beneficiaries........ -- (218,215) (321,836) (53,631)
Proceeds of borrowings from related
parties.................................. 15d 235,246 -- -- --
Repayment of borrowings to related
parties.................................. 15d (235,246) -- -- --
-------- ---------- ---------- ---------
NET CASH OUTFLOWS FROM FINANCING
ACTIVITIES............................... -- (218,215) (321,836) (53,631)
-------- ---------- ---------- ---------
NET INCREASE/(DECREASE) IN CASH HELD....... 33,918 272,217 (135,959) 72,063
Cash at the beginning of the financial
period................................... -- (17,662) 118,297 46,234
-------- ---------- ---------- ---------
Cash at the end of the financial period.... 18 33,918 254,555 (17,662) 118,297
======== ========== ========== =========
</TABLE>
F-116
<PAGE> 206
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Accounting Standards, other mandatory professional reporting requirements
(Urgent Issues Group Consensus Views) and the Corporations Law.
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous years.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Change in entities structure
For the period from 1 July 1997 to 30 June 1999, the reporting entity
existed as a Unit Trust known as Internet Access Australia Unit Trust. The
distribution of profits/losses to its beneficiaries is described in Note 13 to
the financial statements.
Internet Access Australia Pty Ltd ("company") was dormant until 1 July
1999. The business excluding certain assets and liabilities of the Unit Trust
was sold to the company as from 1 July 1999 for consideration of $2,198,010
shares at $1 each. Goodwill resulting from the acquisition of the business is
brought to account on the basis described in note 1(g).
Effective the same day, 95% of the shares in the company were sold to I.T &
e (an independent investor) for a consideration of $2,088,111 with 5%, valued in
the agreement at $109,889, being retained by a trustee company as an option
granted to A. Bodin exercisable no later than 30 December 2002. (This resulted
in the former beneficiaries receiving certain cash and shares in I.T & e for
their interest in the business.)
(b) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation. Income tax on cumulative timing differences is set aside
to the deferred income tax or the future income tax benefit accounts at the
rates which are expected to apply when those timing differences reverse.
(c) Receivables and Revenue Recognition
(i) Trade Debtors
All trade debtors are recognised at the amounts receivable as they are due
for settlement no more than 30 days from the date of recognition.
Collectibility of trade debtors is reviewed on an ongoing basis. Debts
which are known to be uncollectible are written off. A provision for doubtful
debts is raised where some doubt as to collection exists and in any event where
the debt is more than 180 days overdue.
(ii) Revenue
Dial Up/Leased Lines/I SDN/Global Roaming/Web Hosting
F-117
<PAGE> 207
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
Revenues derived from Dial Up, Leased Lines/ISDN, Global Roaming and Web
Hosting are recognised in the period in which the services are provided. The
company records deferred revenue at period end for any amounts received in
advance when the service has not yet been provided.
(d) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the company. Estimates of remaining
useful lives are made on a regular basis for all assets, with annual
reassessments for major items. The expected useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... 4-5 years
Furniture and fittings...................................... 4-5 years
Plant and equipment......................................... 4-5 years
</TABLE>
(e) Leasehold Improvements
The cost of improvements to or on leasehold properties is amortised over
the unexpired period of the lease or the estimated useful life of the
improvement to the company, whichever is the shorter. Leasehold improvements
held at the reporting date are being amortised over 5 years.
(f) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
company prior to the end of the financial year and which are unpaid. The amounts
are unsecured and are usually paid within 30 days of recognition.
(g) Goodwill
On acquisition of all of the assets of Internet Access Australia Unit
Trust, the identifiable net assets acquired are measured at fair value. The
excess of the fair value of the cost of acquisition over the fair value of the
identifiable net assets acquired, including any liability for restructuring
costs, is brought to account as goodwill and amortised on a straight line basis
over ten years, being the period during which the benefits are expected to
arise.
(h) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(i) Employee Entitlements
(i) Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured, as the amount unpaid at the reporting date at
current pay rates in respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured, as the
present value of expected future payments to be made in respect of services
provided by employees up to the reporting date. Consideration is given to
expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using interest rates
on national government
F-118
<PAGE> 208
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
guaranteed securities with terms to maturity that match, as closely as possible,
the estimated future cash outflows.
(j) Cash
Cash includes deposits at call which are readily convertible to cash on
hand and are subject to an insignificant risk of changes in value, net of
outstanding bank overdrafts.
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Dial Up revenue............................ 472,529 1,746,583 1,412,251 978,948
Leased Lines/ISDN.......................... -- 74,539 74,965 84,643
Web Hosting................................ 63,848 135,104 86,233 91,154
Other...................................... 15,050 57,828 35,795 35,072
------- --------- --------- ---------
551,427 2,014,054 1,609,244 1,189,817
======= ========= ========= =========
</TABLE>
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(a) OPERATING PROFIT BEFORE INCOME TAX HAS
BEEN DETERMINED AFTER:
CHARGING AS EXPENSE:
Depreciation........................... 20,563 77,702 52,149 40,405
Amortisation of goodwill............... 50,375 -- -- --
Bad and doubtful debts................. -- 865 1,367 5,019
Rental Expense......................... 333 14,749 8,878 4,488
Salaries and wages..................... 67,324 385,291 304,714 282,321
Other Expenses......................... 315,577 1,043,551 928,199 684,874
------- --------- --------- ---------
456,172 1,522,158 1,295,307 1,017,107
======= ========= ========= =========
(b) AUDITORS' REMUNERATION
Amounts received, or due and
receivable, by the auditors for:
Auditing the financial statements... -- -- -- --
======= ========= ========= =========
</TABLE>
F-119
<PAGE> 209
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
Note: Audit fees for all the years/periods covered by these financial
statements have been paid by Asia Online, Ltd -- Hong Kong and have not been
recharged to the company.
NOTE 4 ABNORMAL ITEM
<TABLE>
<CAPTION>
1 JULY 1999 TO
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING PROFIT/(LOSS) AFTER INCOME TAX
INCLUDES THE FOLLOWING ABNORMAL ITEMS:
Loss on non-recoverable loan............... -- (6,500) (15,029) (30,534)
Fixed assets write-offs.................... -- (8,170) (8,066) (106,528)
Gain on cancelled cheques.................. -- 40 12,828 3,595
------ ------- ------- --------
-- (14,630) (10,267) (133,467)
====== ======= ======= ========
</TABLE>
NOTE 5 INCOME TAX
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
The amount of income tax attributable to
the financial year differs from the amount
prima facie tax payable on the operating
profit. The differences are reconciled as
follows:
PRIMA FACIE INCOME TAX ON OPERATING
PROFIT................................... 34,292 -- -- --
Effect of permanent differences which
Increase tax payable:
Other non-deductible expenses............ 1,316 -- -- --
Goodwill amortisation.................... 18,136 -- -- --
------- ------ ------ ------
53,744 -- -- --
======= ====== ====== ======
INCOME TAX (BENEFIT) ATTRIBUTABLE TO
OPERATING PROFIT......................... 53,744 -- -- --
======= ====== ====== ======
COMPRISING:
Current taxation provision................. 83,322 -- -- --
Future income tax benefit.................. (29,578) -- -- --
Deferred income tax provision.............. -- -- -- --
Underprovision/(Overprovision) in prior
years.................................... -- -- -- --
------- ------ ------ ------
53,744 -- -- --
======= ====== ====== ======
</TABLE>
F-120
<PAGE> 210
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 6 RECEIVABLES
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT
Trade debtors.............................. 226,170 226,626 170,980 145,838
Less: Provision for Doubtful Debts......... (6,418) (6,418) (5,553) (4,186)
------- ------- ------- -------
219,752 220,208 165,427 141,652
======= ======= ======= =======
</TABLE>
NOTE 7 OTHER ASSETS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
NOTE $ $ $ $
---- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT
Prepaid expenses..................... 7,378 19,996 13,556 4,054
Loan to related parties.............. 15 267,933 -- -- --
-------- ------ ------ -----
275,311 19,996 13,556 4,054
======== ====== ====== =====
NON-CURRENT
Future Income Tax Benefit............ 29,578 -- -- --
======== ====== ====== =====
</TABLE>
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computer Equipment
Cost................................... 223,972 410,580 309,377 189,287
Accumulated depreciation............... (19,468) (197,640) (124,034) (74,321)
------- -------- -------- -------
204,504 212,940 185,343 114,966
------- -------- -------- -------
Furniture and fittings
Cost................................... 8,374 10,492 2,452 2,452
Accumulated depreciation............... (683) (2,209) (612) (72)
------- -------- -------- -------
7,690 8,283 1,840 2,380
------- -------- -------- -------
Plant and equipment
Cost................................... 4,993 11,359 11,359 7,929
Accumulated depreciation............... (412) (4,533) (2,034) (138)
------- -------- -------- -------
4,581 6,826 9,325 7,791
------- -------- -------- -------
TOTAL
COST................................... 237,339 432,431 323,188 199,668
ACCUMULATED DEPRECIATION............... (20,563) (204,382) (126,680) (74,531)
------- -------- -------- -------
216,776 228,049 196,508 125,137
======= ======== ======== =======
</TABLE>
F-121
<PAGE> 211
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 9 INTANGIBLES
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Goodwill............................... 2,015,002 -- -- --
Less: Accumulated amortisation....... (50,375) -- -- --
---------- ------- ------- -------
1,964,626 -- -- --
========== ======= ======= =======
</TABLE>
NOTE 10 CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Bank overdraft......................... -- -- 17,662 --
Trade creditors........................ 185,240 55,033 21,432 147,878
Other creditors and accruals........... 26,580 43,355 60,137 122,647
Amount due from related party.......... -- -- -- 13,782
Deferred revenue....................... 144,605 116,851 44,843 34,369
-------- ------- ------- -------
356,425 215,239 144,074 318,676
======== ======= ======= =======
</TABLE>
NOTE 11 PROVISIONS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT
Employee entitlements.................. 48,885 49,753 34,901 22,348
Taxation............................... 83,322 -- -- --
-------- ------ ------ ------
132,207 49,753 34,901 22,348
-------- ------ ------ ------
NON-CURRENT
Employee entitlements.................. 11,809 11,247 8,998 6,748
-------- ------ ------ ------
11,809 11,247 8,998 6,748
-------- ------ ------ ------
TOTAL PROVISIONS............. 144,016 61,000 43,899 29,096
======== ====== ====== ======
</TABLE>
F-122
<PAGE> 212
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 12 SHARE CAPITAL
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
PAID UP CAPITAL
Number of ordinary shares issued during
the year............................. 2,198,010 -- -- --
========== ===== ===== =====
Ordinary shares at the end of the
year................................. $2,198,010 -- -- --
========== ===== ===== =====
UNITS HELD BY BENEFICIARIES
Bodin Investments Pty Ltd.............. -- 960 600 600
Philips Family Pty Ltd................. -- -- 600 600
Carlile Corporation Pty Ltd............ -- 480 400 400
Constant Organisation Pty Ltd.......... -- 480 400 400
Eltham Automotive Advisory Service Pty
Ltd.................................. -- 480 400 400
---------- ----- ----- -----
-- 2,400 2,400 2,400
========== ===== ===== =====
</TABLE>
NOTE 13 MOVEMENTS IN BENEFICIARIES ACCOUNTS
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BODIN INVESTMENTS PTY LTD
At beginning of the year............. -- (19,231) (47,234) (37,274)
Drawings/Loans to Trust.............. -- (74,012) (140,715) (19,771)
Directors Fees....................... -- -- 40,000 --
Consultancy fees..................... -- -- 52,800 --
Distributions of profit.............. -- 190,906 75,918 9,811
-------- -------- -------- -------
At end of year............... -- 97,663 (19,231) (47,234)
-------- -------- -------- -------
PHILIPS FAMILY PTY LTD
At beginning of the year............. -- 97,693 (17,347) (15,210)
Drawings/Loans to Trust.............. -- (117,936) (29,030) (11,948)
Directors Fees....................... -- -- 40,000 --
Consultancy fees..................... -- -- 28,153 --
Distributions of profit.............. -- -- 75,918 9,811
-------- -------- -------- -------
At end of year............... -- (20,243) 97,693 (17,347)
-------- -------- -------- -------
CARLILE CORPORATION PTY LTD
At beginning of the year............. -- 8,759 7,850 8,614
Drawings/Loans to Trust.............. -- (5,000) (49,703) (7,304)
Distributions of profit.............. -- 95,453 50,612 6,540
-------- -------- -------- -------
At end of year............... -- (99,212) 8,759 7,850
-------- -------- -------- -------
</TABLE>
F-123
<PAGE> 213
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CONSTANT ORGANISATION PTY LTD
At beginning of the year............. -- 8,949 7,850 8,614
Drawings/Loans to Trust.............. -- (16,267) (49,513) (7,304)
Distributions of profit.............. -- 95,453 50,612 6,540
-------- -------- -------- -------
At end of year............... -- 88,135 8,949 7,850
-------- -------- -------- -------
ELTHAM AUTOMOTIVE ADVISORY SERVICE PTY
LTD
At beginning of the year............. -- 8,949 7,850 8,614
Drawings/Loans to Trust.............. -- (5,000) (49,513) (7,304)
Distributions of profit.............. -- 95,453 50,612 6,540
-------- -------- -------- -------
At end of year............... -- 99,402 8,949 7,850
-------- -------- -------- -------
TOTAL
At beginning of the year............. -- 105,119 (41,031) (26,643)
Drawings/Loans to Trust.............. -- (218,215) (318,474) (53,631)
Directors Fees....................... -- -- 80,000 --
Consultancy fees..................... -- -- 80,953 --
Distributions of profit.............. -- 477,265 303,670 39,243
-------- -------- -------- -------
At end of year............... -- 364,169 105,118 (41,031)
-------- -------- -------- -------
</TABLE>
NOTE 14 FINANCIAL INSTRUMENTS
(a) Credit risk exposures
The maximum exposure to credit risk, excluding the value of any collateral
or other security, at balance date to recognised financial assets is the
carrying amount of those assets, net of any provisions for doubtful debts, as
disclosed in the balance sheet and notes to the financial report.
The entity does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into by the
entity.
F-124
<PAGE> 214
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
(b) Interest rate risks
The economic entity's exposure to interest rate risk , which is the risk
that a financial instrument's value will fluctuate as a result of changes in
market interest rates and the effective weighted average interest rates on those
financial assets and financial liabilities, is as follows:
<TABLE>
<CAPTION>
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
NOTES $ $ $ $
----- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and deposits............... 33,918 254,555 -- 118,297
Receivables..................... 6 219,752 220,208 165,427 141,652
Prepayments..................... 7 7,378 19,996 13,556 4,054
Investments..................... 7 267,933 -- -- --
-------- ------- ------- -------
528,981 494,759 178,983 264,003
-------- ------- ------- -------
FINANCIAL LIABILITIES
Bank Overdraft.................. -- -- 17,662 --
Trade and Other Creditors....... 10 211,820 98,388 81,569 284,307
-------- ------- ------- -------
211,820 98,388 99,231 284,307
-------- ------- ------- -------
Note: all of the above financial
assets and liabilities, except
for cash and bank overdraft
are non interest bearing.
Weighted average interest rate
in respect to cash and bank
overdraft..................... 3.0% 3.5% 3.5% 4.5%
Net financial assets
(liabilities)................. 317,161 396,371 79,752 (20,304)
======== ======= ======= =======
</TABLE>
(c) Reconciliation of Net Financial Assets to Net Assets
<TABLE>
<CAPTION>
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
NOTES $ $ $ $
----- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net financial assets/
liabilities as above.......... 317,161 396,371 79,752 (20,304)
NON-FINANCIAL ASSETS AND
LIABILITIES
Property, Plant & Equipment..... 8 216,776 228,049 196,508 125,137
Intangibles..................... 9 1,964,626 -- -- --
Other assets.................... 7 29,578 -- -- --
Provisions...................... 11 (144,016) (61,000) (43,899) (29,096)
Other liabilities............... 10 (144,605) (116,851) (44,843) (34,369)
---------- -------- ------- -------
NET ASSETS PER BALANCE SHEET.... 2,239,521 446,569 187,518 41,369
========== ======== ======= =======
</TABLE>
(d) Net fair value of financial assets and liabilities
The net fair value of financial assets and liabilities of the economic
entity approximate their carrying value. No financial assets and liabilities are
readily traded on organised markets in a standardised form. The aggregate net
fair value and carrying amounts of financial assets and financial liabilities
are disclosed in the balance sheet and in the notes to and forming part of the
financial statements.
F-125
<PAGE> 215
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 15 RELATED PARTIES
(a) Directors
The names of persons who were directors of Internet Access Pty Ltd during
the financial years ending 30 June 1997, 30 June 1998, 30 June 1999 and for the
3 months ended 30 September 1999 are as follows:
<TABLE>
<CAPTION>
DIRECTOR DATE APPOINTED DATE RESIGNED
-------- -------------- -------------
<S> <C> <C>
Anthony Bodin............................................. 11/07/1994
Greg Phillips............................................. 11/07/1994 04/06/99
Scott Carlile............................................. 01/03/1995 24/09/99
Steve Constantinou........................................ 01/03/1995 24/09/99
</TABLE>
(b) Directors remuneration
<TABLE>
<CAPTION>
12 MONTH PERIODS
1 JULY 1999 TO --------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
NOTES $ $ $ $
----- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income paid or payable, or
otherwise made available, to
directors by entities in
connection with the management
of affairs of the entity...... 33,635 124,079 162,569 52,992
======= ======= ======= ======
The numbers of directors whose
income from the entity was
within the specified bands are
as follows:
$ 20,000-$29,000................ -- -- 1 --
$ 30,000-$39,999................ 1 -- -- --
$ 50,000-$59,999................ -- -- -- 1
$120,000-$129,999............... -- 1 -- --
$130,000-$139,000............... -- -- 1 --
</TABLE>
(c) Transactions of Director Concerning Shares or Share Options
Aggregate number of shares and share options of Internet Access Australia
Pty Ltd held directly, indirectly by directors of the company or
director-related entities of the company:
<TABLE>
<CAPTION>
1 JULY 1999 TO
NOTES 30 SEPT 1999 1999 1998 1997
----- -------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ordinary shares....................... 109,900 -- -- --
Units................................. -- 2000 2000 2000
</TABLE>
F-126
<PAGE> 216
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
(d) Loans to/(from) Directors and Director-related Entities
Directors have provided unsecured interest free loans to/from the
Trust/company as disclosed in the Notes 7 and 10 to the financial statements.
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO ------------------------------------------
30 SEPT 1999 30 JUNE 1999 30 JUNE 1998 30 JUNE 1997
$ $ $ $
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Anthony Bodin.............................. 31,435 -- -- (6,282)
Greg Phillips.............................. -- -- -- (7,500)
Internet Access Unit Trust................. 166,708 -- -- --
IT&e....................................... 69,790 -- -- --
------- ------- ------- --------
267,933 -- -- (13,782)
------- ------- ------- --------
</TABLE>
On the acquisition of the Unit Trust by the company, cash was not included
in the assets and liabilities acquired.
On the sale of the IAA business to I.T & e on 1 July 1999, the shareholders
of IAA provided a working capital loan to the company of $235,246. This was
subsequently repaid in the period to 30 September 1999.
(e) Distributions
Distributions to beneficiaries are identified in Note 13 to the financial
statements.
(f) Transactions with Director-related Entities
The following entities are director related and their relationship with the
company are as follows:
<TABLE>
<S> <C>
Chips & Bits: owned by Carlile Corporation (owned by Scott Carlile),
Constant Organisation (owned by Steve Constantinou), &
Eltham Automotive (owned by a beneficiary) equally
MicroArts: wholly owned by Eltham Automotive
Human Edge: 50% owned by Anthony Bodin- a director if Internet Access
Australia
IT&e: Anthony Bodin, a director of Internet Access, is a director
of IT&e. (The former beneficiaries of the IAA Unit Trust
own some 10% of I.T & e).
Totalnet: partly owned by Anthony Bodin -- a director of Internet
Access Australia
Bodin Investments: wholly owned by Anthony Bodin -- a director of Internet
Access Australia
</TABLE>
The company entered into a number of transactions with the above director
related entities. Certain services were provided at a nominal discount, however
the amounts were not material. The only significant
F-127
<PAGE> 217
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
transaction was the purchasing of computer equipment from Chips & Bits which
were acquired on normal business terms and conditions.
<TABLE>
<CAPTION>
12 MONTH PERIODS TO
1 JULY 1999 TO -------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ -------
<S> <C> <C> <C> <C>
Revenue income....................................... 10,109 34,357 59,998 36,582
Recruitment fees..................................... 6,403 6,882 16,739 130,854
Purchases............................................ 21,032 26,883 75,641 --
</TABLE>
NOTE 16 SUBSEQUENT EVENTS
Subsequent to the financial year ended 30 June 1999, Asia Online Australia
Pty Ltd acquired 51% of Internet Access Australia Pty Ltd's shareholdings at a
purchase price of $4,995,918 on the 1 October 1999.
NOTE 17 COMMITMENTS AND CONTINGENCIES
As at the 30 September 1999 there are no contingent liabilities or
commitments for expenditure to be reported in the financial statements.
NOTE 18 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 SEPT 1999 JUNE 1999 1998 1997
$ $ $ $
------------ --------- ------- -------
<S> <C> <C> <C> <C>
Cash........................................ 33,918 254,555 -- 118,297
Bank overdraft.............................. -- -- (17,662) --
------ ------- ------- -------
33,918 254,555 (17,662) 118,297
====== ======= ======= =======
</TABLE>
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
12 MONTH PERIODS
1 JULY 1999 TO ------------------------------
30 SEPT 1999 JUNE 1999 1998 1997
$ $ $ $
-------------- --------- -------- -------
<S> <C> <C> <C> <C>
OPERATING PROFIT AFTER INCOME TAX................. 41,511 477,266 303,670 39,243
Depreciation and amortisation..................... 70,938 76,702 53,149 40,405
Doubtful debts.................................... -- 865 1,367 5,019
Fixed asset write-off............................. -- 8,170 8,066 106,528
Add back unpaid credits to Director current
accounts........................................ -- -- 150,533 --
Changes in operating assets and liabilities:
Increase/(decrease) in income tax payable......... 53,744 -- -- --
Decrease/(increase) in trade and other debtors.... 456 (55,646) (25,142) (37,701)
Decrease/(increase) in other operating assets..... (7,378) (6,440) (9,502) (4,054)
Increase/(decrease) in trade and other
creditors....................................... 124,422 16,819 (188,956) 62,993
Decrease/(increase) in other liabilities.......... 27,754 72,008 (3,308) 25,094
Increase/(decrease) in provisions and employee
entitlements.................................... (306) 17,101 14,803 14,016
------- ------- -------- -------
Net cash inflow/(outflow) from operating
activities...................................... 311,141 606,845 304,680 251,543
======= ======= ======== =======
</TABLE>
F-128
<PAGE> 218
INTERNET ACCESS AUSTRALIA UNIT TRUST/
INTERNET ACCESS AUSTRALIA PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 19 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and the three months ended 30
September 1999 there were no material adjustments required to reconcile net
income and shareholders' equity for differences between Australian GAAP and U.S.
GAAP.
The following differences are noted to emphasise the U.S. GAAP accounting
policies in relation to the change in entity structure described in note 1(a).
(i) Pooling of common controlled entities acquired
As of 1 July 1999, the company acquired the Unit Trust business excluding
certain assets. Prior to the acquisition this entity and the Unit Trust were
held under common control. Under Australian GAAP the acquisition was accounted
for using the purchase accounting method. Under U.S. GAAP, the acquisition would
be accounted for as a merger of entities under common control, using the "as if"
pooling of interests method. Using, this method, the results of the company
would be retroactively restated for all periods prior to the merger so as to
present the financial results of the company and the Unit Trust on a
consolidated basis.
(ii) Push down accounting
On the same day, IT&e (an independent investor) acquired substantially all
of the outstanding shares in the company for consideration of $2,088,111. Under
U.S. GAAP, IT&e's basis in the purchased assets and liabilities would be "pushed
down" to the Company's financial statements.
The net effect of entries (i) and (ii) above on net income and
shareholders' equity for the three month period ended 30 September 1999 is not
material.
F-129
<PAGE> 219
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of Brisbane Internet Technology Pty
Limited:
We have audited the accompanying balance sheet of Brisbane Internet
Technology Pty Limited as of 30 June 1997, 1998 and 1999 and 30 September 1999
and the related statement of income and of cash flows for the years ended 30
June 1997, 1998 and 1999 and for the three month period ended 30 September 1999
which, as described in Note 1, have been prepared on the basis of accounting
principles generally accepted in Australia. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brisbane Internet Technology
Pty Limited as at 30 June 1997, 1998 and 1999 and 30 September 1999 and the
results of its operations and its cash flows for the years ended 30 June 1997,
1998 and 1999 and for the three month period ended 30 September 1999 in
conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September to the extent summarised in
note 22 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-130
<PAGE> 220
BRISBANE INTERNET TECHNOLOGY PTY LTD
PROFIT AND LOSS STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
1 JULY 1999 FOR THE YEARS ENDED 30 JUNE
TO 30 SEPT -----------------------------
1999 1999 1998 1997
NOTES $ $ $ $
----- ----------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE............................ 2 484,629 1,325,987 688,488 284,031
======= ========= ======= =======
Operating profit/(loss) before abnormal items
and income tax............................. 3 44,748 67,147 126,311 (31,404)
------- --------- ------- -------
Operating profit/(loss) before income tax.... 44,748 67,147 126,311 (31,404)
Income tax benefit/(expense) attributable to
operating profit/(loss).................... 4 (16,109) (24,576) (44,863) 10,544
------- --------- ------- -------
OPERATING PROFIT/(LOSS) AFTER INCOME TAX..... 28,639 42,571 81,448 (20,860)
RETAINED PROFITS/(ACCUMULATED LOSSES) AT THE
BEGINNING OF THE FINANCIAL PERIOD.......... 105,845 63,274 (18,174) 2,686
------- --------- ------- -------
Total available for appropriation............ 134,484 105,845 63,274 (18,174)
======= ========= ======= =======
RETAINED PROFITS/(ACCUMULATED LOSSES) AT THE
END OF THE FINANCIAL PERIOD................ 134,484 105,845 63,274 (18,174)
======= ========= ======= =======
</TABLE>
The above profit and loss account should be read in conjunction with the
accompanying notes.
F-131
<PAGE> 221
BRISBANE INTERNET TECHNOLOGY PTY LTD
BALANCE SHEETS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 JUNE
30 SEPT ---------------------------
1999 1999 1998 1997
NOTES $ $ $ $
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash............................................ 5 96,000 28,151 7,444 385
Receivables..................................... 6 68,821 47,101 36,849 14,793
Inventory....................................... 7 -- 1,000 800 750
Other........................................... 8 1,579 -- 5,328 --
------- ------- ------- -------
TOTAL CURRENT ASSETS.................. 166,400 76,252 50,421 15,928
------- ------- ------- -------
NON-CURRENT ASSETS
Property, plant and equipment................... 9 301,651 306,763 161,898 21,386
Future Income Tax Benefit....................... 18 78,341 94,450 38,974 19,265
------- ------- ------- -------
TOTAL NON-CURRENT ASSETS.............. 379,992 401,213 200,872 40,651
------- ------- ------- -------
TOTAL ASSETS.......................... 546,392 477,465 251,293 56,579
------- ------- ------- -------
CURRENT LIABILITIES
Creditors and Accruals.......................... 10 104,917 -- -- 6,648
Borrowings...................................... 10 -- -- -- 3,668
Hire Purchase................................... 10 11,171 16,757 -- --
Unearned Revenue................................ 10 104,737 165,892 84,981 32,116
Provisions...................................... 12 87,075 84,962 34,812 18,964
------- ------- ------- -------
TOTAL CURRENT LIABILITIES............. 307,900 267,611 119,793 61,396
------- ------- ------- -------
NON-CURRENT LIABILITIES
Provision for Deferred Income Tax............... 19 103,978 103,979 62,877 4,507
Borrowings...................................... 11 -- -- 5,319 8,820
------- ------- ------- -------
TOTAL NON-CURRENT LIABILITIES......... 103,978 103,979 68,196 13,327
------- ------- ------- -------
TOTAL LIABILITIES..................... 411,878 371,590 187,989 74,723
------- ------- ------- -------
NET ASSETS............................ 134,514 105,875 63,304 (18,144)
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share Capital................................... 17 30 30 30 30
Retained profits/(Accumulated losses)........... 134,484 105,845 63,274 (18,174)
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY............ 134,514 105,875 63,304 (18,144)
======= ======= ======= =======
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-132
<PAGE> 222
BRISBANE INTERNET TECHNOLOGY PTY LTD
STATEMENTS OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
3 MONTHS
ENDED FOR THE YEARS ENDED 30 JUNE
30 SEPT --------------------------------
1999 1999 1998 1997
NOTES $ $ $ $
----- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers................. 401,754 1,390,235 716,331 301,092
Payments to suppliers and employees..... (303,578) (1,128,204) (530,148) (282,310)
-------- ---------- -------- --------
98,176 262,031 186,183 18,782
Interest received....................... -- 1,579 566 262
Rent received........................... 11,444 -- 2,400 --
Income taxes paid....................... -- (6,203) (4,214) (1,521)
-------- ---------- -------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING ACTIVITIES... 15(b) 109,620 257,407 184,935 17,523
-------- ---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of loans by related parties... -- (5,319) (3,500) (10,153)
Payments for property, plant and
equipment............................. (35,875) (249,071) (170,708) (12,974)
-------- ---------- -------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING ACTIVITIES... (35,875) (254,390) (174,208) (23,127)
-------- ---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings................ -- 23,682 -- --
Repayment of borrowings................. (5,896) (5,992) -- --
-------- ---------- -------- --------
NET CASH OUTFLOWS FROM
FINANCING ACTIVITIES........ (5,896) 17,690 -- --
-------- ---------- -------- --------
NET INCREASE/(DECREASE) IN CASH HELD.... 67,849 20,707 10,727 (5,604)
Cash at the beginning of the financial
year.................................. 28,151 7,444 (3,283) 2,321
-------- ---------- -------- --------
Cash at the end of the financial year... 15(a) 96,000 28,151 7,444 (3,283)
======== ========== ======== ========
</TABLE>
The above statement of cash flows should be read in conjunction with the
accompanying notes.
F-133
<PAGE> 223
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, other authoritative pronouncements of the
Australian Accounting Standards Board, Urgent Issues Group Consensus Views and
the Corporations Law.
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation. Income tax on cumulative timing differences is set aside
to the deferred income tax or the future income tax benefit accounts at the
rates which are expected to apply when those timing differences reverse.
No provision is made for additional taxes which could become payable if
certain reserves of the foreign operation were to be distributed as it is not
expected that any substantial amount will be distributed from those reserves in
the foreseeable future.
(b) Receivables and Revenue Recognition
(i) Dial up
Revenues derived from subscriptions are recognised in the period in which
the services are provided. The company records deferred revenue for any amounts
received in advance of the completion of the subscription period.
(ii) Web design/Systems Integration
Revenue is measured in accordance with the percentage of completion method.
(iii) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days over due.
(c) Recoverable Amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
Where the carrying amount of a non-current asset is greater than its
recoverable amount the asset is revalued to its recoverable amount. Where net
cash inflows are derived from a group of assets working together, recoverable
amount is determined on the basis of the relevant group of assets. To the extent
that a revaluation decrement reverses a revaluation increment previously
credited to, and still included in the balance of, the asset revaluation
reserve, the decrement is debited directly to that reserve. Otherwise the
decrement is recognised as an expense in the profit and loss account.
F-134
<PAGE> 224
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
The expected net cash flows included in determining recoverable amounts of
non-current assets are discounted to their present values using a
market-determined, risk-adjusted discount rate.
(d) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the company. Estimates of remaining
useful lives are made on a regular basis for all assets, with annual
reassessments for major items. The expected useful lives are as follows:
<TABLE>
<S> <C>
Furniture & Fixture......................................... 5 years
Computer Equipment.......................................... 3 years
Office Equipment............................................ 3 years
All Others.................................................. 3 years
</TABLE>
(e) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
company prior to the end of the financial year and which are unpaid. The amounts
are unsecured.
(f) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(g) Employee Entitlements
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured as the amount unpaid at the reporting date at
current pay rates in respect of employees' services up to that date.
(h) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- ------- -------
<S> <C> <C> <C> <C>
Operating activities of the entity
- Dial up revenue............................... 381,529 1,324,408 639,356 251,273
- Onsite fees received.......................... -- -- 19,262 23,526
- Web design and hosting........................ 47,300 -- -- --
- Sales of sundry equipment..................... -- -- 16,952 7,595
- Interest Received............................. -- 1,579 566 262
- Rent Received................................. 11,444 -- 2,400 --
- System integration............................ 38,035 -- -- --
- Other......................................... 6,321 -- 9,952 1,375
------- --------- ------- -------
Total operating revenue................. 484,629 1,325,987 688,488 284,031
======= ========= ======= =======
</TABLE>
F-135
<PAGE> 225
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- ------- -------
<S> <C> <C> <C> <C>
(a) OPERATING PROFIT BEFORE INCOME TAX HAS BEEN DETERMINED AFTER:
CHARGING AS EXPENSE
Advertising and promotion......................... 11,616 37,392 27,178 --
Bank fees and charges............................. 5,176 13,557 7,945 2,177
Consultants Fees.................................. 6,657 25,553 11,483 800
Depreciation...................................... 40,988 98,525 30,195 4,024
Superannuation.................................... 5,682 42,021 15,496 25,261
Internet Access Fees.............................. 61,182 220,863 154,466 22,160
Lease Payments.................................... 18,672 46,397 -- --
Wages............................................. 94,951 217,839 81,592 91,331
Purchases......................................... -- 85,000 -- --
Rent.............................................. 14,248 42,192 24,046 10,202
Sundry Equipment purchases........................ 28,439 31,344 32,526 --
Telecommunications................................ 41,281 43,981 39,378 20,024
Telstra Data Services............................. 67,169 108,127 63,115 19,622
Other Expenses.................................... 43,820 246,049 74,757 119,834
------- --------- ------- -------
439,881 1,258,840 562,177 315,435
======= ========= ======= =======
</TABLE>
Auditors' remuneration
Audit fees for all the years/period covered by these financial statements
have been paid by Asia Online, Ltd. in Hong Kong and have not been recharged to
the company.
NOTE 4 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the
financial year differs from the amount prima
facie payable on the operating loss. The
differences are reconciled as follows:
PRIMA FACIE INCOME TAX ON OPERATING LOSS........... 16,109 24,172 45,472 (11,304)
Effect of permanent differences which Increase tax
payable:
Non deductible entertainment expense............. -- -- 154 --
Other............................................ -- 404 (13) --
Formation Costs.................................. -- -- (750) 760
------- ------- ------- -------
Income tax (benefit) attributable to operating
profit........................................... 16,109 24,576 44,863 (10,544)
------- ------- ------- -------
</TABLE>
F-136
<PAGE> 226
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Add:
Tax Effect of:
- unearned revenue............................ (22,016) 29,128 19,031 11,562
- employee entitlements....................... -- -- -- 5,310
- creditors................................... -- -- -- 2,393
- rent prepaid................................ -- 1,918 -- --
- HP interest................................. -- 112 -- --
- depreciation................................ -- -- -- 1,448
- provision for doubtful debts................ 1,532 4,788 -- --
- tax loss carried forward.................... 3,614 -- -- --
Less:
Tax effect of :.................................. -- -- -- --
- debtors..................................... -- 13,266 (7,995) (5,270)
- assets capitalised.......................... -- (41,102) (50,374) (685)
- rent prepaid................................ -- -- (1,918) --
- creditors................................... -- -- (2,393) --
- employee entitlements....................... 761 6,265 4,989 --
------- ------- ------- -------
-- 38,951 6,203 4,214
======= ======= ======= =======
COMPRISING:
Current taxation provision......................... -- 38,951 6,203 4,214
Future income tax benefit.......................... 16,109 (55,476) (19,709) (19,265)
Deferred income tax provision...................... -- 41,101 58,369 4,507
Under provision/(Overprovision) in prior years..... -- -- -- --
------- ------- ------- -------
16,109 24,576 44,863 (10,544)
======= ======= ======= =======
</TABLE>
The benefits will only be obtained if:
(i) the Company derives future assessable income of a nature and
amount sufficient to enable the benefit from the deductions for the loss to
be realised;
(ii) the Company continues to comply with the conditions for
deductibility imposed by the law; and
(iii) no changes in the tax legislation adversely affects the Company
in realising the benefits from the deductions for the loss.
NOTE 5 CASH
<TABLE>
<CAPTION>
30 JUNE
---------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ----- ----
<S> <C> <C> <C> <C>
Cash at Bank and Cash on Hand.............................. 96,000 27,519 7,092 107
Short Term Deposits........................................ -- 632 -- 278
Bonds...................................................... -- -- 352 --
------ ------ ----- ---
96,000 28,151 7,444 385
====== ====== ===== ===
</TABLE>
F-137
<PAGE> 227
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Trade debtors.......................................... 77,909 51,933 36,849 14,793
Less: Provision for Doubtful Debts..................... (9,088) (4,832) -- --
------ ------ ------ ------
68,821 47,101 36,849 14,793
====== ====== ====== ======
</TABLE>
NOTE 7 INVENTORY
<TABLE>
<CAPTION>
30 JUNE
-------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ----- ---- ----
<S> <C> <C> <C> <C>
Stock on hand............................................... -- 1,000 800 750
===== ===== === ===
</TABLE>
NOTE 8 OTHER ASSETS
<TABLE>
<CAPTION>
30 JUNE
---------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ----- ----- -----
<S> <C> <C> <C> <C>
CURRENT
Other..................................................... 1,579 -- -- --
Prepayment................................................ -- -- 5,328 --
===== ===== ===== =====
</TABLE>
F-138
<PAGE> 228
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ -------- ------- ------
<S> <C> <C> <C> <C>
Computer equipment (network)
Cost.............................................. 388,823 364,823 161,939 17,653
Accumulated depreciation.......................... (146,153) (115,042) (27,892) (2,737)
-------- -------- ------- ------
242,670 249,781 134,047 14,916
======== ======== ======= ======
Computer equipment (non-network)
Cost.............................................. 39,934 34,834 18,734 1,729
Accumulated depreciation.......................... (14,123) (11,076) (3,262) (135)
-------- -------- ------- ------
25,811 23,758 15,472 1,594
======== ======== ======= ======
Hire purchase -- Computer System
Cost.............................................. 22,437 22,437 -- --
Accumulated amortisation.......................... (11,266) (5,681) -- --
-------- -------- ------- ------
11,171 16,756 -- --
======== ======== ======= ======
Office Furniture & Equipment
Cost.............................................. 29,869 23,094 15,444 6,027
Accumulated depreciation.......................... (7,872) (6,626) (3,065) (1,151)
-------- -------- ------- ------
21,997 16,468 12,379 4,876
======== ======== ======= ======
Total
Cost.............................................. 481,063 445,188 196,117 25,409
-------- -------- ------- ------
Accumulated depreciation.......................... (179,412) (138,425) (34,219) (4,023)
-------- -------- ------- ------
301,651 306,763 161,898 21,386
======== ======== ======= ======
</TABLE>
NOTE 10 CREDITORS
<TABLE>
<CAPTION>
30 JUNE
-------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------ ------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Bank overdraft........................................ -- -- -- 3,668
======= ======= ====== ======
Trade creditors....................................... 96,520 -- -- 6,648
Accruals.............................................. 8,397 -- -- --
------- ------- ------ ------
104,917 -- -- 6,648
======= ======= ====== ======
Unearned revenue...................................... 104,737 165,892 84,981 32,116
======= ======= ====== ======
Hire Purchase Liabilities............................. 17,690 23,682 -- --
Less: Hire purchase payments................ (5,896) (5,992) -- --
------- ------- ------ ------
11,794 17,690 -- --
Less: Interest Payable...................... (623) (933) -- --
------- ------- ------ ------
11,171 16,757 -- --
======= ======= ====== ======
</TABLE>
F-139
<PAGE> 229
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 BORROWINGS
<TABLE>
<CAPTION>
30 JUNE
---------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ----- ----- -----
<S> <C> <C> <C> <C>
NON-CURRENT
Unsecured Loans........................................... -- -- 5,319 8,820
===== ===== ===== =====
</TABLE>
Further information relating to loan from related parties is set out in
Note 14.
NOTE 12 PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ------
<S> <C> <C> <C> <C>
CURRENT
Employee entitlements.................................. 48,124 46,011 28,609 14,750
Taxation............................................... 38,951 38,951 6,203 4,214
------ ------ ------ ------
87,075 84,962 34,812 18,964
====== ====== ====== ======
</TABLE>
NOTE 13 REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- -------- -------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made available,
to directors by the company and related parties in
connection with the management of affairs of the
company........................................... 50,000 143,250 112,250 61,094
</TABLE>
The number of directors whose total income from the company or related
parties was within the specified bands are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
$ 0-$ 9,999............................. -- -- -- 1
$20,000-$29,999............................. -- -- -- 2
$30,000-$39,999............................. -- -- 3 --
$40,000-$49,000............................. -- 3 -- --
</TABLE>
NOTE 14 RELATED PARTIES
Directors
The names of persons who were directors of Brisbane Internet Technology Pty
Ltd during the financial year are as follows:
<TABLE>
<CAPTION>
DIRECTOR DATE APPOINTED DATE RESIGNED
-------- -------------- -------------
<S> <C> <C>
Brett Gavam Caird......................................... 01/05/96 Office held
Brent Evans Paddon........................................ 14/10/96 Office held
Andrew Alexander Pollock.................................. 05/08/96 30/09/99
</TABLE>
F-140
<PAGE> 230
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Remuneration Benefits
Information on remuneration benefits of directors is disclosed in note 13.
Loans from Directors and Director -- Related Entities
Loans from directors of the company and their director -- related entities
disclosed on note 11 comprise:
<TABLE>
<CAPTION>
30 JUNE
--------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ---- ----- -----
<S> <C> <C> <C> <C>
Balance on loan from -- Brent Paddon................... -- -- 1,937 4,937
Balance on loan from -- Driac Services Ltd............. -- -- -- --
Balance on loan from -- Brett Caird.................... -- -- 1,806 2,306
Balance on loan from -- David Ferguson................. -- -- 1,574 1,574
</TABLE>
All loans were interest free, except for the loan from Driac Services Ltd
where interest was charged at 10%.
OTHER TRANSACTIONS WITH DIRECTORS AND DIRECTOR -- RELATED ENTITIES.
Brisbane Internet Technology Superannuation Fund entered into an
operational lease for equipment.
<TABLE>
<CAPTION>
30 JUNE
----------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------ ------ ----
<S> <C> <C> <C> <C>
Payable
- not longer than one year................................ -- 13,169 -- --
- longer than 1 but not longer than 2 years............... -- 4,390 13,169 --
- longer than 2 but not longer than 5 years............... -- -- 17,559 --
</TABLE>
NOTE 15 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 JUNE
1 JULY 1999 TO -----------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------ ----- ------
<S> <C> <C> <C> <C>
Cash................................................... -- -- -- 385
Cash at Bank........................................... 96,000 28,151 7,444 (3,668)
------ ------ ----- ------
96,000 28,151 7,444 (3,283)
====== ====== ===== ======
</TABLE>
F-141
<PAGE> 231
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating profit after income tax................. 28,639 42,571 81,448 (20,860)
Depreciation and amortisation..................... 40,988 104,209 30,193 3,611
Amounts credited to provisions against assets.....
Changes in operating assets and liabilities:
Increase/(decrease) in income tax payable......... 16,109 18,373 40,649 (10,544)
Decrease/(increase) in trade and other debtors.... (21,720) (10,252) (22,056) (14,793)
Decrease/(increase) in other operating assets..... (1,579) 5,328 (5,328) 260
Decrease/(increase) in inventory.................. 1,000 (200) (50) 4,250
Increase/(decrease) in trade and other
creditors....................................... 44,073 79,977 46,220 38,764
Decrease/(increase) in formation costs............ -- -- -- 2,084
Increase/(decrease) in provisions and employee
entitlements.................................... 2,110 17,401 13,859 14,751
------- ------- ------- --------
Net cash inflow/(outflow) from operating
activities...................................... 109,620 257,407 184,935 17,523
======= ======= ======= ========
</TABLE>
NOTE 16 CAPITAL AND LEASING COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE
30 SEPTEMBER --------------------
1999 1999 1998 1997
$ $ $ $
-------------------- ------ ---- ----
<S> <C> <C> <C> <C>
Finance Leasing and Hire Purchase Commitments Payable
- less than one year................................ 11,794 17,690 -- --
Minimum lease payments................................ 11,794 17,690 -- --
Less future finance charges........................... (623) (933) -- --
------ ------ -- --
Total lease liability....................... 11,171 16,757 -- --
====== ====== == ==
</TABLE>
Operating Lease Commitments
Non-cancellable operating leases contracted for but not capitalised in the
accounts.
<TABLE>
<CAPTION>
30 SEPT 99 30 JUNE 99 30 JUNE 98 30 JUNE 97
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Payable
- not longer than one year....................... 63,287 63,287 39,282 --
- longer than 1 but not longer than 2 years...... 32,156 47,978 39,282 --
- longer than 2 but not longer than 5 years...... 1,647 5,644 23,973 --
</TABLE>
NOTE 17 SHARE CAPITAL
<TABLE>
<CAPTION>
30 JUNE
---------------------------------------------
1999 1998 1997 1999 1998 1997
SHARES SHARES SHARES $ $ $
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Paid up capital
- ordinary shares -- fully paid.................. 30 30 30 30 30 30
</TABLE>
F-142
<PAGE> 232
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 NON-CURRENT ASSETS
<TABLE>
<CAPTION>
30 JUNE
1 JULY 1999 TO ------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
--------------- ------ ------ ------
<S> <C> <C> <C> <C>
Future income tax benefit............................ 78,341 94,450 38,974 19,265
</TABLE>
NOTE 19 NON-CURRENT LIABILITIES -- PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
1 JULY 1999 TO ------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
--------------- ------- ------ -----
<S> <C> <C> <C> <C>
Deferred income tax.................................. 103,978 103,979 62,877 4,507
</TABLE>
NOTE 20 FINANCIAL INSTRUMENTS
Credit Risk Exposures
The credit risk on financial assets, which have been recognised on the
balance sheet, other than investments in shares, is generally the carrying
amount, net of any provisions for doubtful debt.
Interest Rate Risk Exposure
For interest rates applicable to each class of asset or liability refer to
individual notes to the financial statements.
Exposures arise predominately from assets and liabilities bearing variable
interest rates as the company intends to hold fixed rate and liabilities to
maturity.
Net value of Financial Assets and Liabilities On-balance Sheet.
The net fair value of cash and cash equivalents and non-interest bearing
monetary financial assets and financial liabilities approximates their carrying
amounts.
The net fair value of other monetary financial assets and financial
liabilities is based upon market prices where a market exists or by discounting
the expected future cash flows by the current interest rates for assets and
liabilities which similar risk profiles.
Equity investments traded on organised markets have been valued by
reference to market prices prevailing at balance date. For non-traded equity
investments, the net fair value is an assessment by the director based on the
underlying net assets, future maintainable earnings and any special
circumstances pertaining to a particular investment.
Off-Balance Sheet
The company has been indemnified against any losses, which might be
incurred in relation to traded shares in other corporations. The net fair value
of the indemnity has been taken to be different between the carrying amount and
the net fair value of the shares.
The call option granting an unrelated party an option to acquire the
company's interest in Brisbane Internet Technology Pty Ltd is out-of-the money
and the net fair value is immaterial.
The company has potential financial liabilities, which may arise from
certain contingencies disclosed in notes. As explained in notes, no material
losses are anticipated in respect of any of those contingencies and the net fair
value disclosed below in the directors estimate of amounts which would be
payable by the company as consideration for the assumption of those
contingencies by another party.
F-143
<PAGE> 233
BRISBANE INTERNET TECHNOLOGY PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts is the fair value of the financial; assets and
liabilities at balance date:
<TABLE>
<CAPTION>
30 JUNE
------------------------------
30 SEPT 1999 1999 1999 1999
CARRYING CARRYING CARRYING CARRYING
AMOUNT AMOUNT AMOUNT AMOUNT
$'000 $'000 $'000 $'000
------------ -------- -------- --------
<S> <C> <C> <C> <C>
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
FINANCIAL ASSETS
Cash.................................................. 96,000 28,151 7,444 385
Trade Debtors......................................... 68,821 47,101 36,849 14,793
FINANCIAL LIABILITIES
Trade creditors....................................... 104,917 -- -- 6,648
Borrowings............................................ -- -- -- 3,688
Lease Liabilities..................................... 11,171 16,757 -- --
</TABLE>
Other than the classes of assets denoted as "traded", none of the classes
of financial assets and liabilities are readily traded on organised markets in
standardised form.
Although certain financial assets are carried at an amount above net fair
value, the directors have not caused those assets to be written down as it is
intended to retain those assets to maturity.
Net fair value is exclusive of costs, which would be incurred on
realisation of an asset, and inclusive of costs, which would be incurred on
settlement of a liability.
NOTE 21 EVENTS OCCURRING AFTER REPORTING DATE
On 5 October 1999, Asia Online Australia Pty Limited (ACN 089 444 691)
acquired 66% of the issued shares in Brisbane Internet Technology Pty Limited,
an internet service provider for consideration of $1,972,549
NOTE 22 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and 3 months ended 30 September 1999
there were no material adjustments required to reconcile net income and
shareholders' equity for differences between Australian GAAP and U.S. GAAP.
F-144
<PAGE> 234
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of Dove Australia Pty Limited:
We have audited the accompanying balance sheet of Dove Australia Pty
Limited as of 30 June 1997, 1998 and 1999 and 30 September 1999 and the related
statement of income and of cash flows for the years ended 30 June 1997, 1998 and
1999 and for the three month period ended 30 September 1999 which, as described
in Note 1, have been prepared on the basis of accounting principles generally
accepted in Australia. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dove Australia Pty Limited
as at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September 1999 in conformity with
accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1997, 1998 and 1999 and 30 September 1999 and the results of its
operations and its cash flows for the years ended 30 June 1997, 1998 and 1999
and for the three month period ended 30 September to the extent summarised in
note 22 to the financial statements.
PRICEWATERHOUSECOOPERS
Sydney, Australia
5 May 2000
F-145
<PAGE> 235
DOVE AUSTRALIA PTY LIMITED
PROFIT AND LOSS STATEMENTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO --------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE........................ 2 463,247 1,581,630 1,223,830 860,100
======== ========= ========= ========
Operating profit/(loss) before abnormal
items and income tax................... 3 16,061 (28,086) (176,541) (130,060)
Abnormal items before income tax......... 4 -- (80,000) (31,500) --
-------- --------- --------- --------
Operating profit/(loss) before income
tax.................................... 16,061 (108,086) (208,041) (130,060)
Income tax benefit/(expense) attributable
to operating profit.................... 5 -- -- -- --
-------- --------- --------- --------
OPERATING PROFIT/(LOSS) AFTER INCOME
TAX.................................... 16,061 (108,086) (208,041) (130,060)
RETAINED PROFITS/(ACCUMULATED LOSSES) AT
THE BEGINNING OF THE FINANCIAL YEAR.... (441,210) (333,124) (125,083) 4,977
-------- --------- --------- --------
RETAINED PROFITS/(ACCUMULATED LOSSES) AT
THE END OF THE FINANCIAL YEAR.......... (425,149) (441,210) (333,124) (125,083)
======== ========= ========= ========
</TABLE>
The above profit and loss account should be read in conjunction with the
accompanying notes.
F-146
<PAGE> 236
DOVE AUSTRALIA PTY LIMITED
BALANCE SHEETS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
30 JUNE
------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash....................................... 6 19,772 300 300 300
Receivables................................ 7 165,746 164,398 53,562 9,639
Other...................................... 8 -- 2,700 2,000 --
-------- -------- -------- --------
TOTAL CURRENT ASSETS............. 185,518 167,398 55,862 9,939
-------- -------- -------- --------
NON-CURRENT ASSETS
Property, plant and equipment.............. 9 299,412 215,689 291,845 366,653
-------- -------- -------- --------
TOTAL NON-CURRENT ASSETS......... 299,412 215,689 291,845 366,653
-------- -------- -------- --------
TOTAL ASSETS..................... 484,930 383,087 347,707 376,592
-------- -------- -------- --------
CURRENT LIABILITIES
Creditors.................................. 10 128,675 90,724 127,895 63,217
Borrowings................................. 11 202,034 212,377 251,429 251,606
Provisions................................. 12 443,330 416,255 231,122 87,750
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES........ 774,039 719,356 610,446 402,573
-------- -------- -------- --------
NON-CURRENT LIABILITIES
Creditors.................................. 10 -- 28,899 -- --
Borrowings................................. 11 122,120 63,530 53,737 88,796
Provisions................................. 12 13,914 12,506 16,642 10,300
-------- -------- -------- --------
TOTAL NON-CURRENT LIABILITIES.... 136,034 104,935 70,379 99,096
-------- -------- -------- --------
TOTAL LIABILITIES................ 910,073 824,291 680,825 501,669
-------- -------- -------- --------
NET ASSETS....................... (425,143) (441,204) (333,118) (125,077)
======== ======== ======== ========
SHAREHOLDERS' EQUITY
Share capital.............................. 13 6 6 6 6
Retained profits........................... (425,149) (441,210) (333,124) (125,083)
-------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY....... (425,143) (441,204) (333,118) (125,077)
======== ======== ======== ========
</TABLE>
The above balance sheet should be read in conjunction with the accompanying
notes.
F-147
<PAGE> 237
DOVE AUSTRALIA PTY LIMITED
STATEMENTS OF CASH FLOWS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ------------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
INFLOWS/ INFLOWS/ INFLOWS/ INFLOWS/
NOTES (OUTFLOWS) (OUTFLOWS) (OUTFLOWS) (OUTFLOWS)
----- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers................ 451,777 1,842,285 1,381,950 920,779
Payments to suppliers and employees.... (357,671) (1,679,571) (1,242,110) (797,299)
Borrowing costs........................ (4,624) (26,624) (24,603) (5,109)
-------- ---------- ---------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM OPERATING
ACTIVITIES................. 19 89,482 136,090 115,237 118,371
-------- ---------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and
equipment............................ (17,997) (28,411) (8,357) (107,530)
Proceeds from sale of property, plant
and equipment........................ -- 2,940 5,383 --
-------- ---------- ---------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM INVESTING
ACTIVITIES................. (17,997) (25,471) (2,974) (107,530)
-------- ---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings............... -- 30,000 -- --
Repayment of borrowings................ (3,015) (12,500) (12,834) (4,162)
Repayment of lease liabilities......... (29,394) (114,308) (98,592) (24,184)
-------- ---------- ---------- --------
NET CASH INFLOWS/(OUTFLOWS)
FROM FINANCING
ACTIVITIES................. (32,409) (96,808) (111,426) (28,346)
-------- ---------- ---------- --------
NET INCREASE/(DECREASE) IN CASH HELD... 39,076 13,811 837 (17,505)
Cash at the beginning of the financial
year................................. (19,304) (33,115) (33,952) (16,447)
-------- ---------- ---------- --------
Cash at the end of the
financial year............. 19 19,772 (19,304) (33,115) (33,952)
======== ========== ========== ========
</TABLE>
The above statements of cash flows should be read in conjunction with the
accompanying notes.
F-148
<PAGE> 238
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS
ALL AMOUNTS ARE IN AUSTRALIAN DOLLARS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards, other mandatory professional and reporting
requirements (Urgent Issues Group Consensus Views).
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous year.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss account is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation. Income tax on cumulative timing differences is set aside
to the deferred income tax or the future income tax benefit accounts at the
rates which are expected to apply when those timing differences reverse.
(b) Receivables and Revenue Recognition
Amounts disclosed as revenue are net of returns, trade allowances and
duties and taxes paid. Revenue is recognised for the major business activities
as follows:
(i) Internet subscriptions
Revenues derived from subscriptions are recognised in the period in which
the services are provided. The company records deferred revenue for any amounts
received in advance of the completion of the subscription period.
(ii) Web design
Revenue is recognised using the completed contract method.
(iii) Hardware
Revenue is recognised upon delivery and when all other obligations due
under the contract have been completed.
(iv) Trade Debtors
Trade debtors are recognised at the amounts receivable as they are due for
settlement no more than 30 days from the date of recognition. Collectibility of
trade debtors is reviewed on an ongoing basis. Debts which are known to be
uncollectible are written off. A provision for doubtful debts is raised where
some doubt as to collection exists and in any event where the debt is more than
180 days over due.
(c) Recoverable Amount of Non-Current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
Where the carrying amount of a non-current asset is greater than its
recoverable amount the asset is revalued to its recoverable amount. Where net
cash inflows are derived from a group of assets working
F-149
<PAGE> 239
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
together, recoverable amount is determined on the basis of the relevant group of
assets. To the extent that a revaluation decrement reverses a revaluation
increment previously credited to, and still included in the balance of, the
asset revaluation reserve, the decrement is debited directly to that reserve.
Otherwise the decrement is recognised as an expense in the profit and loss
account. The expected net cash flows included in determining recoverable amounts
of non-current assets are discounted to their present values using a
market-determined, risk-adjusted discount rate.
(d) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the company. Estimates of remaining
useful lives are made on a regular basis for all assets, with annual
reassessments for major items. The expected useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 3 years
Office equipment............................................ 3 years
All others.................................................. 3 years
</TABLE>
Assets costing less than $1,000 are charged as uncapitalised fixed asset
expenditure as incurred.
(e) Leasehold Improvements
The cost of improvements to or on leasehold properties is amortised over
the unexpired period of the lease or the estimated useful life of the
improvement to the company, whichever is the shorter.
(f) Leased non-current assets
A distinction is made between finance leases which effectively transfer
from the lessor to the lessee substantially all the risks and benefits incident
to ownership of leased non-current assets, and operating leases under which the
lessor effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established
at the present value of minimum lease payments. Lease payments are allocated
between the principal component of the lease liability and the interest expense.
The lease asset is amortised on a straight line basis over the term of the
lease, or where it is likely that the consolidated entity will obtain ownership
of the asset, the life of the asset.
Other operating lease payments are charged to the profit and loss statement
in the periods in which they are incurred, as this represents the pattern of
benefits derived from the leased assets.
(g) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
company prior to the end of the financial year and which are unpaid. The amounts
are unsecured and are usually paid within 30 days of recognition.
(h) Borrowings
Loans are carried at their principal amounts which represent the present
value of future cash flows associated with servicing the debt. Interest is
accrued over the period it becomes due and is recorded as part of other
creditors.
F-150
<PAGE> 240
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
(i) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(j) Employee Entitlements
(i) Wages and Salaries, Annual Leave
Liabilities for wages and salaries, and annual leave are recognised, and
are measured as the amount unpaid at the reporting date at current pay rates in
respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured as the
present value of expected future payments to be made in respect of services
provided by employees up to the reporting date. Consideration is given to
expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using interest rates
on national government guaranteed securities with terms to maturity that match,
as closely as possible, the estimated future cash outflows.
(iii) Superannuation
Contributions are made by the economic entity to employee superannuation
funds and are charged as expenses when incurred.
(k) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and are subject to an
insignificant risk of changes in value, net of outstanding bank overdrafts.
(l) Going concern
Notwithstanding the deficiency of net assets, the financial report has been
prepared on a going concern basis as the directors have received a commitment of
continued financial support and the directors believe that such financial
support will continue to be made available. This commitment of continued
financial support has been obtained from the Parent entity Asia Online, Ltd. in
Hong Kong.
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- --------- -------
<S> <C> <C> <C> <C>
Internet Subscriptions...................... 433,689 1,478,039 1,102,143 838,847
Sale of hardware............................ 12,003 38,040 50,197 21,253
Web design & web hosting.................... 15,960 32,655 32,810 --
Management fees............................. -- 15,000 30,000 --
Insurance recoveries........................ -- 3,310 -- --
Profit on sale of assets.................... -- 2,940 -- --
Other income................................ 1,595 11,646 8,680 --
-------- --------- --------- -------
463,247 1,581,630 1,223,830 860,100
======== ========= ========= =======
</TABLE>
F-151
<PAGE> 241
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- --------- --------- -------
<S> <C> <C> <C> <C>
(a) Operating profit before abnormal items
and income tax has been determined
after:
CHARGING AS EXPENSE
Depreciation................................ 34,534 185,927 154,481 98,955
Superannuation.............................. 6,990 26,233 21,280 24,141
Rent........................................ 14,659 54,050 50,601 30,994
Bad and doubtful debts:
Bad debts written off..................... 4,359 5,815 1,131 735
Movement in provisions for doubtful
debts.................................. 9,185 4,800 4,200 --
-------- --------- --------- -------
13,544 10,615 5,331 735
-------- --------- --------- -------
Movement in employee provisions
Employee entitlements..................... 2,211 3,467 479 29,997
Other Expenses.............................. 375,248 1,329,424 1,168,199 805,338
-------- --------- --------- -------
447,186 1,609,716 1,400,371 990,160
======== ========= ========= =======
</TABLE>
(b) Auditors' remuneration
Audit fees for all the years/period covered by these financial statements
have been paid by Asia Online, Limited in Hong Kong and have not been recharged
to the company.
NOTE 4 ABNORMAL ITEMS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- ------- -------
<S> <C> <C> <C> <C>
Settlement claim for staff dismissal........... -- 31,500
Settlement claim for contract failure.......... -- 80,000 -- --
-------- -------- ------- -------
80,000 31,500 --
Income tax benefit applicable.................. -- (28,800) (11,340)
-------- -------- ------- -------
-- 51,200 20,160 --
-------- -------- ------- -------
Total abnormal items after income
tax................................ -- 51,200 20,160 --
-------- -------- ------- -------
Total abnormal items before income
tax................................ -- 80,000 31,500 --
======== ======== ======= =======
</TABLE>
Potential future income tax benefits attributable to abnormal items have
not been brought to account because the directors do not believe it is
appropriate to regard realisation of future income tax benefits as virtually
certain.
F-152
<PAGE> 242
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 5 INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO -----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
The amount of income tax attributable to the
financial year differs from the amount prima
facie payable on the operating loss. The
differences are reconciled as follows:
PRIMA FACIE INCOME TAX ON OPERATING
PROFIT/(LOSS)................................ 5,782 (10,111) (63,555) (46,822)
Add tax effect of:
Increase in employee entitlements............ 796 1,248 172 9,719
Increase in doubtful debts provision......... 1,908 1,728 1,512 --
Decrease in prepayments...................... 972 -- -- --
Depreciation for accounting purposes......... 12,432 66,934 55,613 35,624
-------- ------- ------- -------
21,890 59,799 (6,258) (1,479)
Less tax effect of:
Increase in prepayments...................... -- (252) (720)
Depreciation for taxation purposes........... (12,432) (46,704) (50,703) (35,624)
-------- ------- ------- -------
9,458 12,843 (57,681) (37,103)
Abnormal items
Settlement claims............................ -- (28,800) (11,340) --
Reversal of FITB balance not previously brought
account...................................... (9,458) -- -- --
-------- ------- ------- -------
-- (15,957) (69,021) (37,103)
Income tax benefit not brought to account...... -- 15,957 69,021 37,103
-------- ------- ------- -------
INCOME TAX EXPENSE/(BENEFIT) ATTRIBUTABLE TO
OPERATING PROFIT............................. -- -- -- --
======== ======= ======= =======
</TABLE>
Potential future income tax benefits attributable to tax losses carried
forward have not been brought to account because the directors do not believe it
is appropriate to regard realisation of future income tax benefits as virtually
certain.
Potential future income tax benefits attributable to timing differences
have not been brought to account as the directors do not believe it is
appropriate to regard realisation of future income tax benefits as assured
beyond reasonable doubt.
The benefits will only be obtained if:
(i) the Company derives future assessable income of a nature and
amount sufficient to enable the benefit from the deductions for the loss to
be realised;
(ii) the Company continues to comply with the conditions for
deductibility imposed by the law; and
(iii) no changes in the tax legislation adversely affects the Company
in realising the benefits from the deductions for the loss.
F-153
<PAGE> 243
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 6 CASH
<TABLE>
<CAPTION>
30 JUNE
--------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ---- ---- ----
<S> <C> <C> <C> <C>
CURRENT
Cash at bank.............................................. 19,472 -- -- --
Till float................................................ 200 200 200 200
Petty cash float.......................................... 100 100 100 100
------- --- --- ---
19,772 300 300 300
======= === === ===
</TABLE>
NOTE 7 RECEIVABLES
<TABLE>
<CAPTION>
30 JUNE
--------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------ -----
<S> <C> <C> <C> <C>
CURRENT
Trade debtors...................................... 157,509 149,675 31,177 9,639
Less: Provision for Doubtful Debts................. (14,300) (9,000) (4,200) --
Other receivables.................................. 22,537 23,723 26,585 --
--------- ------- ------ -----
165,746 164,398 53,562 9,639
========= ======= ====== =====
</TABLE>
NOTE 8 OTHER ASSETS
<TABLE>
<CAPTION>
30 JUNE
---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ --------- --------- -------
<S> <C> <C> <C> <C>
CURRENT
Prepaid expenses............................. -- 2,700 2,000 --
======== ========= ========= =======
</TABLE>
F-154
<PAGE> 244
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 9 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
30 JUNE
30 SEPT -------------------------------
1999 1999 1998 1997
$ $ $ $
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Furniture and fittings
Cost......................................... 27,140 21,111 16,908 7,337
Accumulated depreciation..................... (15,507) (13,264) (7,818) (1,559)
--------- -------- -------- -------
11,633 7,847 9,090 5,778
========= ======== ======== =======
Computer equipment
Cost......................................... 320,224 292,610 258,978 268,340
Accumulated depreciation..................... (182,962) (183,843) (119,746) (57,030)
--------- -------- -------- -------
137,262 108,767 139,232 211,310
--------- -------- -------- -------
Under finance lease.......................... 351,147 266,535 266,958 189,931
Accumulated amortisation..................... (200,630) (167,460) (123,435) (40,366)
--------- -------- -------- -------
150,517 99,075 143,523 149,565
--------- -------- -------- -------
Total computer equipment....................... 287,779 207,842 282,755 360,875
========= ======== ======== =======
Total
Cost......................................... 698,511 580,256 542,844 465,608
Accumulated depreciation and amortisation.... (399,099) (364,567) (250,999) (98,955)
--------- -------- -------- -------
299,412 215,689 291,845 366,653
========= ======== ======== =======
</TABLE>
NOTE 10 CREDITORS
<TABLE>
<CAPTION>
30 JUNE
30 SEPT ---------------------------
1999 1999 1998 1997
$ $ $ $
-------- ------ ------- ------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Trade creditors...................................... 79,797 64,076 96,395 56,567
Other creditors...................................... -- -- 31,500 6,650
FTAC liability....................................... 48,878 26,648 -- --
Accruals............................................. -- -- -- --
------- ------ ------- ------
128,675 90,724 127,895 63,217
======= ====== ======= ======
NON-CURRENT (UNSECURED)
FTAC liability....................................... -- 28,899 -- --
======= ====== ======= ======
</TABLE>
F-155
<PAGE> 245
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
NOTE 11 BORROWINGS
<TABLE>
<CAPTION>
30 JUNE
---------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ --------- --------- -------
<S> <C> <C> <C> <C>
CURRENT
Bank Overdraft -- secured.................... -- 19,604 33,415 34,252
Lease liabilities -- secured................. 76,167 66,906 88,817 72,782
Loan from Bank -- secured.................... 3,015 3,015 -- --
Loan from Director-related entity
-- unsecured.............................. 122,852 122,852 129,197 144,572
------- --------- --------- -------
202,034 212,377 251,429 251,606
------- --------- --------- -------
NON-CURRENT
Lease liabilities -- secured................. 104,030 42,425 53,737 88,796
Loans from NAB -- secured.................... 18,090 21,105 -- --
------- --------- --------- -------
122,120 63,530 53,737 88,796
======= ========= ========= =======
</TABLE>
NOTE 12 PROVISIONS
<TABLE>
<CAPTION>
30 JUNE
----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ------- ------- ------
<S> <C> <C> <C> <C>
CURRENT
Employee entitlements............................ 32,698 30,509 21,748 16,697
Unearned income (internet time).................. 410,632 385,746 209,374 71,053
------- ------- ------- ------
443,330 416,255 231,122 87,750
------- ------- ------- ------
NON-CURRENT
Employee entitlements............................ 13,914 12,506 16,642 10,300
======= ======= ======= ======
</TABLE>
NOTE 13 SHARE CAPITAL
<TABLE>
<CAPTION>
30 JUNE
--------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
------------ ---- ---- ----
<S> <C> <C> <C> <C>
PAID UP CAPITAL
6 fully paid ordinary shares.............................. 6 6 6 6
== == == ==
</TABLE>
NOTE 14 FINANCIAL INSTRUMENTS
(a) Credit risk exposures
The credit risk on financial assets of the economic entity which have been
recognised on the balance sheet is generally the carrying amount, net of any
provisions for doubtful debts, as disclosed in the balance sheet and notes to
and forming part of the financial statements.
F-156
<PAGE> 246
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
(b) Interest rate risks
The economic entity's exposure to interest rate risk and the effective
weighted average interest rate for each class of financial assets and financial
liabilities is set out below.
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
---------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR OVER 5 INTEREST
RATE LESS 1 TO 5 YEARS YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
30 SEPTEMBER 1999
(a) FINANCIAL ASSETS
Cash........................... 6 -- -- -- -- 19,772 19,772
Receivables.................... 7 -- -- -- -- 165,746 165,746
-------- ------- -------- ------- ------- --------
-- -- -- -- 185,518 185,518
-------- ------- -------- ------- ------- --------
Weighted average interest
rate......................... -- -- -- -- --
(b) FINANCIAL LIABILITIES
Bank overdraft & loans......... 11 21,105 -- -- -- -- 21,105
Trade & other creditors........ 10 -- -- -- -- 128,675 128,675
Loan from related party........ 11 -- -- -- -- 122,852 122,852
Lease liabilities.............. 11 -- 76,167 104,030 -- -- 180,197
-------- ------- -------- ------- ------- --------
21,105 76,167 104,030 -- 251,527 452,829
-------- ------- -------- ------- ------- --------
Weighted average interest
rate......................... 10.75% 8.50% 8.50% -- -- --
Net financial assets
(liabilities)...... (21,105) (76,167) (104,030) -- (66,009) (267,311)
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
---------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR OVER 5 INTEREST
RATE LESS 1 TO 5 YEARS YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
30 JUNE 1999
(a) FINANCIAL ASSETS
Cash........................... 6 -- -- -- -- 300 300
Receivables.................... 7 -- -- -- -- 164,398 164,398
-------- ------- -------- ------- ------- --------
-- -- -- -- 164,698 164,698
======== ======= ======== ======= ======= ========
Weighted average interest
rate......................... -- -- -- -- -- --
(b) FINANCIAL LIABILITIES
Bank overdraft & loans......... 11 43,724 -- -- -- -- 43,724
Trade & other creditors........ 10 -- -- -- -- 119,623 119,623
Loan from related party........ 11 122,852 -- -- -- -- 122,852
Lease liabilities.............. 11 -- 66,906 42,425 -- -- 109,331
-------- ------- -------- ------- ------- --------
166,576 66,906 42,425 -- 119,623 395,530
======== ======= ======== ======= ======= ========
Weighted average interest
rate......................... 10.53% 9.07% 9.07% -- --
-------- ------- -------- ------- ------- --------
Net financial assets
(liabilities)...... (166,576) (66,906) (42,425) -- 45,075 (230,832)
======== ======= ======== ======= ======= ========
</TABLE>
F-157
<PAGE> 247
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR OVER 5 INTEREST
RATE LESS 1 TO 5 YEARS YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
30 JUNE 1998
(a) FINANCIAL ASSETS
Cash............................ 6 -- -- -- -- 300 300
Receivables..................... 7 -- -- -- -- 53,562 53,562
-------- ------- -------- ------ ------- --------
-- -- -- -- 53,862 53,862
======== ======= ======== ====== ======= ========
Weighted average interest
rate.......................... -- -- -- -- -- --
(b) FINANCIAL LIABILITIES
Bank overdraft & loans.......... 11 33,415 -- -- -- -- 33,415
Trade & other creditors......... 10 -- -- -- -- 127,895 127,895
Loan from related party......... 11 129,197 -- -- -- -- 129,197
Lease liabilities............... 11 -- 88,817 53,737 -- -- 142,554
-------- ------- -------- ------ ------- --------
162,611 88,817 53,737 -- 127,895 433,061
======== ======= ======== ====== ======= ========
Weighted average interest
rate.......................... 10.50% 9.80% 9.80% -- -- --
-------- ------- -------- ------ ------- --------
Net financial assets
(liabilities)....... (162,611) (88,817) (53,737) -- (74,033) (379,199)
======== ======= ======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST RATE MATURITIES
--------------------------------------------
FLOATING NON
INTEREST 1 YEAR OR OVER 5 INTEREST
RATE LESS 1 TO 5 YEARS YEARS BEARING TOTAL
NOTES $ $ $ $ $ $
----- -------- --------- ------------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
30 JUNE 1997
(a) FINANCIAL ASSETS
Cash........................... 6 -- -- -- -- 300 300
Receivables.................... 7 -- -- -- -- 9,639 9,639
-------- ------- -------- ------ -------- --------
-- -- -- -- 9,939 9,939
======== ======= ======== ====== ======== ========
Weighted average interest
rate......................... -- -- -- -- --
(b) FINANCIAL LIABILITIES
Bank overdraft & loans......... 11 34,252 -- -- -- -- 34,252
Trade & other creditors........ 10 -- -- -- -- 63,217 63,217
Loan from related party........ 11 -- -- -- -- 144,572 144,572
Lease liabilities.............. 11 -- 72,782 88,796 -- -- 161,578
-------- ------- -------- ------ -------- --------
34,252 72,782 88,796 -- 207,789 403,619
======== ======= ======== ====== ======== ========
Weighted average interest
rate......................... 13.75% 9.44% 9.44% -- -- --
-------- ------- -------- ------ -------- --------
Net financial assets
(liabilities)...... (34,252) (72,782) (88,796) -- (197,850) (393,680)
======== ======= ======== ====== ======== ========
</TABLE>
F-158
<PAGE> 248
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
Reconciliation of Net Financial Assets to Net Assets
<TABLE>
<CAPTION>
30 JUNE
------------------------------
30 SEPT 1999 1999 1998 1997
NOTES $ $ $ $
----- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net financial assets as above............ (267,311) (230,832) (379,199) (393,680)
Non-financial assets and liabilities
Property, plant and equipment.......... 9 299,412 215,689 291,845 366,653
Other assets........................... 8 -- 2,700 2,000 --
Provisions............................. 12 (457,244) (428,761) (247,764) (98,050)
-------- -------- -------- --------
Net assets per balance sheet............. (425,143) (441,204) (333,118) (125,077)
======== ======== ======== ========
</TABLE>
(c) Net fair value of financial assets and liabilities
The net fair value of financial assets and liabilities of the economic
entity approximates their carrying value.
NOTE 15 RELATED PARTIES
(a) Directors
The names of persons who were directors of Dove Australia Pty Limited
during the financial year are as follows:
<TABLE>
<CAPTION>
DIRECTOR DATE APPOINTED DATE RESIGNED
-------- --------------- ---------------
<S> <C> <C>
Donald Bruce Crago................................ 10 April 1983 05 October 1999
Margaret Airdrie Crago............................ 10 April 1983 08 May 1998
Michael John McMahon.............................. 17 April 1996 05 October 1999
Jennifer McMahon.................................. 17 April 1996 08 May 1998
Sean Robert William Harris........................ 05 October 1999 continuing
Kevin Randolph.................................... 05 October 1999 continuing
Edward Roberto.................................... 05 October 1999 continuing
</TABLE>
Information on remuneration of directors is disclosed in note 16.
(b) Loans to Director-related entity
Microtronics Pty Limited is a Director-related entity. Loans due to
Microtronics Pty Limited are disclosed in note 11.
(c) Other transactions with Directors and Director related entities
The company provides accounting and management services to Microtronics Pty
Limited. In addition, interest is charged to the company by Microtronics Pty
Limited on the outstanding amount of the loan.
Aggregate amounts of each of the above types of transactions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- -------- ------
<S> <C> <C> <C> <C>
Management fees.................................. -- 15,000 30,000 --
Interest......................................... -- 8,656 10,915 --
Payments made to directors' spouses.............. 13,440 54,374 -- --
</TABLE>
F-159
<PAGE> 249
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
In addition, on 1 July 1996, Microtronics Pty Limited sold plant and
equipment to Dove Australia Pty Limited at its net book value. No gain of loss
was made on the sale of equipment.
NOTE 16 REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- -------- -------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made available,
to directors in connection with the management of
affairs of entity.................................. 14,560 58,615 111,973 85,534
====== ====== ======= ======
</TABLE>
The numbers of directors whose total income from the entity or related
parties was within the specified bands are as follows:
<TABLE>
<S> <C> <C> <C> <C>
$ 0-$ 9,999............................................. 2 -- -- --
10,000- 19,999............................................. -- -- -- 2
20,000- 29,999............................................. -- 2 4 2
</TABLE>
NOTE 17 COMMITMENTS FOR EXPENDITURE
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Commitments in relation to leases contracted for at
the reporting date but not recognised as
liabilities, payable:
Not later than one year.......................... 44,041 42,306 44,701 18,753
Later than one year but not later than 2 years... 24,037 28,237 37,198 39,517
Later than 2 years but not later than 5 years.... 3,627 1,141 23,592 56,097
------- ------- ------- -------
71,705 71,684 105,491 114,367
======= ======= ======= =======
Representing:
Non-cancellable operating leases................. 45,000 52,500 82,500 90,000
Future finance charges on finance leases......... 26,705 19,184 22,991 24,367
------- ------- ------- -------
71,705 71,684 105,491 114,367
======= ======= ======= =======
OPERATING LEASES
Commitments for minimum lease payments in relation
to non-cancellable operating leases are payable
as follows:
Not later than one year.......................... 30,000 30,000 30,000 7,500
Later than one year but not later than 5 years... 15,000 22,500 52,500 82,500
------- ------- ------- -------
Commitments not recognised in the financial
statements.................................... 45,000 52,500 82,500 90,000
======= ======= ======= =======
</TABLE>
F-160
<PAGE> 250
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
FINANCE LEASES
Commitments in relation to finance leases are
payable as follows:
Not later than one year.......................... 108,787 82,420 105,853 85,872
Later than one year but not later than 5 years... 98,115 46,095 59,692 100,073
Minimum lease payments........................... 206,902 128,515 165,545 185,945
Less: Future finance charges..................... 26,705 19,184 22,991 24,367
------- ------- ------- -------
Total lease liabilities.................. 180,197 109,331 142,554 161,578
======= ======= ======= =======
Representing lease liabilities:
Current (note 11)................................ 76,167 66,906 88,817 72,782
Non-current (note 11)............................ 104,030 42,425 53,737 88,796
------- ------- ------- -------
180,197 109,331 142,554 161,578
======= ======= ======= =======
The weighted average interest rate implicit in the
leases is:....................................... 8.50% 9.07% 9.80% 9.44%
</TABLE>
NOTE 18 EVENT OCCURRING AFTER REPORTING DATE
On 05 October 1999, Asia Online -- Australia Pty Ltd (ACN 089 444 691)
acquired all of the issued shares in Dove Australia Pty Limited, an internet
service provider for consideration of $2,875,000.
NOTE 19 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 JUNE
---------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash....................................... 300 300 300 300
Bank at bank/(overdraft)................... 19,472 (19,604) (33,415) (34,252)
------ ------- ------- -------
19,772 (19,304) (33,115) (33,952)
====== ======= ======= =======
</TABLE>
F-161
<PAGE> 251
DOVE AUSTRALIA PTY LIMITED
NOTES TO AND FORMING PART OF THE ACCOUNTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ------------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating profit/(loss) after income
tax................................... 16,061 (108,086) (208,041) (130,060)
Depreciation and amortisation........... 34,534 185,927 154,481 98,955
Net (profit)/loss on sale of non current
assets................................ -- (2,940) 328 --
Decrease/(increase) in trade and other
debtors............................... 1,352 (110,836) (43,923) (11,791)
Decrease/(increase) in other assets..... -- (700) (2,000) --
Increase/(decrease) in trade and other
creditors............................. 15,721 (63,819) 64,678 63,217
Increase/(decrease) in other operating
liabilities........................... (6,669) 55,547
Increase/(decrease) in provisions....... 28,483 180,997 149,714 98,050
------ -------- -------- --------
Net cash inflow/(outflow) from operating
activities............................ 89,482 136,090 115,237 118,371
====== ======== ======== ========
</TABLE>
NOTE 20 NON-CASH FINANCING AND INVESTING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED 30 JUNE
1 JULY 1999 TO ----------------------------
30 SEPT 1999 1999 1998 1997
$ $ $ $
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
Acquisition of plant and equipment by means of
finance leases..................................... 100,260 81,360 77,027 189,931
Acquisition of plant and equipment by means of
related party loan................................. -- -- -- 168,153
</TABLE>
NOTE 21 SEGMENT INFORMATION
The company sells internet access and operates solely within Australia.
NOTE 22 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 30 June 1999 and 3 months ended 30 September 1999
there were no material adjustments required to reconcile net income and
shareholders' equity for differences between Australian GAAP and U.S. GAAP.
F-162
<PAGE> 252
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of The Internet Company of New
Zealand Limited (renamed Asia Online New Zealand Limited)
We have audited the accompanying statement of financial position for The
Internet Company of New Zealand Limited ("the Company") as of 31 March 1998, 31
March 1999, 30 September 1999 and 31 December 1999 and the related statement of
financial performance and movements in equity for each of the periods ended 31
March 1998, 31 March 1999, 30 September 1999 and 31 December 1999, all expressed
in New Zealand dollars which have been prepared in accordance with accounting
principles generally accepted in New Zealand. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, based on our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in New Zealand, which are substantially similar in all material
respects, to those generally accepted in the United States of America. Those
Standards require that the audit is planned and performed to obtain reasonable
assurance that the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of Asia Online New Zealand Limited at 31 March
1998, 31 March 1999, 30 September 1999 and 31 December 1999, and the results of
its operations for each of the periods ended 31 March 1998, 31 March 1999, 30
September 1999 and 31 December 1999, and have been properly prepared in
accordance with accounting principles generally accepted in New Zealand.
Accounting principles generally accepted in New Zealand vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of the net result, expressed in New Zealand dollars, for each of
the two years in the period ended 31 March 1999 and for six months period ended
30 September 1999 and for the three months ended 31 December 1999 and the
determination of the financial position and shareholders' equity at 31 March
1998, 31 March 1999, 30 September 1999 and 31 December 1999, also expressed in
New Zealand dollars to the extent summarised in note 12 to the financial
statements.
PRICEWATERHOUSECOOPERS
Auckland, New Zealand
25 July, 2000
F-163
<PAGE> 253
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
3 MONTHS TO 6 MONTHS TO YEAR TO YEAR TO
31-DEC-99 30-SEP-99 31-MAR-99 31-MAR-98
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... 1,499,932 2,929,203 4,978,145 2,958,537
Operating costs and expenses:
Operations................................... 769,543 1,188,258 2,156,275 1,222,848
Selling, general and administrative.......... 1,054,306 1,927,199 2,265,007 1,935,725
Depreciation................................. 133,749 125,107 295,996 282,957
Exchange losses.............................. -- -- -- --
Amortization of goodwill..................... -- 132,954 -- --
--------- --------- --------- ---------
Operating (loss)/profit........................ (457,666) (444,315) 260,867 (482,993)
Interest income, net........................... 2,065 96 53 1,328
Income tax..................................... -- -- 4,925 --
--------- --------- --------- ---------
Net (loss)/profit after income tax... (455,601) (444,219) 265,845 (481,665)
========= ========= ========= =========
</TABLE>
F-164
<PAGE> 254
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
31-DEC-99 30-SEP-99 31-MAR-99 31-MAR-98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. 283,870 555,394 27,572 26,361
Accounts receivable, net................... 611,987 546,131 837,341 111,863
Prepaid expenses and other current
assets.................................. 137,061 138,610 142,553 16,168
---------- ---------- ---------- ----------
Total current assets............... 1,032,918 1,240,135 1,007,466 154,392
========== ========== ========== ==========
Property and equipment, net (note 4)......... 510,868 561,519 468,570 569,199
Investments.................................. -- -- 25,000 25,000
Goodwill, net................................ -- -- -- --
---------- ---------- ---------- ----------
Total assets....................... 1,543,786 1,801,654 1,501,036 748,591
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Deferred revenue and deposits received..... 24,726 21,286 26,688 23,918
Accounts payable and accruals.............. 2,415,463 2,200,557 1,801,818 1,327,888
Intercompany balance....................... 330,887 351,500 -- --
Bank overdrafts............................ -- -- -- --
---------- ---------- ---------- ----------
Total current liabilities.......... 2,771,076 2,573,343 1,828,506 1,351,806
========== ========== ========== ==========
Long term liabilities:
Related party advance...................... -- -- -- 990,000
---------- ---------- ---------- ----------
Total liabilities.................. 2,771,076 2,573,343 1,828,506 2,341,806
========== ========== ========== ==========
Commitments and contingencies (note 7 & 8)
Shareholders' equity:
Share capital................................ 1,000,000 1,000,000 1,000,000 100
Retained earnings............................ (2,227,290) (1,771,689) (1,327,470) (1,593,315)
---------- ---------- ---------- ----------
(1,227,290) (771,689) (327,470) (1,593,215)
========== ========== ========== ==========
Total liabilities and shareholders'
equity........................... 1,543,786 1,801,654 1,501,036 748,591
========== ========== ========== ==========
</TABLE>
F-165
<PAGE> 255
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
RETAINED EARNINGS
<TABLE>
<CAPTION>
3 MONTHS TO 6 MONTHS TO YEAR TO YEAR TO
31-DEC-99 30-SEP-99 31-MAR-99 31-MAR-98
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Retained Loss Brought Forward................ (1,771,689) (1,327,470) (1,593,315) (1,111,650)
(Loss)/Profit for the period/year............ (455,601) (444,219) 265,845 (481,665)
---------- ---------- ---------- ----------
Retained Loss...................... (2,227,290) (1,771,689) (1,327,470) (1,593,315)
========== ========== ========== ==========
</TABLE>
STATEMENT OF MOVEMENTS IN EQUITY
<TABLE>
<CAPTION>
3 MONTHS TO 6 MONTHS TO YEAR TO YEAR TO
31-DEC-99 30-SEP-99 31-MAR-99 31-MAR-98
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Brought Forward.............................. (771,689) (327,470) (1,593,215) (1,111,550)
Share Issue.................................. -- -- 999,900 --
Total Recognised Revenues and Expenses....... (455,601) (444,219) 265,845 (481,665)
---------- -------- ---------- ----------
Carried Forward.................... (1,227,290) (771,689) (327,470) (1,593,215)
========== ======== ========== ==========
</TABLE>
F-166
<PAGE> 256
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
NOTES TO FINANCIAL STATEMENTS
1 ORGANIZATION AND BASIS OF PRESENTATION
(a) Reporting Entity
The financial statements presented are those of Asia Online New Zealand
Limited, formally The Internet Company of New Zealand Limited.
Asia Online New Zealand Limited is a company registered under the Companies
Act 1993.
The financial statements have been prepared in accordance with the
Companies Act 1993 and the Financial Reporting Act 1993.
(b) Basis of presentation
The financial statements have been prepared on the basis of historical
cost.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Financial Statements are prepared in accordance with New Zealand
generally accepted practice. The company is a qualifying entity within the
Framework of Differential Reporting. The company qualifies on the basis that it
is not publicly accountable and all owners are involved in the governing of the
company. The company has taken advantage of all differential reporting
exemptions available to them except for FRS 19: Accounting for Goods and
Services Tax.
The accounting policies which materially affect the measurement of
financial performance and financial position are set out below.
(a) Property and equipment
Property and equipment, including leasehold improvements, is stated at cost
and net of accumulated depreciation. Depreciation is computed using the straight
line method incorporating estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
31/12/99 30/09/99 31/03/99 31/03/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computer software & equipment.... 3 years 3 years 2 to 3 years 2 to 3 years
Furniture & office equipment..... 3 to 5 years 3 to 5 years 3 to 7 years 3 to 7 years
Leasehold improvements........... 3 years 3 years 5 years 5 years
</TABLE>
(b) Goodwill
Goodwill represents the excess of the cost of assets over the fair value of
the net assets acquired at the date of acquisition. Goodwill is amortised over
its estimated useful economic life.
(c) Impairment of long-lived assets
The Company reviews long-lived assets based upon expected gross cash flows
and will reserve for impairment whenever events or changes in circumstances
indicate the carrying amount of the assets may not be fully recoverable. Based
on its most recent analysis, the Company believes that there was no impairment
of its property and equipment and intangible assets as of 31 December 1999.
(d) Revenue recognition
Service revenues, earned principally from internet connectivity services,
are recognised rateably over the terms of the relevant service contracts.
Deferred revenue represents amounts received in advance of services being
rendered.
F-167
<PAGE> 257
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest income is accounted for as earned.
(e) Income taxes
The income tax expense charged to the statement of financial performance
includes both the current year's provision and the income tax effects of timing
differences calculated using the liability method.
Tax effect accounting has been applied on a comprehensive basis to all
timing differences. A debit balance in the deferred tax account, arising from
timing differences or income tax benefits from income tax losses, is only
recognised if there is virtual certainty of realisation.
(f) Foreign currency translation
Foreign currency transactions are recorded at the exchange rates in effect
at the date of settlement. Monetary assets and liabilities arising from trading
transactions or overseas borrowings are translated at closing rates. Gains and
losses due to currency fluctuations on these items are included in the statement
of financial performance.
(g) Certain risks and concentrations
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company limits its exposure to credit loss by
depositing its cash and cash equivalents which management believes are of high
credit quality. The Company believes that the risk associated with accounts
receivable is mitigated, to some extent, by the fact that the Company's customer
base is geographically dispersed and there is no concentration of customers. The
Company maintains an allowance for potential credit losses that it believes to
be adequate. No individual customer accounted for more than 10% of net revenues
for the periods ended 31 March 1998, 31 March 1999, 30 September 1999 and 31
December 1999 or more than 10% of accounts receivable as at 31 March 1998, 31
March 1999, 30 September 1999 and 31 December 1999.
The Company operates in a business that is characterized by rapid
technological advances, changes in customer requirements and evolving regulatory
requirements and industry standards. Any failure by the Company to anticipate or
to respond adequately to technological changes in its industry segments, changes
in customer requirements or changes in regulatory requirements or industry
standards, could have a material adverse affect on the Company's business and
operating results.
(h) Goods and Services Tax (GST)
The statements of financial performance are prepared on a GST exclusive
basis in accordance with Financial Reporting Standard No. 19. All items in the
statement of financial position are stated net of GST, with the exception of
payables which include GST.
(i) Accounts Receivable
Accounts receivable are valued at anticipated realisable value. An estimate
is made for doubtful debts based on a review of all outstanding amounts at each
period end. Bad debts are written off during the period in which they are
identified.
(j) Investments
Investments in other entities are stated at cost.
F-168
<PAGE> 258
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(k) Operating Leases
Leases whereby the lessee retains the risks and rewards of ownership are
classified as operating leases and are charged as an expense in the statement of
financial performance.
(l) Changes in Accounting Policies
There have been no changes in accounting policies applied by the company
during the periods.
3 OPERATING EXPENSES
<TABLE>
<CAPTION>
3 MONTHS 6 MONTHS
TO TO YEAR ENDED YEAR ENDED
31/12/99 30/09/99 31/03/99 31/03/98
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Bad Debts................................ 54,704 109,212 (22,454) 7,865
Interest................................. -- 2,866 4,567 125,231
Legal Fees............................... -- 21,384 1,500 4,385
Depreciation............................. 133,749 125,107 295,996 282,957
Amortisation............................. -- 132,954 -- --
Rental Expense........................... 30,282 60,727 111,470 77,840
Leasing Costs............................ 174 367 2,149 739
Other Expenses........................... 1,738,689 2,920,901 4,324,050 2,942,513
--------- --------- --------- ---------
1,957,598 3,373,518 4,717,278 3,441,530
========= ========= ========= =========
</TABLE>
Audit fees have been paid for by an intermediate parent undertaking.
4 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
31/12/99 30/09/99 31/03/99 31/03/98
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
COST
Computer software & equipment............ 1,505,583 1,505,583 1,291,163 1,127,995
Furniture & Equipment.................... 52,189 52,189 48,554 38,627
Leasehold Improvements................... 42,675 42,675 42,675 24,330
--------- --------- --------- ---------
1,600,447 1,600,447 1,382,392 1,190,952
========= ========= ========= =========
DEPRECIATION
Computer software & equipment............ 1,024,938 1,008,347 889,812 610,416
Furniture & Equipment.................... 27,830 21,143 17,261 9,687
Leasehold Improvements................... 36,811 9,438 6,749 1,650
--------- --------- --------- ---------
1,089,579 1,038,928 913,822 621,753
--------- --------- --------- ---------
Net Book Value........................... 510,868 561,519 468,570 569,199
========= ========= ========= =========
</TABLE>
5 SHARE CAPITAL
Issued and Paid Up Capital
<TABLE>
<CAPTION>
31/12/99 30/09/99 31/03/99 31/03/98
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Ordinary Shares.......................... 1,000,000 1,000,000 1,000,000 100
</TABLE>
F-169
<PAGE> 259
THE INTERNET COMPANY OF NEW ZEALAND LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6 OPERATING SEGMENTS
The Company has one business segment and operates in one geographical
segment, New Zealand.
7 CONTINGENT LIABILITIES
There are no contingent liabilities at any of the period ends.
8 CAPITAL COMMITMENTS
There are no capital commitments at any of the period ends.
9 OPERATING LEASE COMMITMENTS
The company rents office and communication equipment under operating lease
agreements. The net aggregate future lease payments at each period end are
payable as follows:
<TABLE>
<CAPTION>
31/12/99 30/09/99 31/03/99 31/03/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current........................................ 31,730 63,460 109,820 109,820
Non Current.................................... 12,000 12,000 12,000 109,820
</TABLE>
10 SHAREHOLDER SUPPORT
The financial statements have been prepared on a going concern basis. This
basis is dependent on the continuing support of the shareholders. The
shareholders have advised that they will continue to provide financial support
to the company during the ordinary course of business.
11 RELATED PARTY TRANSACTIONS
The company has entered into transactions, on normal commercial terms with
Melco New Zealand Limited, a company in which Ron Woodrow the former owner of
The Internet Company of New Zealand, is a director and Asia Online, Ltd, Parent
Company.
Intercompany balances are to the immediate holding company Asia Online New
Zealand Holding Limited.
Related party advances were provided by Ron Woodrow.
12 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in New Zealand ("NZ GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the periods ended 31 March 1998, 31 March 1999, 30 September 1999 and
31 December 1999 there were no material adjustments required to reconcile net
income/loss and shareholders' equity/deficit for differences between NZ GAAP and
U.S. GAAP.
F-170
<PAGE> 260
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Utusan Multimedia Sdn Bhd
(renamed Asia Online Utusan Sdn Bhd
on 29 March 2000)
Company No: 409870-V
(Incorporated in Malaysia)
We have audited the accompanying balance sheets of Utusan Multimedia Sdn
Bhd as of 31 December 1997, 31 December 1998, 31 December 1999 and 28 January
2000 and the related statement of income, of cash flows and changes in
shareholders' equity for the period from 7 November 1996 (inception) to 31
December 1997 and for each of the two years in the period ended 31 December 1999
and for the period from 1 January 2000 to 28 January 2000, all expressed in
Ringgit Malaysia (RM) which have been prepared in accordance with accounting
principles generally accepted in Malaysia. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, based on our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in Malaysia, which are substantially similar in all material respects,
to those generally accepted in the United States of America. Those Standards
require that the audit is planned and performed to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of Utusan Multimedia Sdn Bhd at 31 December
1997, 31 December 1998, 31 December 1999 and 28 January 2000, and the results of
its operations and cash flows for the period from 7 November 1996 (inception) to
31 December 1997 and for each of the two years in the period ended 31 December
1999 and for the period from 1 January 2000 to 28 January 2000, and have been
properly prepared in accordance with accounting principles generally accepted in
Malaysia.
Accounting principles generally accepted in Malaysia vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net profit/(loss) after tax, expressed in Ringgit Malaysia (RM)
for the period from 7 November 1996 (inception) to 31 December 1997 and for each
of the two years in the period ended 31 December 1999 and for the period from 1
January 2000 to 28 January 2000, and the determination of the financial position
and shareholders' equity at 31 December 1997, 31 December 1998, 31 December 1999
and 28 January 2000, also expressed in Ringgit Malaysia (RM) to the extent
summarised in note 13 to the financial statements.
PRICEWATERHOUSECOOPERS
Kuala Lumpur, Malaysia
28 July, 2000
F-171
<PAGE> 261
UTUSAN MULTIMEDIA SDN BHD
(RENAMED ASIA ONLINE UTUSAN SDN BHD ON 29 MARCH 2000)
COMPANY NO: 409870-V
(INCORPORATED IN MALAYSIA)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
NOTE RM RM RM RM
---- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Turnover.............................. 3 753,563 10,336,934 3,918,573 1,707,216
Operating cost & expenses:
Cost of sales....................... (551,145) (8,814,474) (3,303,263) (1,517,268)
Selling, general & administrative... (103,879) (1,000,750) (564,036) (513,029)
Depreciation........................ (9,035) (55,591) (74,866) (70,719)
-------- ---------- ---------- ----------
Profit/(loss) before taxation......... 4 89,504 466,119 (23,592) (393,800)
Taxation.............................. 5 -- (27,000) -- --
-------- ---------- ---------- ----------
Profit/(loss) after taxation.......... 89,504 439,119 (23,592) (393,800)
Unappropriated profit/
(accumulated loss) brought
forward............................. 21,727 (417,392) (393,800) --
-------- ---------- ---------- ----------
Unappropriated profit/
(accumulated loss) carried
forward............................. 111,231 21,727 (417,392) (393,800)
======== ========== ========== ==========
</TABLE>
The above statements of income are to be read in conjunction
with the accompanying notes to the accounts.
F-172
<PAGE> 262
UTUSAN MULTIMEDIA SDN BHD
(RENAMED ASIA ONLINE UTUSAN SDN BHD ON 29 MARCH 2000)
COMPANY NO: 409870-V
(INCORPORATED IN MALAYSIA)
BALANCE SHEETS
AS AT 31 DECEMBER 1997, 31 DECEMBER 1998,
31 DECEMBER 1999 AND 28 JANUARY 2000
<TABLE>
<CAPTION>
28.1.2000 31.12.1999 31.12.1998 31.12.1997
NOTE RM RM RM RM
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHARE CAPITAL............................ 551,025 2 2 2
SHARE PREMIUM............................ 10,421,475 -- -- --
---------- --------- --------- ---------
10,972,500 2 2 2
Less: Calls in arrear.................. (6,912,500) -- -- --
---------- --------- --------- ---------
Paid-up share capital and share
premium............................. 4,060,000 2 2 2
Unappropriated profit/
(accumulated loss).................. 111,231 21,727 (417,392) (393,800)
---------- --------- --------- ---------
SHAREHOLDERS' FUNDS............ 4,171,231 21,729 (417,390) (393,798)
Deferred taxation.............. 6 27,000 27,000 -- --
---------- --------- --------- ---------
4,198,231 48,729 (417,390) (393,798)
========== ========= ========= =========
FIXED ASSETS............................. 7 242,298 239,723 187,575 225,659
CURRENT ASSETS
Trade debtors.......................... 71,727 70,622 -- --
Other debtors.......................... 301,133 207,950 170,014 100,000
Amount owing from related companies.... 8 -- 93,183 86,610 86,250
Amount owing from corporate
shareholder......................... 9 32,049 -- -- --
Cash and bank.......................... 4,226,331 483,180 210,969 262,286
---------- --------- --------- ---------
4,631,240 854,935 467,593 448,536
---------- --------- --------- ---------
CURRENT LIABILITIES
Trade creditors........................ 383,991 290,865 40,821 272,927
Other creditors & accruals............. 291,316 150,698 60,165 71,245
Amount owing to holding company........ 10 -- 513,276 959,802 723,821
Amount owing to a related company...... 8 -- 91,090 11,770 --
---------- --------- --------- ---------
675,307 1,045,929 1,072,558 1,067,993
---------- --------- --------- ---------
NET CURRENT
ASSETS/(LIABILITIES)......... 3,955,933 (190,994) (604,965) (619,457)
---------- --------- --------- ---------
4,198,231 48,729 (417,390) (393,798)
========== ========= ========= =========
</TABLE>
The above balance sheets are to be read in conjunction
with the accompanying notes to the accounts.
F-173
<PAGE> 263
UTUSAN MULTIMEDIA SDN BHD
(RENAMED ASIA ONLINE UTUSAN SDN BHD ON 29 MARCH 2000)
COMPANY NO: 409870-V
(INCORPORATED IN MALAYSIA)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM YEAR (DATE OF
1.1.2000 TO YEAR ENDED ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Profit/(loss) before taxation................... 89,504 466,119 (23,592) (393,800)
Adjustments for:
Depreciation of fixed assets.................. 9,035 55,591 74,866 70,719
--------- -------- -------- --------
Operating profit/(loss) before working capital
changes.................................... 98,539 521,710 51,274 (323,081)
Increase in debtors........................... (94,288) (108,558) (70,014) (100,000)
Increase/(decrease) in creditors.............. 233,744 340,577 (243,186) 344,172
(Decrease)/increase in amount owing to holding
company.................................... (513,276) (446,526) 235,981 723,821
Increase/(decrease) in related companies
balances................................... 2,093 72,747 11,410 (86,250)
Increase in amount owing from a corporate
shareholder................................ (32,049) -- -- --
--------- -------- -------- --------
Cash (outflow)/inflow from operations......... (305,237) 379,950 (14,535) 558,662
Taxation paid................................. -- -- -- --
--------- -------- -------- --------
Net cash (outflow)/inflow from operating
activities................................. (305,237) 379,950 (14,535) 558,662
--------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets........................ (11,610) (107,739) (36,782) (296,378)
Proceeds from issuance of shares................ 4,059,998 -- -- 2
--------- -------- -------- --------
Net cash inflow/(outflow) from investing
activities.................................... 4,048,388 (107,739) (36,782) (296,376)
--------- -------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 3,743,151 272,211 (51,317) 262,286
CASH AND CASH EQUIVALENTS AT BEGINNING OF DATE
OF INCORPORATION/1 JANUARY.................... 483,180 210,969 262,286 --
--------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT 31 DECEMBER/28
JANUARY....................................... 4,226,331 483,180 210,969 262,286
========= ======== ======== ========
</TABLE>
The above statements of cash flow are to be read in conjunction
with the accompanying notes to the accounts.
F-174
<PAGE> 264
UTUSAN MULTIMEDIA SDN BHD
(RENAMED ASIA ONLINE UTUSAN SDN BHD ON 29 MARCH 2000)
COMPANY NO: 409870-V
(INCORPORATED IN MALAYSIA)
STATEMENT OF CHANGES IN EQUITY
FOR THE THREE FINANCIAL PERIOD/YEARS ENDED 31 DECEMBER 1999
AND FOR THE TWENTY EIGHT DAYS PERIOD ENDED 28 JANUARY 2000
<TABLE>
<CAPTION>
UNAPPROPRIATED
SHARE SHARE PROFIT/
CAPITAL PREMIUM CALLS IN (ACCUMULATED
RM RM ARREAR RM LOSS) RM TOTAL RM
------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
As at date of incorporation....... -- -- -- -- --
Issue of shares................... 2 -- -- -- 2
Loss after tax for the period..... -- -- -- (393,800) (393,800)
------- ---------- ---------- -------- ---------
As at 31 December 1997............ 2 -- -- (393,800) (393,798)
Issue of shares................... -- -- -- -- --
Loss after tax for the year....... -- -- -- (23,592) (23,592)
------- ---------- ---------- -------- ---------
As at 31 December 1998............ 2 -- -- (417,392) (417,390)
Issue of shares................... -- -- -- -- --
Profit after tax for the year..... -- -- -- 439,119 439,119
------- ---------- ---------- -------- ---------
As at 31 December 1999............ 2 -- -- 21,727 21,729
Issue of shares................... 551,023 10,421,475 (6,912,500) -- 4,059,998
Profit after tax for the period... -- -- -- 89,504 89,504
------- ---------- ---------- -------- ---------
As at 28 January 2000............. 551,025 10,421,475 (6,912,500) 111,231 4,171,231
======= ========== ========== ======== =========
</TABLE>
The above statement of changes in equity is to be read in conjunction
with the accompanying notes to the accounts.
F-175
<PAGE> 265
UTUSAN MULTIMEDIA SDN BHD
(RENAMED ASIA ONLINE UTUSAN SDN BHD)
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION OF THE ACCOUNTS
The financial statements of the Company have been prepared in accordance
with the applicable approved accounting standards in Malaysia.
2 SIGNIFICANT ACCOUNTING POLICIES
All significant accounting policies set out below are consistent with those
applied in the previous years.
(a) Accounting convention
The accounts are prepared under the historical cost convention.
(b) Depreciation
Depreciation of fixed assets is calculated so as to write off the cost on a
straight line basis over the expected useful lives of the assets concerned. The
annual rates are:
<TABLE>
<S> <C>
Office equipment, furniture and fittings.................... 20%
Computer equipment.......................................... 33%
Computer software........................................... 20%
Renovations................................................. 20%
</TABLE>
(c) Deferred taxation
Provision is made using the liability method for taxation deferred in
respect of all timing differences except where it is considered reasonably
probable that the tax effects of such deferrals will continue in the foreseeable
future. Where such timing differences give rise to net deferred tax benefits,
these benefits are not recognised.
(d) Revenue recognition
Revenue from internet access, web hosting and professional services is
recognised as the services are provided.
(e) Cash and cash equivalents
For the purpose of the cash flow statements, cash and cash equivalents
comprise of cash in hand and demand deposits in banks.
3 TURNOVER
Turnover of the Company represents income received from internet access,
web hosting, intranet and network management.
F-176
<PAGE> 266
UTUSAN MULTIMEDIA SDN BHD
NOTES TO THE ACCOUNTS -- (CONTINUED)
4 PROFIT/(LOSS) BEFORE TAXATION
Profit/(loss) before taxation is stated after charging the following:
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Auditors' remuneration.......................... 500 5,000 5,000 5,000
Office rental................................... 7,407 112,044 39,600 36,300
Interest expense................................ 1,800 127,551 15,235 11,352
Directors' fee.................................. -- 10,000 -- --
===== ======= ====== ======
</TABLE>
5 TAXATION
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Malaysian income tax............................ -- -- -- --
Transfer to deferred taxation................... -- (27,000) -- --
----- ------- ------ ------
-- (27,000) -- --
===== ======= ====== ======
</TABLE>
As at the respective periods/years ended the Company has, subject to the
agreement with the Inland Revenue Board the following unabsorbed losses and
unutilised capital allowances:
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Unabsorbed losses carried forward............... -- -- 301,173 301,173
Unutilised capital allowances carried forward... -- -- 103,378 120,400
===== ======= ======= =======
</TABLE>
6 DEFERRED TAXATION
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
AS AT 1 JANUARY/DATE OF INCORPORATION............. 27,000 -- -- --
Transfer from profit and loss account............. -- 27,000 -- --
------ ------ ------- -------
AS AT 28 JANUARY/31 DECEMBER...................... 27,000 27,000 -- --
====== ====== ======= =======
Net deferred tax benefits not accounted for in the
accounts........................................ -- -- 106,000 106,000
====== ====== ======= =======
</TABLE>
F-177
<PAGE> 267
UTUSAN MULTIMEDIA SDN BHD
NOTES TO THE ACCOUNTS -- (CONTINUED)
7 FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE
EQUIPMENT,
FURNITURE COMPUTER COMPUTER
AND FITTINGS EQUIPMENT SOFTWARE RENOVATIONS TOTAL
RM RM RM RM RM
------------ --------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
2000
COST
AS AT 1 JANUARY.......................... 66,433 126,191 228,868 19,407 440,899
Additions................................ -- 11,610 -- -- 11,610
------ ------- ------- ------ -------
AS AT 28 JANUARY......................... 66,433 137,801 228,868 19,407 452,509
------ ------- ------- ------ -------
ACCUMULATED DEPRECIATION
AS AT 1 JANUARY.......................... 27,207 37,181 129,692 7,096 201,176
Charge for the period.................... 1,107 3,790 3,814 324 9,035
------ ------- ------- ------ -------
AS AT 28 JANUARY......................... 28,314 40,971 133,506 7,420 210,211
------ ------- ------- ------ -------
NET BOOK VALUE AS AT 28 JANUARY.......... 38,119 96,830 95,362 11,987 242,298
====== ======= ======= ====== =======
1999
COST
AS AT 1 JANUARY.......................... 48,632 36,253 228,868 19,407 333,160
Additions................................ 17,801 89,938 -- -- 107,739
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 66,433 126,191 228,868 19,407 440,899
------ ------- ------- ------ -------
ACCUMULATED DEPRECIATION
AS AT 1 JANUARY.......................... 16,395 11,541 114,434 3,215 145,585
Charge for the year...................... 10,812 25,640 15,258 3,881 55,591
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 27,207 37,181 129,692 7,096 201,176
------ ------- ------- ------ -------
NET BOOK VALUE AS AT 31 DECEMBER......... 39,226 89,010 99,176 12,311 239,723
====== ======= ======= ====== =======
1998
COST
AS AT 1 JANUARY.......................... 39,062 25,297 228,868 3,151 296,378
Additions................................ 9,570 10,956 -- 16,256 36,782
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 48,632 36,253 228,868 19,407 333,160
------ ------- ------- ------ -------
ACCUMULATED DEPRECIATION
AS AT 1 JANUARY.......................... 7,813 5,059 57,217 630 70,719
Charge for the year...................... 8,582 6,482 57,217 2,585 74,866
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 16,395 11,541 114,434 3,215 145,585
------ ------- ------- ------ -------
NET BOOK VALUE AS AT 31 DECEMBER......... 32,237 24,712 114,434 16,192 187,575
====== ======= ======= ====== =======
1997
COST
Additions................................ 39,062 25,297 228,868 3,151 296,378
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 39,062 25,297 228,868 3,151 296,378
------ ------- ------- ------ -------
ACCUMULATED DEPRECIATION
Charge for the period.................... 7,813 5,059 57,217 630 70,719
------ ------- ------- ------ -------
AS AT 31 DECEMBER........................ 7,813 5,059 57,217 630 70,719
------ ------- ------- ------ -------
NET BOOK VALUE AS AT 31 DECEMBER......... 31,249 20,238 171,651 2,521 225,659
====== ======= ======= ====== =======
</TABLE>
F-178
<PAGE> 268
UTUSAN MULTIMEDIA SDN BHD
NOTES TO THE ACCOUNTS -- (CONTINUED)
8 AMOUNT OWING BY/(TO) RELATED COMPANIES
Amounts owing by/(to) related companies are unsecured, interest free and
have no fixed terms of repayment.
9 AMOUNT OWING FROM CORPORATE SHAREHOLDER
The amount owing from corporate shareholder is unsecured, interest free and
has no fixed terms of repayment.
10 HOLDING COMPANY
The Directors regard Utusan Melayu (Malaysia) Bhd, a company incorporated
in Malaysia as its immediate and ultimate holding company for the three
financial period/years ended 31 December 1999. With effect from 28 January 2000,
the Directors regard Asia Online Internet Services Sdn Bhd, a company
incorporated in Malaysia as its immediate holding company and Asia Online, Ltd,
a corporation incorporated in United States of America as its ultimate holding
corporation.
11 SIGNIFICANT RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Sales to related companies........................ -- 77,494 -- 86,250
Interest paid to holding company.................. -- 94,165 -- --
Sales to corporate shareholder.................... 8,750 -- -- --
===== ====== == ======
</TABLE>
12 CHANGE OF NAME
The Company changed its name from Utusan Multimedia Sdn Bhd to Asia Online
Utusan Sdn Bhd on 29 March 2000.
13 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN THE APPLICABLE APPROVED
ACCOUNTING STANDARDS IN MALAYSIA (LOCAL GAAP) AND US GAAP
The Company's financial statements are prepared in accordance with local
GAAP. Local GAAP differs in certain significant respects from accounting
principles generally accepted in the United States ("US GAAP"). The significant
differences are described below. Other differences do not have a significant
effect on net profit or shareholders equity, or relate only to areas where
disclosure requirements under US GAAP are greater than under Local GAAP. The
principal areas where disclosures would be more extensive under US GAAP are
taxation and unutilised staff leave costs.
Deferred taxation
Local GAAP allows the Company to make provision for deferred taxation under
the liability method arising from timing differences between profit as computed
for taxation purposes and profit as stated in the financial statements to the
extent that a liability or asset is expected to be payable and tax losses
available for carry forward or receivable in the foreseeable future. US GAAP
requires that such provisions be made using the liability method, whereby
deferred tax is calculated irrespective of whether the liability or asset is
expected to be payable or receivable. US GAAP requires a valuation allowance to
be established for deferred tax assets where it is considered more likely than
not that the asset will not be realised.
F-179
<PAGE> 269
Unutilised staff leave
Local GAAP does not require the Company to accrue for unutilised leave of
its staff at the balance sheet date. US GAAP requires that such accruals are
made in the accounts as at the balance sheet date.
The estimated effect of the significant adjustments to the net profit and
shareholders' equity in accordance with US GAAP is summarised below:
<TABLE>
<CAPTION>
PERIOD FROM
7.11.1996
PERIOD FROM (DATE OF
1.1.2000 TO YEAR ENDED YEAR ENDED INCORPORATION)
28.1.2000 31.12.1999 31.12.1998 TO 31.12.1997
RM RM RM RM
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Profit/(loss) after tax in accordance
with local GAAP....................... 89,504 439,119 (23,592) (393,800)
Adjustments required under US GAAP:
Accrual for unutilised staff leave...... -- 17,505 543 (19,958)
Deferred tax (liabilities)/assets....... -- (106,000) -- 106,000
--------- -------- -------- --------
Net profit/(loss) after tax in
accordance with US GAAP............... 89,504 350,624 (23,049) (307,758)
========= ======== ======== ========
Shareholders' equity in accordance with
local GAAP............................ 4,171,231 21,729 (417,390) (393,798)
Adjustments required under US GAAP:
Accrual for unutilised staff leave...... (1,910) (1,910) (19,415) (19,958)
Deferred tax assets..................... -- -- 106,000 106,000
--------- -------- -------- --------
Shareholders' equity in accordance with
US GAAP............................... 4,169,321 19,819 (330,805) (307,756)
========= ======== ======== ========
</TABLE>
F-180
<PAGE> 270
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Macro Systems Limited
We have audited the accompanying balance sheets of Macro Systems Limited
(the "Company") as of 31st March 1998, 31st March 1999 and 17th January 2000 and
the profit and loss accounts for the period from 14th March 1997 (date of
incorporation) to 31st March 1998, for the year ended 31st March 1999 and the
period from 1st April 1999 to 17th January 2000, all expressed in Hong Kong
dollars which have been prepared in accordance with accounting principles
generally accepted in Hong Kong. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, based on our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar in all material respects,
to those generally accepted in the United States of America. Those Standards
require that the audit is planned and performed to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of Macro Systems Limited at 31st March 1998,
31st March 1999 and 17th January 2000 and the results of its operations for the
period from 14th March 1997 to 31st March 1998, the year ended 31st March 1999
and for the period from 1st April 1999 to 17th January 2000, and have been
properly prepared in accordance with accounting principles generally accepted in
Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net profit/loss, expressed in Hong Kong dollars, for the period
from 14th March 1997 to 31st March 1998, the year ended 31st March 1999 and for
the period from 1st April 1999 to 17th January 2000 and the determination of the
financial position and shareholders' equity at 31st March 1998, 31st March 1999
and 17th January 2000, also expressed in Hong Kong dollars to the extent
summarised in note 11 to the financial statements.
PRICEWATERHOUSECOOPERS
Hong Kong, SAR China
28th July 2000
F-181
<PAGE> 271
MACRO SYSTEMS LIMITED
PROFIT AND LOSS ACCOUNTS
FOR THE PERIOD FROM 1ST APRIL 1999 TO 17TH JANUARY 2000;
THE YEAR ENDED 31ST MARCH 1999; AND
THE PERIOD FROM 14TH MARCH 1997 (DATE OF INCORPORATION) TO 31ST MARCH 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FOR THE PERIOD 14TH MARCH
FROM 1997
1ST APRIL (DATE OF
1999 FOR THE YEAR INCORPORATION)
TO ENDED TO
17TH JANUARY 31ST MARCH 31ST MARCH
2000 1999 1998
NOTE HK$ HK$ HK$
---- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Turnover......................................... 3 12,057,690 7,929,977 7,103,193
Operating costs and expenses:
Operating costs................................ (8,884,907) (5,937,723) (5,797,018)
Selling, general and administrative expenses... (2,811,954) (2,486,568) (2,206,327)
----------- ---------- ----------
Total operating costs and expenses..... (11,696,861) (8,424,291) (8,003,345)
----------- ---------- ----------
Profit/loss from operations...................... 4 360,829 (494,314) (900,152)
Other revenues................................... 878,352 132,182 --
Finance costs.................................... 5 (3,827) (3,193) (25)
----------- ---------- ----------
Profit/(loss) for the period/year................ 1,235,354 (365,325) (900,177)
Accumulated losses brought forward............... (1,265,502) (900,177) --
----------- ---------- ----------
Accumulated losses carried forward............... (30,148) (1,265,502) (900,177)
=========== ========== ==========
</TABLE>
F-182
<PAGE> 272
MACRO SYSTEMS LIMITED
BALANCE SHEETS
AS AT 17TH JANUARY 2000, 31ST MARCH 1999 AND 1998
<TABLE>
<CAPTION>
17TH JANUARY 31ST MARCH 31ST MARCH
2000 1999 1998
NOTE HK$ HK$ HK$
---- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fixed Assets....................................... 370,738 248,950 243,613
Current assets 7
Inventories........................................ 503,811 444,929 875,197
Debtors, prepayments and deposits.................. 2,259,531 1,817,876 445,871
Bank balances and cash............................. 186,873 20,620 16,323
--------- ---------- ---------
2,950,215 2,283,425 1,337,391
--------- ---------- ---------
Current Liabilities
Trade and other payables........................... 2,985,152 2,103,772 1,249,609
Customers' deposits................................ 92,350 -- --
Deferred income.................................... 223,599 258,647 --
Bank overdrafts.................................... -- 118,731 --
--------- ---------- ---------
3,301,101 2,481,150 1,249,609
--------- ---------- ---------
Net current (liabilities)/assets................... (350,886) (197,725) 87,782
--------- ---------- ---------
19,852 51,225 331,395
========= ========== =========
Financed by:
Share capital.................................... 8 50,000 50,000 50,000
Accumulated losses............................... (30,148) (1,265,502) (900,177)
--------- ---------- ---------
19,852 (1,215,502) (850,177)
Shareholders' loans................................ 9 -- 1,266,727 1,181,572
--------- ---------- ---------
19,852 51,225 331,395
========= ========== =========
</TABLE>
F-183
<PAGE> 273
MACRO SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The accounts have been prepared in accordance with generally accepted
accounting principles in Hong Kong and comply with accounting standards issued
by the Hong Kong Society of Accountants. The accounts are prepared under the
historical cost convention and have been presented in Hong Kong dollars ("HK$").
2 PRINCIPAL ACCOUNTING POLICIES
(a) Revenue recognition
Revenue from system integration and maintenance services is recognised as
the services are provided. The company records deferred revenue from amounts
billed and/or collected in advance.
(b) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
depreciated at rates sufficient to write off their cost over their estimated
useful lives on a straight-line basis. The principal annual rates are as
follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 20%
Office equipment............................................ 20%
</TABLE>
(c) Operating leases
Leases where substantially all the risks and rewards of ownership of assets
remain with the leasing company are accounted for as operating leases. Rentals
applicable to such operating leases are charged to the profit and loss account
on a straight-line basis over the lease term.
(d) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
is determined on a first in first out basis. Net realisable value is determined
on the basis of anticipated sales proceeds less estimated selling expenses.
(e) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates ruling
at the transactions dates. Monetary assets and liabilities expressed in foreign
currencies at the balance sheet date are translated at rates of exchange ruling
at the balance sheet date. All exchange differences are dealt with in the profit
and loss account.
(f) Deferred taxation
Deferred taxation is accounted for at the current tax rate in respect of
timing differences between profit as computed for taxation purposes and profit
as stated in the accounts to the extent that a liability or asset is expected to
be payable or recoverable in the foreseeable future.
F-184
<PAGE> 274
MACRO SYSTEMS LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
3 REVENUES AND TURNOVER
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE PERIOD FROM
FROM 14TH MARCH
1ST APRIL FOR THE YEAR 1997 (DATE OF
1999 TO ENDED INCORPORATION)
17TH JANUARY 31ST MARCH TO 31ST MARCH
2000 1999 1998
HK$ HK$ HK$
-------------- ------------ --------------
<S> <C> <C> <C>
Turnover:
System integration and maintenance services.......... 12,057,690 7,929,977 7,103,193
---------- --------- ---------
Other revenues:
Rental income from affiliated company................ -- 33,600 --
Waiver of shareholders' loans........................ 844,796 -- --
Other income......................................... 33,556 98,582 --
---------- --------- ---------
878,352 132,182 --
---------- --------- ---------
Total revenues............................... 12,936,042 8,062,159 7,103,193
========== ========= =========
</TABLE>
4 OPERATING PROFIT/(LOSS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FOR THE PERIOD 14TH MARCH
FROM 1997
1ST APRIL 1999 FOR THE YEAR (DATE OF
TO ENDED INCORPORATION)
17TH JANUARY 31ST MARCH TO 31ST MARCH
2000 1999 1998
HK$ HK$ HK$
-------------- ------------ --------------
<S> <C> <C> <C>
Operating profit/(loss) is stated after charging the
following:
Staff costs.......................................... 1,691,286 1,382,648 361,903
Depreciation......................................... 96,009 77,463 60,903
Loss on disposal of fixed assets..................... 7,584 -- --
Rental of premises under operating leases............ 268,776 379,428 230,633
</TABLE>
5 FINANCE COSTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE PERIOD FROM 14TH
FROM MARCH 1997
1ST APRIL 1999 FOR THE YEAR (DATE OF
TO ENDED INCORPORATION)
17TH JANUARY 31ST MARCH TO 31ST MARCH
2000 1999 1998
HK$ HK$ HK$
-------------- ------------ --------------
<S> <C> <C> <C>
Bank charges........................................... 2,670 3,180 --
Bank overdraft interest................................ 1,157 13 25
----- ----- --
3,827 3,193 25
===== ===== ==
</TABLE>
6 TAXATION
In 2000, Hong Kong profits tax has not been provided as the company's
estimated assessable profit for the period is wholly absorbed by unutilized tax
losses brought forward from previous years. In 1999 and 1998, Hong Kong profits
tax has not been provided as the company has no assessable profit.
F-185
<PAGE> 275
MACRO SYSTEMS LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
7 FIXED ASSETS
<TABLE>
<CAPTION>
FURNITURE AND OFFICE
FIXTURES EQUIPMENT TOTAL
HK$ HK$ HK$
------------- --------- --------
<S> <C> <C> <C>
COST
AT 14TH MARCH 1997......................................... -- -- --
Additions.................................................. 55,750 248,766 304,516
------- -------- --------
AT 31ST MARCH 1998......................................... 55,750 248,766 304,516
Additions.................................................. 75,563 7,237 82,800
------- -------- --------
AT 31ST MARCH 1999......................................... 131,313 256,003 387,316
Additions.................................................. 4,700 220,681 225,381
Disposals.................................................. -- (12,640) (12,640)
------- -------- --------
AT 17TH JANUARY 2000....................................... 136,013 464,044 600,057
======= ======== ========
ACCUMULATED DEPRECIATION
AT 14TH MARCH 1997......................................... -- -- --
Charge for the period...................................... (11,150) (49,753) (60,903)
------- -------- --------
AT 31ST MARCH 1998......................................... (11,150) (49,753) (60,903)
Charge for the year........................................ (26,263) (51,200) (77,463)
------- -------- --------
AT 31ST MARCH 1999......................................... (37,413) (100,953) (138,366)
Charge for the period...................................... (21,762) (74,247) (96,009)
Disposals.................................................. -- 5,056 5,056
------- -------- --------
AT 17TH JANUARY 2000....................................... (59,175) (170,144) (229,319)
======= ======== ========
NET BOOK VALUE
AT 31ST MARCH 1998......................................... 44,600 199,013 243,613
======= ======== ========
AT 31ST MARCH 1999......................................... 93,900 155,050 248,950
======= ======== ========
AT 17TH JANUARY 2000....................................... 76,838 293,900 370,738
======= ======== ========
</TABLE>
8 SHARE CAPITAL
<TABLE>
<CAPTION>
17TH JANUARY 31ST MARCH 31ST MARCH
2000 1999 1998
HK$ HK$ HK$
------------ ---------- ----------
<S> <C> <C> <C>
Authorised:
100,000 ordinary shares of HK$1.00 each.................. 100,000 100,000 100,000
======= ======= =======
Issued and fully paid:
50,000 ordinary shares of HK$1.00 each................... 50,000 50,000 50,000
======= ======= =======
</TABLE>
9 SHAREHOLDERS' LOANS
These loans are unsecured, non-interest bearing and have no fixed terms of
repayment.
F-186
<PAGE> 276
MACRO SYSTEMS LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
10 LEASE COMMITMENTS
The company had commitments to make payments in the next twelve months
under operating leases in respect of land and buildings which expire as follows:
<TABLE>
<CAPTION>
17TH JANUARY 31ST MARCH 31ST MARCH
2000 1999 1998
HK$ HK$ HK$
------------ ---------- ----------
<S> <C> <C> <C>
Within one year............................................ 116,109 84,000 82,800
In the second to third years inclusive..................... -- 232,218 184,800
------- ------- -------
116,109 316,218 267,600
======= ======= =======
</TABLE>
11 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Hong Kong ("Hong Kong GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the period from 14th March 1997 (date of incorporation) to 31st March
1998, the year ended 31st March 1999 and the period from 1st April 1999 to 17th
January 2000 there were no material adjustments required to reconcile net
profit/loss and shareholders' equity/deficit for differences between Hong Kong
GAAP and U.S. GAAP.
F-187
<PAGE> 277
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Helix Web Services Limited
We have audited the accompanying balance sheets of Helix Web Services
Limited ("the Company") as of 31st December 1998, 31st December 1999 and 1st
February 2000 and the profit and loss accounts for the period from 20th December
1996 (date of incorporation) to 31st December 1998, the year ended 31st December
1999 and for the period from 1st January 2000 to 1st February 2000, all
expressed in Hong Kong dollars which have been prepared in accordance with
accounting principles generally accepted in Hong Kong. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements, based on
our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar in all material respects,
to those generally accepted in the United States of America. Those Standards
require that the audit is planned and performed to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of Helix Web Services Limited at 31st December
1998, 31st December 1999 and 1st February 2000, and the results of its
operations for the period from 20th December 1996 to 31st December 1998, the
year ended 31st December 1999 and for the period from 1st January 2000 to 1st
February 2000, and have been properly prepared in accordance with accounting
principles generally accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net profit/loss, expressed in Hong Kong dollars, for the period
from 20th December 1996 to 31st December 1998, the year ended 31st December 1999
and for the period from 1st January 2000 to 1st February 2000 and the
determination of the financial position and shareholders' equity 31st December
1998, 31st December 1999 and at 1st February 2000, also expressed in Hong Kong
dollars to the extent summarised in note 13 to the financial statements.
PRICEWATERHOUSECOOPERS
Hong Kong, SAR China
28th July 2000
F-188
<PAGE> 278
HELIX WEB SERVICES LIMITED
PROFIT AND LOSS ACCOUNTS
FOR THE PERIOD FROM 20TH DECEMBER 1996 TO 31ST DECEMBER 1998,
THE YEAR ENDED 31ST DECEMBER 1999 AND THE PERIOD FROM 1ST JANUARY 2000
TO 1ST FEBRUARY 2000
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM 20TH
FOR THE PERIOD DECEMBER
FROM 1ST 1996 (DATE OF
JANUARY 2000 FOR THE YEAR INCORPORATION)
TO 1ST ENDED 31ST TO 31ST
FEBRUARY DECEMBER DECEMBER
2000 1999 1998
NOTE HK$ HK$ HK$
---- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Turnover....................................... 3 236,023 1,787,284 509,732
Operating costs and expenses:
Operating costs................................ (78,464) (962,025) (515,462)
Distribution costs............................. (1,992) (10,774) (1,625)
Administrative expenses........................ (92,165) (804,047) (159,648)
Other operating expenses....................... (40,189) (262,925) (117,395)
-------- ---------- --------
Total operating costs and expenses... (212,810) (2,039,771) (794,130)
-------- ---------- --------
Profit/loss from operations.................... 4 23,213 (252,487) (284,398)
Other revenue.................................. 5,202 13,976 10,526
Finance costs.................................. 5 (2,792) (9,322) (1,600)
-------- ---------- --------
Profit/(loss) for the period/year.............. 25,623 (247,833) (275,472)
Accumulated losses brought forward............. (523,305) (275,472) --
-------- ---------- --------
Accumulated losses carried forward............. (497,682) (523,305) (275,472)
======== ========== ========
</TABLE>
F-189
<PAGE> 279
HELIX WEB SERVICES LIMITED
BALANCE SHEETS
AS AT 1ST FEBRUARY 2000, 31ST DECEMBER 1999 AND 1998
<TABLE>
<CAPTION>
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
NOTE HK$ HK$ HK$
---- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Fixed assets.................................... 7 651,732 485,201 157,071
Current assets
Trade receivables............................. 183,588 240,581 79,875
Deposits and prepayments...................... 40,752 47,252 11,376
Sundry debtors................................ -- 109,560 --
Bank balances and cash........................ 320,361 306,058 526,755
-------- -------- -------
544,701 703,451 618,006
-------- -------- -------
Current liabilities
Trade and other payables...................... 85,524 161,604 78,851
Amount due to directors....................... -- -- 74,090
Current portion of obligations under finance
leases..................................... 8 45,976 45,330 --
Deferred income............................... 808,320 746,591 247,608
-------- -------- -------
939,820 953,525 400,549
-------- -------- -------
Net current (liabilities)/assets...... (395,119) (250,074) 217,457
-------- -------- -------
256,613 235,127 374,528
======== ======== =======
Financed by:
Share capital................................. 9 10,000 10,000 4
Reserves...................................... 10 142,261 116,638 224,527
-------- -------- -------
Shareholders' funds................... 152,261 126,638 224,531
Long term liabilities
Amount due to previous shareholders........... 11 -- -- 149,997
Obligations under finance leases.............. 8 104,352 108,489 --
-------- -------- -------
256,613 235,127 374,528
======== ======== =======
</TABLE>
F-190
<PAGE> 280
HELIX WEB SERVICES LIMITED
NOTES TO THE ACCOUNTS
1 PREPARATION OF FINANCIAL STATEMENTS
The accounts have been prepared in accordance with generally accepted
accounting principles in Hong Kong and comply with accounting standards issued
by the Hong Kong Society of Accountants. The accounts are prepared under the
historical cost convention and have been presented in Hong Kong dollars ("HK$").
2 PRINCIPAL ACCOUNTING POLICIES
(a) Revenue recognition
Revenue from the provision of web hosting services is recognised as the
services are provided. The Company records deferred revenue for amounts billed
and/or collected in advance.
Interest income is accrued on a time proportion basis on the principal
outstanding and at the interest rate applicable.
(b) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
depreciated at rates sufficient to write off their cost over their estimated
useful lives on a straight-line basis. The principal annual rates are as
follows:
<TABLE>
<S> <C>
Computer hardware........................................... 33.3%
Computer software........................................... 33.3%
Furniture and fixtures...................................... 25%
</TABLE>
(c) Assets under leases
(i) Finance leases
Leases that substantially transfer to the company all the rewards and risks
of ownership of assets, other than legal title, are accounted for as finance
leases. At the inception of a finance lease, the fair value of the asset is
recorded together with the obligation, excluding the interest element, to pay
future rentals.
Payments to the lessor are treated as consisting of capital and interest
elements. Finance charges are debited to the profit and loss account in
proportion to the capital balances outstanding.
Assets held under finance leases are depreciated over the shorter of their
estimated useful lives or lease periods.
(ii) Operating leases
Leases where substantially all the risks and rewards of ownership of assets
remain with the leasing company are accounted for as operating leases. Rental
payable under operating leases is charged in the profit and loss account on a
straight-line basis over the lease term.
(d) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates ruling
at the transaction dates. Monetary assets and liabilities expressed in foreign
currencies at the balance sheet date are translated at rates of exchange ruling
at the balance sheet date. All exchange differences are dealt with in the profit
and loss account.
F-191
<PAGE> 281
HELIX WEB SERVICES LIMITED
NOTES TO THE ACCOUNTS --(CONTINUED)
(e) Deferred taxation
Deferred taxation is accounted for at the current tax rate in respect of
timing differences between profit as computed for taxation purposes and profit
as stated in the accounts to the extent that a liability or asset is expected to
be payable or recoverable in the foreseeable future.
3 REVENUES AND TURNOVER
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
20TH DECEMBER
FOR THE PERIOD 1996
FROM (DATE OF
1ST JANUARY FOR THE YEAR INCORPORATION)
2000 TO ENDED TO
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
-------------- ------------- --------------
<S> <C> <C> <C>
Web hosting services................................. 236,023 1,787,284 509,732
Interest income...................................... -- 10,729 3,933
Sundry income........................................ 5,202 3,247 6,593
------- --------- -------
Total revenue.............................. 241,225 1,801,260 520,258
======= ========= =======
</TABLE>
4 OPERATING PROFIT/(LOSS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
20TH DECEMBER
FOR THE PERIOD 1996
FROM (DATE OF
1ST JANUARY FOR THE YEAR INCORPORATION)
2000 TO ENDED TO
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
-------------- ------------- --------------
<S> <C> <C> <C>
Operating profit/(loss) for the period/year is stated
after charging the following:
Depreciation
-- Owned assets................................. 18,445 95,575 75,182
-- Leased assets................................ 4,421 6,861 --
Operating leases
-- land and buildings........................... 11,300 60,000 5,000
Loss on disposal of fixed assets..................... -- 8,594 --
Staff costs.......................................... 80,988 728,583 94,676
====== ======= ======
</TABLE>
F-192
<PAGE> 282
HELIX WEB SERVICES LIMITED
NOTES TO THE ACCOUNTS --(CONTINUED)
5 FINANCE COSTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
20TH DECEMBER
FOR THE PERIOD 1996
FROM (DATE OF
1ST JANUARY FOR THE YEAR INCORPORATION)
2000 TO ENDED TO
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
-------------- ------------- --------------
<S> <C> <C> <C>
Bank overdraft interest and charges.................. 600 5,843 1,600
Finance charges...................................... 2,192 3,479 --
----- ----- -----
2,792 9,322 1,600
----- ----- -----
</TABLE>
6 TAXATION
In 2000, Hong Kong profits tax has not been provided as the company's
estimated assessable profit for the period is wholly absorbed by unutilised tax
losses brought forward from previous years. In 1999 and in 1998, Hong Kong
profits tax has not been provided as the company has no estimated assessable
profit.
7 FIXED ASSETS
<TABLE>
<CAPTION>
FURNITURE
COMPUTER COMPUTER AND
HARDWARE SOFTWARE FIXTURES TOTAL
HK$ HK$ HK$ HK$
-------- -------- --------- --------
<S> <C> <C> <C> <C>
COST
AT 20TH DECEMBER 1996............................... -- -- -- --
Additions........................................... 155,165 50,261 26,827 232,253
-------- ------- ------- --------
AT 31ST DECEMBER 1998............................... 155,165 50,261 26,827 232,253
Additions........................................... 338,676 27,711 73,172 439,559
Disposals........................................... -- -- (9,185) (9,185)
-------- ------- ------- --------
AT 31ST DECEMBER 1999............................... 493,841 77,972 90,814 662,627
Additions........................................... 82,552 82,316 24,529 189,397
-------- ------- ------- --------
AT 1ST FEBRUARY 2000................................ 576,393 160,288 115,343 852,024
======== ======= ======= ========
ACCUMULATED DEPRECIATION
AT 20TH DECEMBER 1996............................... -- -- -- --
Charge for the period............................... (51,721) (16,754) (6,707) (75,182)
-------- ------- ------- --------
AT 31ST DECEMBER 1998............................... (51,721) (16,754) (6,707) (75,182)
Charge for the year................................. (84,609) (9,635) (8,192) (102,436)
Disposals........................................... -- -- 192 192
-------- ------- ------- --------
AT 31ST DECEMBER 1999............................... (136,330) (26,389) (14,707) (177,426)
Charge for the period............................... (16,011) (4,452) (2,403) (22,866)
-------- ------- ------- --------
AT 1ST FEBRUARY 2000................................ (152,341) (30,841) (17,110) (200,292)
======== ======= ======= ========
NET BOOK VALUE
AT 31ST DECEMBER 1998............................... 103,444 33,507 20,120 157,071
======== ======= ======= ========
AT 31ST DECEMBER 1999............................... 357,511 51,583 76,107 485,201
======== ======= ======= ========
AT 1ST FEBRUARY 2000................................ 424,052 129,447 98,233 651,732
======== ======= ======= ========
</TABLE>
F-193
<PAGE> 283
HELIX WEB SERVICES LIMITED
NOTES TO THE ACCOUNTS --(CONTINUED)
At 1st February 2000, 31st December 1999 and 31st December 1998, the net
book value of the company's fixed assets includes an amount of HK$147,876,
HK$152,298 and NIL respectively in respect of assets held under finance leases.
8 OBLIGATIONS UNDER FINANCE LEASES
<TABLE>
<CAPTION>
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
------------ ------------- -------------
<S> <C> <C> <C>
Obligations under finance leases
-- wholly repayable within five years............... 150,328 153,819 --
Current portion...................................... (45,976) (45,330) --
------- ------- ------
104,352 108,489 --
------- ------- ------
</TABLE>
Obligations under finance lease contracts not wholly repayable within five
years are repayable in various instalments up to November 2002. Interest is
charged on the outstanding balances at rates ranging from 16% to 18% per annum.
9 SHARE CAPITAL
<TABLE>
<CAPTION>
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
------------ ------------- -------------
<S> <C> <C> <C>
Authorised:
10,000 ordinary shares of HK$1.00 each............... 10,000 10,000 10,000
====== ====== ======
Issued and fully paid:
10,000 ordinary shares of HK$1.00 each............... 10,000 10,000 4
====== ====== ======
</TABLE>
On 30th August 1999, the issued share capital of the Company was increased
to HK$10,000 by the allotment of 9996 shares at a premium of HK$14 each.
10 RESERVES
<TABLE>
<CAPTION>
SHARE RETAINED
PREMIUM EARNINGS TOTAL
HK$ HK$ HK$
------- -------- --------
<S> <C> <C> <C>
AT 20TH DECEMBER 1996....................................... -- -- --
Premium on issue of shares.................................. 499,999 -- 499,999
Loss for the period......................................... -- (275,472) (275,472)
------- -------- --------
AT 31ST DECEMBER 1998....................................... 499,999 (275,472) 224,527
Shares issued at premium.................................... 139,944 -- 139,944
Loss for the year........................................... -- (247,833) (247,833)
------- -------- --------
AT 31ST DECEMBER 1999....................................... 639,943 (523,305) 116,638
Profit for the period....................................... -- 25,623 25,623
------- -------- --------
AT 1ST FEBRUARY 2000........................................ 639,943 (497,682) 142,261
======= ======== ========
</TABLE>
11 AMOUNT DUE TO PREVIOUS SHAREHOLDERS
The amount due to previous shareholders is unsecured, interest free and has
no fixed terms of repayment.
F-194
<PAGE> 284
HELIX WEB SERVICES LIMITED
NOTES TO THE ACCOUNTS --(CONTINUED)
12 OPERATING LEASE COMMITMENTS
The Company has outstanding commitments to make payments in the next twelve
months under operating leases which expire as follows:
<TABLE>
<CAPTION>
1ST FEBRUARY 31ST DECEMBER 31ST DECEMBER
2000 1999 1998
HK$ HK$ HK$
------------ ------------- -------------
<S> <C> <C> <C>
Within one year................................ 50,000 55,000 60,000
In the second to fifth years inclusive......... 75,600 75,600 --
Over five years................................ -- -- --
------- ------- ------
125,600 130,600 60,000
======= ======= ======
</TABLE>
13 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Hong Kong ("Hong Kong GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the period from 20th December 1996 to 31st March 1998, the year ended
31st December 1999 and the period from 1st January 2000 to 1st February 2000
there were no material adjustments required to reconcile net profit/loss and
shareholders' equity for differences between Hong Kong GAAP and U.S. GAAP.
F-195
<PAGE> 285
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metro-Link Services Company Limited
Hope Light Trading Limited
We have audited the accompanying combined balance sheets of Metro-Link
Services Limited and Hope Light Trading Limited (the "Companies") as of 31st
December 1997, 31st December 1998, 31st December 1999 and 5th May 2000 and the
related combined profit and loss accounts and combined cash flow statements for
each of the three years in the period ended 31st December 1999 and for the
period from 1st January 2000 to 5th May 2000, all expressed in Hong Kong dollars
which have been prepared in accordance with accounting principles generally
accepted in Hong Kong. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements, based on our audit.
Our audit was conducted in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar in all material respects,
to those generally accepted in the United States of America. Those standards
require that the audit is planned and performed to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Directors, as
well as evaluating the overall accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly in all material
respects, the financial position of the Companies at 31st December 1997, 31st
December 1998, 31st December 1999 and 5th May 2000, and the results of their
operations and cash flows for each of the three years in the period ended 31st
December 1999 and for the period from 1st January 2000 to 5th May 2000, and have
been properly prepared in accordance with accounting principles generally
accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net loss, expressed in Hong Kong dollars, for each of the three
years in the period ended 31st December 1999 and for the period from 1st January
2000 to 5th May 2000 and the determination of the financial position and
shareholders' equity at 31st December 1997, 31st December 1998, 31st December
1999 and 5th May 2000 also expressed in Hong Kong dollars to the extent
summarised in note 12 to the financial statements.
PRICEWATERHOUSECOOPERS
Hong Kong, SAR China
28th July 2000
F-196
<PAGE> 286
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
COMBINED PROFIT AND LOSS ACCOUNTS
FOR THE PERIOD FROM 1ST JANUARY 2000 TO 5TH MAY 2000 AND
THE YEARS ENDED 31ST DECEMBER 1999, 1998 AND 1997
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM 1ST FOR THE YEAR FOR THE YEAR FOR THE YEAR
JANUARY 2000 ENDED ENDED ENDED
TO 5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
NOTE HK$ HK$ HK$ HK$
---- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Turnover.......................... 3 10,123,933 24,361,685 23,880,276 41,379,143
Operating costs and expenses:
Operating costs................. (7,915,974) (18,245,888) (17,785,591) (31,746,741)
Distribution costs.............. (77,698) (449,928) (496,602) (872,595)
Administrative expenses......... (2,982,802) (8,742,228) (7,563,372) (8,956,814)
Other operating expenses........ (199,017) (741,363) (658,270) (1,154,707)
----------- ----------- ----------- -----------
Total operating costs
and expenses.......... (11,175,491) (28,179,407) (26,503,835) (42,730,857)
-- ----------- ----------- ----------- -----------
Loss from operations.............. 4 (1,051,558) (3,817,722) (2,623,559) (1,351,714)
Other revenues.................... 3 108,840 496,988 1,775,365 454,929
Finance costs..................... 5 (245,911) (791,393) (677,359) (613,483)
----------- ----------- ----------- -----------
Loss for the year/period.......... (1,188,629) (4,112,127) (1,525,553) (1,510,268)
=========== =========== =========== ===========
</TABLE>
F-197
<PAGE> 287
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
COMBINED BALANCE SHEETS
AS AT 5TH MAY 2000, 31ST DECEMBER 1999, 31ST DECEMBER 1998
AND 31ST DECEMBER 1997
<TABLE>
<CAPTION>
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
NOTE HK$ HK$ HK$ HK$
---- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Fixed assets....................... 7 309,507 330,187 362,103 387,336
Current assets
Inventories...................... 1,306,086 2,024,711 2,135,174 2,757,207
Trade debtors and bills
receivable.................... 2,524,765 3,867,125 3,671,629 2,117,395
Sundry debtors, deposits and
prepayments................... 1,043,157 2,463,421 41,994 425,456
Amounts due from related
companies..................... 8 -- 5,733,577 4,965,477 8,002,983
Amounts due from directors....... 8 -- -- 2,834,815 235,820
Tax recoverable.................. -- -- -- 32,869
Cash and bank balances........... 1,905,363 19,759 1,788,130 220,605
---------- ---------- ---------- ----------
6,779,371 14,108,593 15,437,219 13,792,335
---------- ---------- ---------- ----------
Current liabilities
Trade creditors and bills
payable....................... 3,185,406 3,543,079 5,560,273 4,293,225
Trust receipt loans.............. 47,903 -- -- --
Other creditors, deposits
received and accruals......... 1,170,420 444,915 433,021 597,300
Amounts due to related
companies..................... 8 -- 9,989,110 6,937,473 4,639,525
Amounts due to directors......... 8 -- -- 3,246 1,563,226
Bank overdraft, secured.......... -- 5,387,898 3,679,404 2,375,144
Provision for taxation........... 207 207 207 --
---------- ---------- ---------- ----------
4,403,936 19,365,209 16,613,624 13,468,420
---------- ---------- ---------- ----------
Net current assets/(liabilities)... 2,375,435 (5,256,616) (1,176,405) 323,915
---------- ---------- ---------- ----------
2,684,942 (4,926,429) (814,302) 711,251
========== ========== ========== ==========
Financed by:
Share capital.................... 9 8,900,002 100,002 100,002 100,002
Retained profits/(accumulated
losses)....................... 10 (6,215,060) (5,026,431) (914,304) 611,249
---------- ---------- ---------- ----------
2,684,942 (4,926,429) (814,302) 711,251
========== ========== ========== ==========
</TABLE>
F-198
<PAGE> 288
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
COMBINED CASH FLOW STATEMENTS
FOR THE PERIOD FROM 1ST JANUARY 2000 TO 5TH MAY 2000 AND
THE YEARS ENDED 31ST DECEMBER 1999, 1998 AND 1997
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEAR FOR THE YEAR FOR THE YEAR
1ST JANUARY ENDED ENDED ENDED
2000 TO 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
5TH MAY 2000 1999 1998 1997
NOTE HK$ HK$ HK$ HK$
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash inflow/(outflow)
From operating activities........ 11 2,933,193 (7,970,290) (866,450) (4,369,424)
Returns on investments and
servicing of finance
Interest received................ 10,415 29,963 585,140 15,784
Interest paid.................... (188,290) (548,336) (600,008) (386,185)
---------- ---------- ---------- ----------
Net cash outflow from returns on
investments and servicing of
finance.......................... (177,875) (518,373) (14,868) (370,401)
---------- ---------- ---------- ----------
Taxation
Hong Kong profits tax refunded... -- -- 33,076 11,365
---------- ---------- ---------- ----------
Investing activities
Purchase of fixed assets......... (26,283) (103,308) (186,763) (413,154)
Sale of fixed assets............. -- -- 121,791 --
---------- ---------- ---------- ----------
Net cash outflow from investing
activities....................... (26,283) (103,308) (64,972) (413,154)
---------- ---------- ---------- ----------
Net cash outflow before
financing........................ 2,729,035 (8,591,971) (913,214) (5,141,614)
Financing
Issue of ordinary shares......... 8,800,000 -- -- --
Increase/(decrease) of amounts
due to directors and related
companies..................... (4,255,533) 5,115,106 1,176,479 (47,110)
---------- ---------- ---------- ----------
4,544,467 5,115,106 1,176,479 (47,110)
---------- ---------- ---------- ----------
Increase/(decrease) in cash and
cash equivalents................. 7,273,502 (3,476,865) 263,265 (5,188,724)
Cash and cash equivalents at
beginning of period/year......... (5,368,139) (1,891,274) (2,154,539) 3,034,185
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period/year...................... 1,905,363 (5,368,139) (1,891,274) (2,154,539)
========== ========== ========== ==========
Analysis of the balances of cash
and cash equivalents:
Bank balances and cash........... 1,905,363 19,759 1,788,130 220,605
Bank overdraft................... -- (5,387,898) (3,679,404) (2,375,144)
---------- ---------- ---------- ----------
1,905,363 (5,368,139) (1,891,274) (2,154,539)
========== ========== ========== ==========
</TABLE>
F-199
<PAGE> 289
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION OF ACCOUNTS
The accounts have been prepared in accordance with generally accepted
accounting principles in Hong Kong and comply with accounting standards
issued by the Hong Kong Society of Accountants. The accounts include the
results and assets and liabilities of the following individual companies
- Metro-Link Services Company Limited
- Hope Light Trading Limited
(the "companies") on a combined basis. These accounts are prepared under
the historical cost convention and are presented in Hong Kong dollars
("HK$").
2 PRINCIPAL ACCOUNTING POLICIES
(a) Revenue recognition
System integration services can be billed in advance, arrears or
installments and revenue is recognised over the life of the relevant
project.
(b) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
depreciated at rates sufficient to write off their cost over their
estimated useful lives on a straight-line basis. The principal annual rates
are as follows:
<TABLE>
<S> <C>
Office equipment............................................ 20%
Network equipment........................................... 20%
</TABLE>
(c) Inventories
Inventories are primarily computer components and are stated at the
lower of cost and net realisable value. Net realisable value is determined
on the basis of anticipated sales proceeds less estimated selling expenses.
(d) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates
ruling at the transaction dates. Monetary assets and liabilities expressed
in foreign currencies at the balance sheet date are translated at rates of
exchange ruling at the balance sheet date. All exchange differences are
dealt with in the profit and loss account.
(e) Deferred taxation
Deferred taxation is provided at the current tax rate in respect of
timing differences between profit as computed for taxation purposes and
profit as stated in the accounts to the extent that a liability or asset is
expected to be payable or recoverable in the foreseeable future.
F-200
<PAGE> 290
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
3 REVENUES AND TURNOVER
The principal activity of the combined businesses is the provision of
systems integration services. Revenues recognised during the period/year
are as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JANUARY FOR THE FOR THE FOR THE
2000 TO YEAR ENDED YEAR ENDED YEAR ENDED
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
HK$ HK$ HK$ HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Turnover:
Systems integration services... 10,123,933 24,361,685 23,880,276 41,379,143
Other revenues:
Interest....................... 10,415 29,963 585,140 15,784
Other.......................... 98,425 467,025 1,190,225 439,145
---------- ---------- ---------- ----------
108,840 496,988 1,775,365 454,929
---------- ---------- ---------- ----------
Total revenues......... 10,232,773 24,858,673 25,655,641 41,834,072
========== ========== ========== ==========
</TABLE>
4 LOSS FROM OPERATIONS
Loss from operations is stated after charging:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JANUARY FOR THE YEAR FOR THE YEAR FOR THE YEAR
2000 TO ENDED ENDED ENDED
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
HK$ HK$ HK$ HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Auditors' remuneration................ -- 48,000 48,000 48,000
Depreciation of fixed assets.......... 46,963 135,224 114,563 101,569
Cost of inventories sold.............. 6,274,229 15,188,246 17,785,591 31,746,741
Staff cost............................ 2,961,141 7,288,197 3,500,052 3,423,369
Management fee paid to a related
company............................. 1,040,000 3,120,000 3,120,000 3,120,000
Bad debts written off................. 164,283 61,518 32,514 741,780
========= ========== ========== ==========
And after crediting:
Gain on disposal of fixed assets.... -- -- 24,358 --
========= ========== ========== ==========
</TABLE>
5 FINANCE COSTS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JANUARY FOR THE YEAR FOR THE YEAR FOR THE YEAR
2000 TO ENDED ENDED ENDED
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
HK$ HK$ HK$ HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest on bank overdraft............ 188,290 548,336 600,008 386,185
Bank charges.......................... 16,341 61,486 75,456 110,984
Exchange differences.................. 41,280 181,571 1,895 116,314
------- ------- ------- -------
245,911 791,393 677,359 613,483
======= ======= ======= =======
</TABLE>
F-201
<PAGE> 291
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
6 TAXATION
No provision for Hong Kong profits tax has been made in the accounts as the
companies have no estimated assessable profit for the three years ended 31
December 1999 and for the period from 1 January 2000 to 5 May 2000.
The potential asset/(liability) for deferred taxation for which no
provision has been made in the accounts amounts to:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
1ST JANUARY FOR THE FOR THE FOR THE
2000 TO YEAR ENDED YEAR ENDED YEAR ENDED
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
HK$ HK$ HK$ HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accelerated depreciation allowance........ (46,888) (51,249) (41,243) (39,476)
Unutilised tax losses..................... 1,414,799 1,320,910 663,060 412,025
Other timing differences.................. 61,120 -- -- --
--------- --------- ------- -------
1,429,031 1,269,661 621,817 372,549
========= ========= ======= =======
</TABLE>
7 FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE NETWORK
EQUIPMENT EQUIPMENT TOTAL
HK$ HK$ HK$
--------- --------- --------
<S> <C> <C> <C>
COST
AT 1ST JANUARY 1997......................................... 217,870 49,168 267,038
Additions................................................... 150,399 262,755 413,154
------- -------- --------
AT 31ST DECEMBER 1997....................................... 368,269 311,923 680,192
Additions................................................... 182,443 4,320 186,763
Disposals................................................... -- (121,791) (121,791)
------- -------- --------
AT 31ST DECEMBER 1998....................................... 550,712 194,452 745,164
Additions................................................... 88,808 14,500 103,308
------- -------- --------
AT 31ST DECEMBER 1999....................................... 639,520 208,952 848,472
Additions................................................... 26,283 -- 26,283
------- -------- --------
AT 5TH MAY 2000............................................. 665,803 208,952 874,755
======= ======== ========
ACCUMULATED DEPRECIATION
AT 1ST JANUARY 1997......................................... 181,454 9,833 191,287
Charge for the year......................................... 39,184 62,385 101,569
------- -------- --------
AT 31ST DECEMBER 1997....................................... 220,638 72,218 292,856
Charge for the year......................................... 75,672 38,891 114,563
Disposals................................................... -- (24,358) (24,358)
------- -------- --------
AT 31ST DECEMBER 1998....................................... 296,310 86,751 383,061
Charge for the year......................................... 93,434 41,790 135,224
------- -------- --------
AT 31ST DECEMBER 1999....................................... 389,744 128,541 518,285
Charge for the period....................................... 32,471 14,492 46,963
------- -------- --------
AT 5TH MAY 2000............................................. 422,215 143,033 565,248
======= ======== ========
</TABLE>
F-202
<PAGE> 292
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
OFFICE NETWORK
EQUIPMENT EQUIPMENT TOTAL
HK$ HK$ HK$
--------- --------- --------
<S> <C> <C> <C>
NET BOOK VALUE
AT 5TH MAY 2000............................................. 243,588 65,919 309,507
======= ======== ========
AT 31ST DECEMBER 1999....................................... 249,776 80,411 330,187
======= ======== ========
AT 31ST DECEMBER 1998....................................... 254,402 107,701 362,103
======= ======== ========
AT 31ST DECEMBER 1997....................................... 147,631 239,705 387,336
======= ======== ========
</TABLE>
8 AMOUNTS DUE FROM/TO RELATED COMPANIES AND DIRECTORS
Amounts due from/to related companies and directors are interest free,
unsecured and have no fixed terms of repayment.
9 SHARE CAPITAL
<TABLE>
<CAPTION>
5TH MAY 31ST DECEMBER 31ST DECEMBER 31ST DECEMBER
2000 1999 1998 1997
HK$ HK$ HK$ HK$
--------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issued and fully paid:
Metro-Link: 100,000 ordinary shares of
HK$1 each............................ 100,000 100,000 100,000 100,000
Add: 8,800,000 ordinary shares of HK$1
each issued in 2000.................. 8,800,000 -- -- --
--------- ------- ------- -------
Metro-Link: 8,900,000/100,000 ordinary
shares of HK$1 each.................. 8,900,000 100,000 100,000 100,000
Hope Light: 2 ordinary shares of
HK$1 each............................ 2 2 2 2
--------- ------- ------- -------
8,900,002 100,002 100,002 100,002
========= ======= ======= =======
Authorised:
Metro-Link: 100,000 ordinary shares of
HK$1 each............................ 100,000 100,000 100,000 100,000
Add: 8,800,000 ordinary shares HK$1
each................................. 8,800,000 -- -- --
--------- ------- ------- -------
Metro-Link: 8,900,000/100,000 ordinary
shares of HK$1 each.................. 8,900,000 100,000 100,000 100,000
Hope Light: 10,000 ordinary shares of
HK$1 each............................ 10,000 10,000 10,000 10,000
--------- ------- ------- -------
8,910,000 110,000 110,000 110,000
========= ======= ======= =======
</TABLE>
F-203
<PAGE> 293
METRO-LINK SERVICES COMPANY LIMITED
HOPE LIGHT TRADING LIMITED
NOTES TO THE ACCOUNTS -- (CONTINUED)
10 RETAINED PROFITS/(ACCUMULATED LOSSES)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEAR FOR THE YEAR FOR THE YEAR
1ST JANUARY ENDED 31ST ENDED 31ST ENDED 31ST
2000 TO 5TH DECEMBER DECEMBER DECEMBER
MAY 2000 1999 1998 1997
HK$ HK$ HK$ HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AT 1ST JANUARY........................... (5,026,431) (914,304) 611,249 2,121,517
Loss for the year/period................. (1,188,629) (4,112,127) (1,525,553) (1,510,268)
---------- ---------- ---------- ----------
AT 31ST DECEMBER/5TH MAY................. (6,215,060) (5,026,431) (914,304) 611,249
========== ========== ========== ==========
</TABLE>
11 NOTE TO THE CASH FLOW STATEMENT
Reconciliation of loss before taxation to net cash inflow/(outflow) from
operating activities:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE YEAR FOR THE YEAR
1ST JANUARY ENDED 31ST ENDED 31ST FOR THE YEAR
2000 TO 5TH DECEMBER DECEMBER ENDED 31ST
MAY 2000 1999 1998 DECEMBER
HK$ HK$ HK$ 1997 HK$
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loss before taxation..................... (1,188,629) (4,112,127) (1,525,553) (1,510,268)
Interest income.......................... (10,415) (29,963) (585,140) (15,784)
Interest expense......................... 188,290 548,336 600,008 386,185
Depreciation charges..................... 46,963 135,224 114,563 101,569
Gain on disposal of fixed assets......... -- -- (24,358) --
Decrease in inventories.................. 718,625 110,463 622,033 3,426,926
Decrease/(increase) in trade receivables
and bills receivable................... 1,342,360 (195,496) (1,554,234) 3,759,148
Decrease/(increase) in sundry debtors,
deposits and prepayments............... 1,420,264 (2,421,427) 383,462 28,652
Decrease/(increase) in trade creditors,
bills payable and trust receipt
loans.................................. (309,770) (2,017,194) 1,267,048 (6,405,440)
Increase/(decrease) in other creditors,
deposits and accruals.................. 725,505 11,894 (164,279) (4,140,412)
---------- ---------- ---------- ----------
Net cash inflow/(outflow) from operating
activities............................. 2,933,193 (7,970,290) (866,450) (4,369,424)
========== ========== ========== ==========
</TABLE>
12 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Hong Kong ("Hong Kong GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the three years ended 31 December 1999 and period from 1 January to 5
May 2000 there were no material adjustments required to reconcile net
income/loss and shareholders' equity/deficit for differences between Hong Kong
GAAP and U.S. GAAP.
F-204
<PAGE> 294
REPORT OF INDEPENDENT ACCOUNTANTS
To The Unitholders and Trustees of The Dzign Trust,
Diezel Interactive Class Income Unit Trust and
Dzign Visual Communications Class Income Unit Trust:
(businesses acquired by Avonsleigh Pty Limited)
We have audited the accompanying balance sheet of The Dzign Trust, Diezel
Interactive Class Income Unit Trust and Dzign Visual Communications Class Income
Unit Trust as at 30 June 1998, 30 June 1999 and 26 June 2000 and the related
statement of income and of cash flows for the years then ended which, as
described in Note 1, have been prepared on the basis of accounting principles
generally accepted in Australia. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Australia. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Dzign Trust, Diezel
Interactive Class Income Unit Trust and Dzign Visual Communications Class Income
Unit Trust as at 30 June 1998, 30 June 1999 and 26 June 2000 and the related
statement of income and of cash flows for the years then ended in conformity
with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of accounting principles generally accepted in the
United States would have affected the determination of shareholders' equity as
at 30 June 1998, 30 June 1999 and 26 June 2000 and the related statement of
income and of cash flows for the years then ended to the extent summarised in
note 19 to the financial statements.
LORD & BROWN
Sydney, Australia
28 July 2000
F-205
<PAGE> 295
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
PROFIT AND LOSS STATEMENTS
<TABLE>
<CAPTION>
DIEZEL
AND THE THE
DZIGN TRUSTS DZIGN DZIGN
AGGREGATED TRUST TRUST
------------ ------------ ------------
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED YEAR ENDED
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
NOTES $ $ $
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue................................ 2 1,861,419 1,805,334 1,468,497
--------- --------- ---------
Operating profit/(loss) before abnormal items and
income tax..................................... 3 (55,313) 46,076 4,372
Income tax benefit/(expense) attributable to
operating profit............................... -- -- --
--------- --------- ---------
Operating profit/(loss) after income tax......... (55,313) 46,076 4,372
Distributions to beneficiaries................... 13 -- (46,076) (4,372)
--------- --------- ---------
Retained profits/(losses) at the end of the
financial year................................. (55,313) -- --
========= ========= =========
</TABLE>
The above profit and loss accounts should be read in conjunction with the
accompanying notes.
F-206
<PAGE> 296
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
BALANCE SHEETS
AS AT 26 JUNE 2000, 30 JUNE 1999 AND 30 JUNE 1998
<TABLE>
<CAPTION>
DIEZEL AND
DZIGN TRUSTS THE THE
AGGREGATED DZIGN TRUST DZIGN TRUST
------------ ----------- -----------
26 JUNE 30 JUNE 30 JUNE
2000 1999 1998
NOTES $ $ $
----- ------------ ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash............................................... 305 2,820 23,270
Receivables........................................ 4 270,818 292,077 211,614
Beneficiaries' accounts............................ 5,13 253,110 114,129 205,254
Other.............................................. 6 6,817 89,605 --
------- ------- -------
TOTAL CURRENT ASSETS..................... 531,050 498,631 440,138
------- ------- -------
NON-CURRENT ASSETS
Investments........................................ 7 10,000 -- --
Property, plant and equipment...................... 8 186,746 174,531 139,826
------- ------- -------
TOTAL NON-CURRENT ASSETS................. 196,746 174,531 139,826
------- ------- -------
TOTAL ASSETS............................. 727,796 673,162 579,964
------- ------- -------
CURRENT LIABILITIES
Creditors and Borrowings........................... 9 301,467 274,946 364,146
Beneficiaries' accounts............................ 5,13 18,845 4,608 --
Provisions......................................... 10 54,187 36,000 18,761
Interest Bearing Liabilities....................... 11 103,168 139,482 9,525
------- ------- -------
TOTAL CURRENT LIABILITIES................ 477,667 455,036 392,432
------- ------- -------
NON-CURRENT LIABILITIES
Creditors and Borrowings........................... 9 172,464 -- 14,000
Interest Bearing Liabilities....................... 11 132,778 218,106 173,512
------- ------- -------
TOTAL NON-CURRENT LIABILITIES............ 305,242 218,106 187,512
------- ------- -------
TOTAL LIABILITIES........................ 782,909 673,142 579,944
------- ------- -------
NET ASSETS (NET LIABILITIES)............. (55,113) 20 20
======= ======= =======
EQUITY
Units issued....................................... 12 200 20 20
Retained profits/(losses).......................... (55,313) -- --
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY............... (55,113) 20 20
======= ======= =======
</TABLE>
The above balance sheets should be read in conjunction with the accompanying
notes.
F-207
<PAGE> 297
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDED 26TH JUNE 2000 AND THE YEARS ENDED 30TH JUNE 1999 AND 30TH
JUNE 1998
<TABLE>
<CAPTION>
DIEZEL AND
DZIGN TRUSTS THE THE
AGGREGATED DZIGN TRUST DZIGN TRUST
------------ ------------ ------------
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED YEAR ENDED
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
NOTES $ $ $
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.......................... 1,859,984 1,718,793 1,379,060
Payments to suppliers and employees.............. (1,739,810) (1,818,877) (1,262,002)
---------- ---------- ----------
120,174 (100,084) 117,058
Interest paid.................................... (25,813) (19,575) (12,646)
Finance charges paid on finance leases........... (14,367) (13,099) (6,139)
Interest received................................ 0 4,358 0
---------- ---------- ----------
NET CASH INFLOWS/(OUTFLOWS) FROM
OPERATING ACTIVITIES................. 18 79,994 (128,400) 98,273
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment....... (54,546) (28,426) (14,855)
---------- ---------- ----------
NET CASH INFLOWS/(OUTFLOWS) FROM
INVESTING ACTIVITIES................. (54,546) (28,426) (14,855)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings.......................... (18,061) (17,217) (7,673)
Finance Lease repayments......................... (24,204) (14,047) (4,262)
Loans/Drawings of beneficiaries.................. 13 (124,744) 49,657 (55,434)
Loans advanced from Avonsleigh................... 9 172,464 0 0
---------- ---------- ----------
NET CASH INFLOWS/(OUTFLOWS) FROM
FINANCING ACTIVITIES................. 5,455 18,393 (67,369)
---------- ---------- ----------
NET INCREASE/(DECREASE) IN CASH HELD............. 30,903 (138,433) 16,049
Cash at the beginning of the financial period.... 18 (32,657) 23,291 7,242
---------- ---------- ----------
Cash at the end of the financial period.......... 18 (1,754) (115,142) 23,291
========== ========== ==========
</TABLE>
F-208
<PAGE> 298
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This general purpose financial report has been prepared in accordance with
Australian Accounting Standards and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views).
It is prepared in accordance with the historical cost convention, except
for certain assets which, as noted, are at valuation. Unless otherwise stated,
the accounting policies adopted are consistent with those of the previous years.
Comparative information is reclassified where appropriate to enhance
comparability.
(a) Structure of the Business Entity
The Dzign Trust trading as Dzign Advertising Pty Ltd split into two
trusts on 1 July 1999. The two trusts were namely Dzign Visual
Communications Class Income Unit Trust and Diezel Interactive Class Income
Unit Trust trading as Dzign Visual Communications Pty Ltd and Diezel
Interactive Pty Ltd respectively. For the purposes of these financial
statements Diezel and Dzign Trusts have been aggregated given their common
ownership.
(b) Receivables and Revenue Recognition
(i) Trade Debtors
All trade debtors are recognised at the amounts receivable as they are
due for settlement no more than 30 days from the date of recognition.
Collectibility of trade debtors is reviewed on an ongoing basis. Debts
which are known to be uncollectible are written off. A provision for
doubtful debts is raised where some doubt as to collection exists and in
any event where the debt is more than 90 days overdue.
(ii) Revenue Recognition
Amounts disclosed as revenue are net of returns, trade allowances and
duties and taxes paid.
Web design and graphic design revenue and expenses incurred are
recognised in accordance with the percentage of completion method. The
stage of completion is measured by reference to the progress within each
stage of the contract. Where it is probable that a loss will arise, the
excess of total costs over revenue is recognised as an expense immediately.
All other revenue is recognised when goods (such as print media) have
been delivered to a client and the associated risks have passed to the
client.
(c) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the
net cost or revalued amount of each item of property, plant and equipment
(excluding land) over its expected useful life to the company. Estimates of
remaining useful lives are made on a regular basis for all assets, with
annual reassessments for major items. The expected useful lives are as
follows:
<TABLE>
<S> <C>
Computer equipment..................................... 2-3 years
Furniture and fittings................................. 3-5 years
Plant and equipment.................................... 3-5 years
Software............................................... 2-3 years
</TABLE>
F-209
<PAGE> 299
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
(d) Leased non-current assets
A distinction is made between finance leases which effectively
transfer from the lessor to the lessee substantially all the risks and
benefits incident to ownership of leased non-current assets, and operating
leases under which the lessor effectively retains substantially all such
risks and benefits.
Finance leases are capitalised. A lease asset and liability are
established at the present value of minimum lease payments. Lease payments
are allocated between the principal component of the lease liability and
the interest expense.
The lease asset is amortised on a straight line basis over the term of
the lease, or where it is likely that the entity will obtain ownership of
the asset, over the life of the asset, which is 4 years.
Operating lease payments are charged to the profit and loss account in
the periods in which they are incurred, as this represents the pattern of
benefits derived from leased assets.
(e) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to
the company prior to the end of the financial year and which are unpaid.
The amounts are unsecured and are usually paid within 30 days of
recognition.
(f) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses
as incurred.
(g) Employee Entitlements
(i) Wages and Salaries, Annual Leave
Liabilities for wages and salaries and annual leave are recognised and
measured as the amount unpaid at the reporting date at current pay rates in
respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured, as
the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. Consideration is
given to expected future wage and salary levels, experience of employee
departures and periods of service. Expected future payments are discounted
using interest rates on national government guaranteed securities with
terms to maturity that match, as closely as possible, the estimated future
cash outflows.
(h) Investments
Interest in listed and unlisted securities, other than controlled
entities and associates are brought to account at cost and dividend income
is recognised in the profit and loss account when receivable.
(i) Cash
Cash includes deposits at call which are readily convertible to cash
on hand and are subject to an insignificant risk of changes in value, net
of outstanding bank overdrafts.
F-210
<PAGE> 300
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
NOTE 2 OPERATING REVENUE
<TABLE>
<CAPTION>
DIEZEL AND
DZIGN TRUSTS THE DZIGN THE DZIGN
AGGREGATED TRUST TRUST
-------------- ------------ ------------
FOR THE PERIOD FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
-------------- ------------ ------------
<S> <C> <C> <C>
Graphic Design & Print.................................. 1,122,728 1,302,930 1,046,253
Consulting & Development................................ 51,894 105,652 81,438
Internet Access......................................... 88,574 98,265 82,705
Multimedia Design....................................... 559,774 272,794 176,443
Colour Proofs........................................... -- -- 523
Hardware/software sales................................. 23,146 485 --
CD ROM Production....................................... -- 170 --
Interest received....................................... -- 4,358 --
Other................................................... 15,303 20,680 81,134
--------- --------- ---------
1,861,419 1,805,334 1,468,497
========= ========= =========
</TABLE>
NOTE 3 OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
-------------- ------------ ------------
<S> <C> <C> <C>
(a) OPERATING PROFIT BEFORE INCOME TAX HAS BEEN
DETERMINED AFTER:
CHARGING AS EXPENSE:
Depreciation/amortisation of leased assets.............. 78,852 67,573 54,953
Interest and finance charges............................ 40,180 32,674 18,785
Bad and doubtful debts.................................. 23,773 5,178 4,249
Rental Expense.......................................... 99,916 136,950 112,086
Salaries and wages...................................... 681,749 522,230 370,791
Other expenses.......................................... 992,262 994,653 903,261
--------- --------- ---------
Total expenses................................ 1,916,732 1,759,258 1,464,125
========= ========= =========
(b) AUDITORS' REMUNERATION
Amounts received, or due and receivable, by the auditors
for:
Auditing the financial statements..................... -- -- --
--------- --------- ---------
</TABLE>
---------------
Note: All audit fees are borne by Asia Online Ltd, Hong Kong.
F-211
<PAGE> 301
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
NOTE 4 RECEIVABLES
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT
Trade debtors........................................... 280,818 292,077 211,614
Less: Provision for Doubtful Debts...................... (10,000) -- --
------- ------- -------
270,818 292,077 211,614
======= ======= =======
</TABLE>
NOTE 5 BENEFICIARIES' ACCOUNTS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C> <C>
Recognised as Assets:
J Roberts........................................ 13 154,143 58,785 107,212
F Thompson....................................... 13 98,967 55,344 98,042
------- ------- -------
253,110 114,129 205,254
======= ======= =======
Recognised as Liabilities:
J Thompson....................................... 13 (18,845) (4,608) --
------- ------- -------
(18,845) (4,608) --
------- ------- -------
------- ------- -------
Net Assets:.............................. 234,265 109,521 205,254
======= ======= =======
</TABLE>
NOTE 6 OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
Term deposit*........................................... -- 82,485 --
Other................................................... 6,817 7,120 --
----- ------ ------
6,817 89,605 --
===== ====== ======
</TABLE>
---------------
* Term deposit has been provided as a security for bank overdraft (Note 11)
NOTE 7 INVESTMENTS
<TABLE>
<CAPTION>
OWNERSHIP INTEREST 26 JUNE 30 JUNE 30 JUNE
------------------ 2000 1999 1998
NAME OF COMPANY PRINCIPAL ACTIVITY 2000 1999 1998 $ $ $
--------------------- ------------------------------- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-Current
MyLastWish.com Pty
Ltd............. Internet - enabled Data Storage 20% -- -- 10,000 -- --
------ ------ ------
10,000 -- --
====== ====== ======
</TABLE>
The investment has not been equity accounted given no control exercised by
Diezel and Dzign Trusts in MyLastWish.com Pty Ltd .
F-212
<PAGE> 302
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
Plant & Equipment
Cost.................................................. 108,010 108,010 106,591
Accumulated depreciation.............................. (105,109) (94,081) (74,451)
-------- -------- --------
2,901 13,929 32,140
======== ======== ========
Office Furniture and Equipment
Cost.................................................. 32,812 32,812 18,974
Accumulated depreciation.............................. (20,529) (14,501) (10,022)
-------- -------- --------
12,283 18,311 8,952
======== ======== ========
Computer Equipment
Cost.................................................. 46,925 32,462 19,086
Accumulated depreciation.............................. (26,484) (14,335) (5,527)
-------- -------- --------
20,441 18,127 13,559
======== ======== ========
Computer Software
Cost.................................................. 41,878 1,820 1,820
Accumulated Depreciation.............................. (2,658) (1,422) (916)
-------- -------- --------
39,220 398 904
======== ======== ========
Leased Assets
Cost.................................................. 206,481 169,955 96,310
Accumulated Amortisation.............................. (94,580) (46,189) (12,039)
-------- -------- --------
111,901 123,766 84,271
======== ======== ========
Total
Cost.................................................. 436,106 345,059 242,781
Accumulated depreciation.............................. (249,360) (170,528) (102,955)
-------- -------- --------
186,746 174,531 139,826
======== ======== ========
</TABLE>
NOTE 9 CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT (UNSECURED)
Trade and other creditors.......................... 247,769 213,322 330,728
Accruals........................................... 53,698 61,624 33,418
------- ------- -------
Total Current............................ 301,467 274,946 364,146
======= ======= =======
NON CURRENT (UNSECURED)
Amounts due to related party....................... 15 172,464 -- 14,000
------- ------- -------
Total Non Current........................ 172,464 -- 14,000
======= ======= =======
</TABLE>
F-213
<PAGE> 303
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
NOTE 10 PROVISIONS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT
Provision for Employee Entitlements..................... 54,187 36,000 18,761
------ ------ ------
Total Current................................. 54,187 36,000 18,761
====== ====== ======
</TABLE>
NOTE 11 INTEREST BEARING LIABILITIES
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT (SECURED)
Lease Liability......................................... 31,190 21,520 9,525
Bank Loan and overdraft................................. 71,978 117,962 --
------- ------- -------
Total......................................... 103,168 139,482 9,525
======= ======= =======
NON CURRENT (SECURED)
Lease Liability......................................... 132,778 130,126 82,315
Bank Loan............................................... -- 87,980 91,197
------- ------- -------
Total......................................... 132,778 218,106 173,512
======= ======= =======
</TABLE>
Facilities available from the bank are as follows:
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
FACILITIES:
Bank Overdraft.......................................... 150,000 200,000 40,000
Bank Loan Facility...................................... 100,000 100,000 105,800
------- ------- -------
Total......................................... 250,000 300,000 145,800
======= ======= =======
UNDRAWN LIMIT
Bank Overdraft.......................................... 147,941 82,038 40,000
Bank Loan Facility...................................... 30,083 12,020 14,603
------- ------- -------
178,024 94,058 54,603
======= ======= =======
</TABLE>
For the year ended 30 June 1998 the bank loan and bank overdraft facility
were secured by a Registered Mortgage Debenture over Trustee Company, Dzign
Advertising Py Ltd's assets. A guarantee and indemnity for $109,800 given by
Frederick Thompson, Jonathon Roberts and Leanne Roberts was supported by a
mortgage on the residential properties of the Directors of the Trustee company.
For the year ended 30 June 1999 the bank loan and bank overdraft facility
were secured by an unlimited guarantee and indemnity from the directors of the
Trustee company, a mortgage on the residential properties of the Directors of
the Trustee company, a Registered Mortgage Debenture over Trustee Company, Dzign
Advertising Pty Ltd's fixed and floating assets including goodwill, called and
uncalled capital and called but unpaid capital, and a Memorandum of charge over
a fixed term deposit of $100,000 with the Bank.
For the year ended 26 June 2000 the bank overdraft and bank loan facility
were secured by a guarantee and indemnity from Dzign Advertising Pty Ltds, a
guarantee and indemnity from all directors of
F-214
<PAGE> 304
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
the Trustee company and a Registered company debenture from Trustee companies
Diezel Interactive Pty Ltd and Dzign Visual Communications Pty Ltd.
NOTE 12 UNITS ISSUED
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
UNITS ISSUED AT $1 EACH................................. 200 20 20
MOVEMENTS IN THE UNITS ISSUED
Opening balances at 1 July 1999, 1998, 1997............. 20 20 20
New units issued at $1 each............................. 180 -- --
Closing balance at 26 June 2000, 30 June 1999, 1998..... 200 20 20
</TABLE>
NOTE 13 MOVEMENTS IN BENEFICIARIES' ACCOUNTS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
J ROBERTS
AT BEGINNING OF THE YEAR................................ 58,785 107,212 69,227
Loan for unit share..................................... 81 -- --
Loans/Drawings.......................................... 95,277 20,942 40,171
Repayment............................................... -- (49,000) --
Interest................................................ -- 365 --
Distributions of profit................................. -- (20,734) (2,186)
------- ------- -------
AT END OF YEAR.......................................... 154,143 58,785 107,212
------- ------- -------
F THOMPSON
AT BEGINNING OF THE YEAR................................ 55,344 98,042 84,965
Loan for unit share..................................... 81 -- --
Loans/Drawings.......................................... 43,542 11,577 15,263
Repayment............................................... -- (35,000) --
Interest................................................ -- 1,459 --
Distributions of profit................................. -- (20,734) (2,186)
------- ------- -------
AT END OF YEAR.......................................... 98,967 55,344 98,042
------- ------- -------
J THOMPSON
AT BEGINNING OF THE YEAR................................ (4,608) -- --
Loan for unit share..................................... 18 -- --
Loans/Drawings.......................................... 745 -- --
Repayment............................................... (15,000) -- --
Distributions of profit................................. -- (4,608) --
------- ------- -------
AT END OF YEAR.......................................... (18,845) (4,608) --
------- ------- -------
</TABLE>
F-215
<PAGE> 305
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL
AT BEGINNING OF THE YEAR................................ 109,521 205,254 154,192
Loan for unit share..................................... 180 -- --
Loans/Drawings.......................................... 139,564 32,519 55,434
Repayment............................................... (15,000) (84,000) --
Interest................................................ -- 1,824 --
Distributions of profit................................. -- (46,076) (4,372)
------- ------- -------
AT END OF YEAR.......................................... 234,265 109,521 205,254
======= ======= =======
</TABLE>
NOTE 14 FINANCIAL INSTRUMENTS
(a) Credit risk exposures
The maximum exposure to credit risk, excluding the value of any
collateral or other security, at balance date to recognised financial
assets is the carrying amount of those assets, net of any provisions for
doubtful debts, as disclosed in the balance sheet and notes to the
financial report.
The entity does not have any material credit risk exposure to any
single debtor or group of debtors under financial instruments entered into
by the entity.
(b) Interest rate risks
The economic entity's exposure to interest rate risk , which is the
risk that a financial instrument's value will fluctuate as a result of
changes in market interest rates and the effective weighted average
interest rates on those financial assets and financial liabilities, is as
follows:
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ---------------------------------
INTEREST 1 YEAR OVER 1 MORE THAN NON-INTEREST
RATE OR LESS TO 5 YEARS 5 YEARS BEARING TOTAL
26 JUNE 2000 NOTES $'000 $'000 $'000 $'000 $'000 $'000
------------ ----- -------- -------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and deposits................ -- -- -- -- 305 305
Receivables...................... 4,5 -- -- -- -- 523,928 523,928
Other Financial assets --
investments.................... 7 -- -- -- -- 10,000 10,000
------ -------- -------- ------- ------- --------
-- -- -- -- 534,233 534,233
====== ======== ======== ======= ======= ========
Weighted average interest rate
(%)............................ -- -- -- -- -- --
FINANCIAL LIABILITIES
Bank overdrafts and loans........ 11 2,059 69,919 -- -- -- 71,978
Trade and other creditors and
accruals....................... 5,9 -- -- -- -- 320,312 320,312
Other loans...................... 9 -- -- -- -- 172,464 172,464
Lease & hire purchase
liabilities.................... 11 -- 31,190 132,778 -- -- 163,968
------ -------- -------- ------- ------- --------
2,059 101,109 132,778 -- 492,776 728,722
------ -------- -------- ------- ------- --------
Weighted average interest rate
(%)............................ 12.2% 8.47% 9.5% -- --
Net financial assets
(liabilities).................. (2,059) (101,109) (132,778) -- 41,457 (194,489)
====== ======== ======== ======= ======= ========
</TABLE>
F-216
<PAGE> 306
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ---------------------------------
INTEREST 1 YEAR OVER 1 MORE THAN NON-INTEREST
RATE OR LESS TO 5 YEARS 5 YEARS BEARING TOTAL
30 JUNE 1999 NOTES $'000 $'000 $'000 $'000 $'000 $'000
------------ ----- -------- -------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and deposits............... 6 82,485 -- -- -- 2,820 85,305
Receivables..................... 4,5 -- -- -- -- 406,206 406,206
------- -------- -------- ------ ------- --------
82,485 -- -- -- 409,026 491,511
======= ======== ======== ====== ======= ========
Weighted average interest rate
(%)........................... 4.63% -- -- -- -- --
FINANCIAL LIABILITIES
Bank overdrafts and loans....... 11 117,962 87,980 -- -- -- 205,942
Trade and other creditors....... 9 -- -- -- -- 279,554 279,554
Lease & hire purchase
liabilities................... 11 -- 21,520 130,126 -- -- 151,646
------- -------- -------- ------ ------- --------
117,962 109,500 130,126 -- 279,554 637,142
======= ======== ======== ====== ======= ========
Weighted average interest rate
(%)........................... 10.95% 8.47% 9.5% -- -- --
Net financial assets
(liabilities)................. (35,477) (109,500) (130,126) -- 129,472 (145,631)
======= ======== ======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIXED INTEREST MATURING IN
FLOATING ---------------------------------
INTEREST 1 YEAR OVER 1 MORE THAN NON-INTEREST
RATE OR LESS TO 5 YEARS 5 YEARS BEARING TOTAL
30 JUNE 1998 NOTES $'000 $'000 $'000 $'000 $'000 $'000
------------ ----- -------- -------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and deposits................ -- -- -- -- 23,270 23,270
Receivables...................... 4, 5 -- -- -- -- 416,868 416,868
------ -------- -------- ------ ------- --------
-- -- -- 440,138 440,138
====== ======== ======== ====== ======= ========
Weighted average interest rate
(%)............................ -- -- -- -- -- --
FINANCIAL LIABILITIES
Bank overdrafts and loans........ 11 -- 91,197 -- -- -- 91,197
Trade and other creditors and
accruals....................... 9 -- -- -- -- 364,146 364,146
Other Loans...................... 9 -- -- -- -- 14,000 14,000
Lease liabilities................ 11 -- 9,525 82,315 -- -- 91,840
------ -------- -------- ------ ------- --------
-- 100,722 82,315 -- 378,146 561,183
------ -------- -------- ------ ------- --------
Weighted average interest rate
(%)............................ -- 13.35% 9.5% -- -- --
Net financial assets
(liabilities).................. -- (100,722) (82,315) -- 61,992 (121,045)
====== ======== ======== ====== ======= ========
</TABLE>
RECONCILIATION OF NET FINANCIAL ASSETS TO NET ASSETS
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
------------ ------------ ------------
$'000 $'000 $'000
<S> <C> <C> <C> <C>
Net financial assets as above...................... (194,489) (145,631) (121,045)
Non-financial assets and liabilities
Property, plant and equipment...................... 8 186,746 174,531 139,826
Other assets....................................... 6 6,817 7,120 --
Provisions......................................... 10 (54,187) (36,000) (18,761)
-------- -------- --------
Net assets per balance sheet....................... (55,113) 20 20
======== ======== ========
</TABLE>
F-217
<PAGE> 307
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
(d) Net fair value of financial assets and liabilities
The net fair value of financial assets and liabilities of the economic
entity approximate their carrying value. No financial assets and
liabilities are readily traded on organised markets in a standardised form.
The aggregate net fair value and carrying amounts of financial assets and
financial liabilities are disclosed in the balance sheet and in the notes
to and forming part of the financial statements.
NOTE 15 RELATED PARTIES
(a) Directors of the trustee companies
The names of persons who were directors of the trustee companies of
The Dzign Trust, Diezel Interactive Class Income Unit Trust, Dzign Visual
Communications Class Income Unit Trust during the financial years ending 30
June 1998, 30 June 1999 and for the period ended 26 June 2000 are as
follows:
<TABLE>
<CAPTION>
DIRECTOR OF THE TRUSTEE
COMPANY OF DATE APPOINTED DATE RESIGNED
----------------------- --------------- -------------
<S> <C> <C>
Dzign Trust, Dzign Visual Communications Class Income
Unit Trust
Jonathon Lawrence Roberts............................ 17 January 1995 --
Frederick Thompson................................... 17 January 1995 --
James Barnes Thompson................................ 29 June 1999 --
Diezel Interactive Class Income Unit Trust
Jonathon Lawrence Roberts............................ 17 January 1995 --
Frederick Thompson................................... 17 January 1995 --
James Barnes Thompson................................ 29 June 1999 --
</TABLE>
(b) Remuneration of the directors of the trustee companies
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
NOTES $ $ $
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise
made available, to directors by
entities in connection with the
management of affairs of the
entity............................... 259,006 215,196 171,703
======= ======= =======
</TABLE>
The numbers of directors whose income from the entity was within the
specified bands are as follows:
<TABLE>
<S> <C> <C> <C>
$ 30,000-$ 39,999........................................... -- -- 1
$ 60,000-$ 69,999........................................... -- 1 1
$ 70,000-$ 79,999........................................... 1 1 1
$ 80,000-$ 89,999........................................... 1 1 --
$100,000-$109,999........................................... 1 -- --
</TABLE>
F-218
<PAGE> 308
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
(c) Transactions of Directors of the trustee companies concerning units
Aggregate number of units of Diezel and Dzign Trusts held directly,
indirectly by directors of the trustee companies or director-related entities of
the trusts:
<TABLE>
<CAPTION>
1 JULY 1999 TO
26 JUNE 2000 1999 1998
-------------- ---- ----
<S> <C> <C> <C>
Units...................................................... 200 20 20
</TABLE>
(d) Loans to/(from) trustee companies' Directors and Director-related Entities
Directors have provided unsecured interest free loans to/from the Trust as
disclosed in the Notes 5 and 13 to the financial statements.
(e) Aggregate amounts brought to account in relation to other transactions
with other related parties
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
Avonsleigh Pty Ltd...................................... (172,464) -- --
-------- -------- --------
(172,464) -- --
-------- -------- --------
</TABLE>
Avonsleigh Pty Ltd, which acquired certain net assets of Diezel and Dzign
Trusts subsequent to year end, have provided a working capital loan of $250,000
as at that date (Note 16).
(f) Distributions
Distributions to beneficiaries are identified in Note 13 to the financial
statements.
NOTE 16 SUBSEQUENT EVENTS
The financial report represents the closing position of Diezel and Dzign
Trusts Aggregated as at 26th June 2000. On the same day, the business and
certain net assets were sold to a corporate vehicle Avonsleigh Pty Ltd at book
value, amounting to $3,330,892. This company was then acquired by Asia Online
Ltd on the same day for $3,330,892.
On 27 June 2000, the bank loan of $69,919 has been repaid by beneficiaries.
NOTE 17 COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
There are no material contingencies as at 30 June 1998, 30 June 1999 and 26
June 2000.
F-219
<PAGE> 309
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
Commitments for Expenditure
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
26 JUNE 2000 1999 1998
$ $ $
------------ ------- -------
<S> <C> <C> <C>
OPERATING LEASES
Commitments for minimum lease payments in relation to
operating leases are payable as follows:
Office rental
Within one year........................................... 44,811 42,103 25,333
Later than one year but not later than 5 years............ 49,951 91,079 2,065
Later than 5 years........................................ -- -- --
Computer Equipment
Within one year........................................... 24,022 16,188 8,832
Later than one year but not later than 5 years............ 25,228 26,359 20,357
Later than 5 years........................................ -- -- --
Motor Vehicles
Within one year........................................... 25,236 15,588 15,588
Later than one year but not later than 5 years............ 44,180 18,482 34,058
Later than 5 years........................................ -- -- --
------- ------- -------
Commitments not recognised in the financial
statements...................................... 213,428 209,799 106,233
------- ------- -------
FINANCE LEASES
Commitments in relation to finance leases are payable as
follows:
Within one year........................................... 41,130 33,455 17,831
Later than one year but not later than 5 years............ 144,337 144,207 82,519
Later than 5 years........................................ -- -- --
------- ------- -------
Minimum lease payments.................................... 185,467 177,662 100,350
Less: Future finance charges.............................. (21,499) (26,016) (8,510)
------- ------- -------
Total lease liabilities........................... 163,968 151,646 91,840
------- ------- -------
Representing lease liabilities:
Current (note 11)......................................... 31,190 21,520 9,525
Non-current (note 11)..................................... 132,778 130,126 82,315
------- ------- -------
163,968 151,646 91,840
------- ------- -------
</TABLE>
NOTE 18 CASH FLOW INFORMATION
(a) Reconciliation of cash:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
26 JUNE 2000 1999 1998
$ $ $
------------ -------- -------
<S> <C> <C> <C>
Cash........................................................ 305 2,820 23,291
Bank overdraft.............................................. (2,059) (117,962) --
------ -------- ------
(1,754) (115,142) 23,291
====== ======== ======
</TABLE>
F-220
<PAGE> 310
THE DZIGN TRUST, DIEZEL INTERACTIVE CLASS INCOME UNIT TRUST,
DZIGN VISUAL COMMUNICATIONS CLASS INCOME UNIT TRUST
NOTES TO THE ACCOUNTS -- (CONTINUED)
(b) Reconciliation of operating profit after income tax to net cash inflow
from operating activities:
<TABLE>
<CAPTION>
26 JUNE 2000 30 JUNE 1999 30 JUNE 1998
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING PROFIT AFTER INCOME TAX....................... (55,313) 46,076 4,372
Depreciation and amortisation........................... 78,852 67,573 40,284
Changes in operating assets and liabilities:
Decrease/(increase) in trade and other debtors........ 21,259 (80,463) (89,437)
Decrease/(increase) in other operating assets......... (275) (89,605) 2,629
Increase/(decrease) in trade and other creditors...... 17,284 (89,200) 121,665
Increase/(decrease) in provisions and employee
entitlements....................................... 18,187 17,239 18,761
------- -------- -------
Net cash inflow/(outflow) from operating
activities.................................. 79,994 (128,380) 98,273
======= ======== =======
</TABLE>
NOTE 19 US GAAP RECONCILIATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Australia ("Australian GAAP"), which
differs in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as,
additional disclosures required by U.S. GAAP.
For the years ended 30 June 1998, 30 June 1999 and 26 June 2000 there were
no material adjustments required to reconcile net income and shareholders'
equity for differences between Australian GAAP and U.S. GAAP
F-221
<PAGE> 311
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[COMPANY LOGO]
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<PAGE> 312
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $26,400
NASD filing fee............................................. $10,500
Nasdaq National Market initial listing application fee...... $ 5,000
Blue Sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Directors' and officers' insurance..........................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
-------
TOTAL.............................................
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to the
company or our stockholders for monetary damages for any breach of fiduciary
duty as directors. This provision of the restated certificate of incorporation
does not eliminate the directors' duty of care. In appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
are available under Delaware law. This provision also does not affect the
directors' responsibilities under any other laws, such as the federal securities
laws and state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to Asia Online and its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct;
- a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with each of our
directors and executive officers and to obtain directors' and officers'
liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
II-1
<PAGE> 313
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to our directors, officers and control
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Described below is information regarding all securities that have been
issued and sold by Asia Online since our inception on December 8, 1998:
(a) On January 22, 1999, the Company issued an aggregate of 10 shares
of its common stock at $.001 per share to two investors, SOFTBANK
Technology Ventures, L.P. and SOFTBANK Technology Advisors Fund, L.P. in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
(b) On various dates between February 1, 1999, and June 30, 1999, the
Company issued and sold an aggregate of 2,970,880 shares of its common
stock subject to vesting at purchase prices ranging from $0.02 per share to
$0.11 per share to ten people for aggregate cash proceeds of $102,916 and a
promissory note of $40,875 pursuant to a Founder Stock Purchase Agreement.
Of these shares, 526,389 have been repurchased by the Company pursuant to
the repurchase clause in the Founder Stock Purchase Agreement. The Company
relied on the exemption provided by Rule 701 of the Securities Act.
(c) On various dates between April 1, 1999, and June 30, 2000, the
Company granted stock options to purchase an aggregate of 2,456,799 shares
of its common stock at exercise prices ranging from $0.11 per share to $8
per share to its employees, consultants, directors and officers pursuant to
the Company's 1999 Equity Incentive Plan. The Company relied on the
exemptions provided by Regulation S and Rule 701 of the Securities Act.
(d) On April 30, 1999, the Company issued warrants to purchase an
aggregate of 200,000 shares of its Series A preferred stock at a purchase
price of $1.14 per share to four lenders, Nexus Capital Partners I, L.P.,
MLS-I, L.P., Porcelain Partners, L.P. and Nexus Partners, LLC, as
consideration for loans in the form of promissory notes in an aggregate
amount of $3,500,000 pursuant to a Note and Warrant Purchase Agreement. The
Company relied on the exemption provided by Section 4(2) of the Securities
Act. All of the warrants were cancelled upon the closing of the Series B
financing.
(e) On February 26, 1999, the Company issued an aggregate of 5,857,032
shares of its Series A preferred stock at a purchase price of $1.14 per
share to two accredited investors, SOFTBANK Technology Ventures IV, L.P.
and SOFTBANK Technology Advisors Fund, L.P., for cash proceeds in the
amount of $6,677,016.48 pursuant to the Series A Preferred Stock Purchase
Agreement. The Company relied on the exemption provided by Rule 506 of
Regulation D of the Securities Act.
(f) On May 7, 1999, the Company issued an aggregate of 835,938 shares
of its Series A preferred stock at a purchase price of $1.14 per share to
Interliant, Inc., an accredited investor, for cash proceeds of $952,969.32
pursuant to the Series A Preferred Stock Purchase Agreement. The Company
relied on the exemption provided by Rule 506 of Regulation D of the
Securities Act.
(g) On February 10, 1999, the Company issued an aggregate of 1,250,000
shares of its Series A preferred stock to 15 investors as partial
consideration for the acquisition of all of the assets of ACG, Inc.
pursuant to an Asset Purchase Agreement. The Company relied on the
exemption provided in Rule 506 of Regulation D of the Securities Act.
(h) On February 10, 1999, the Company issued a warrant to purchase up
to $500,000 of its Series A preferred stock at the same price paid by the
initial purchasers of such preferred stock, or $1.14, to Kevin H. Randolph,
pursuant to his Employment Agreement. On July 30, 1999, the Company
approved an extension of the term of this option so that Mr. Randolph could
purchase up to 87,719 shares of Series A preferred stock until December 31,
1999. On December 27, 1999, the
II-2
<PAGE> 314
Company issued an aggregate of 87,719 shares of its Series A preferred
stock to Kevin H. Randolph at a purchase price of $1.14 per share for cash
proceeds in the amount of $99,999.66 upon exercise of this warrant. The
Company relied on the exemption provided by Rule 701 of the Securities Act.
(i) On August 3, 1999, the Company issued an aggregate of 11,019,049
shares of its Series B preferred stock at a purchase price of $3.176317 per
share to eleven accredited investors for cash proceeds in the amount of
$35,000,000 pursuant to the Series B Preferred Stock Purchase Agreement.
The Company relied on the exemption provided by Rule 506 of Regulation D of
the Securities Act.
(j) On September 27, 1999, the Company issued an aggregate of 327,625
shares of its Class C common stock to Ronald Woodrow as partial
consideration for 100% of the stock of Internet Company of New Zealand
Limited, of which Ronald Woodrow was the sole stockholder. The Company
relied on the exemption provided by Regulation S of the Securities Act.
(k) On October 22, 1999, the Company issued an aggregate of 57,649
shares of its Class C common stock to Australian Consulting & Capital
Partners Pty, Ltd. as consideration for its consulting services in relation
to acquisition transactions. The Company relied on the exemption provided
by Regulation S of the Securities Act.
(l) On January 17, 2000, the Company issued an aggregate of 9,500
shares of its Class C common stock as partial consideration for 100% of the
stock of Macro Systems Limited to two individuals who were registered
holders and beneficial owners of a portion of the issued capital of that
company. The Company relied on the exemption provided by Regulation S of
the Securities Act.
(m) On February 1, 2000, the Company issued an aggregate of 10,800
shares of its Class C common stock as partial consideration for 100% of the
stock of Helix Web Services Limited to four individuals who were the
registered holders and beneficial owners of all of the issued shares of
that company. The Company relied on the exemption provided by Regulation S
of the Securities Act.
(n) On February 22, 2000, the Company issued an aggregate of 208,600
shares of its Class C common stock to Kristone Pte Ltd and Hughes
Technologies Pty, Ltd. as partial consideration for 100% of the stock of
Fast Access Network Pty, Ltd. The Company relied on the exemption provided
by Regulation S of the Securities Act.
(o) On March 24, 2000, the Company issued an aggregate of 11,401,700
shares of its Series C preferred stock at a purchase price of $8.770653 per
share to twenty accredited investors for cash proceeds in the amount of
$100,000,354.29 pursuant to the Series C Preferred Stock Purchase
Agreement. The Company relied on the exemption provided by Rule 506 of
Regulation D of the Securities Act.
(p) On July 25, 2000, the Company issued an aggregate of 431,703
shares of its Class C common stock to John Alexander Hendry, Craig Andrew
Gibson and Cubic Pty, Ltd. as trustee for the Hayden Family Trust, in equal
shares, as partial consideration for 100% of the stock of InterACT
Technology Group Pty, Ltd. The Company relied on the exemption provided by
Regulation S of the Securities Act.
(q) On July 14, 2000, the Company issued an aggregate of 567,023
shares of its Class C common stock to Flex IT Pty Ltd., a shareholder of
Flex Information Technology Pty Ltd., as partial consideration for 100% of
the stock of Flex Information Technology Pty Ltd. The Company relied on the
exemption provided by Regulation S of the Securities Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view for
distribution thereof. In each instance the recipients were sophisticated
investors or employees of ours, the offer and sale were made without any public
solicitation and the stock certificates were issued with restrictive legends. No
underwriter was involved in the transactions and no commissions were paid. All
recipients had adequate access, through employment or other relationships, to
information about Asia Online.
II-3
<PAGE> 315
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1A -- Asset Purchase Agreement among Conrad ISP, Inc. and ACG,
Inc.
2.1B -- Letter of amendment to Asset Purchase Agreement among
Conrad ISP, Inc. and ACG, Inc.
2.2A -- Share Sale and Purchase Agreement relating to Brisbane
Internet Technology Pty Ltd.
2.2B -- Shareholders Deed relating to Brisbane Internet
Technology Pty Ltd.
2.3 -- Share Sale and Purchase Agreement relating to Dove
Australia Pty Ltd.
2.4 -- Share Purchase Agreement relating to Fast Access Network
Pty Ltd.
2.5A -- Share Sale and Subscription Agreement relating to Flex
Information Technology Pty Ltd.
2.5B -- Shareholders Deed relating to Flex Information Technology
Pty Ltd.
2.6A -- Share Subscription Agreement relating to Internet Access
Australia Pty Ltd.
2.6B -- Shareholders Deed relating to Internet Access Australia
Pty Ltd.
2.7A -- Share Purchase and Subscription Agreement relating to
InterACT Technology Group Pty Ltd.
2.7B -- Shareholders Deed relating to Interact Technology Group
Pty Ltd.
2.8 -- Share Sale and Purchase Agreement relating to The Message
Exchange Pty Ltd.
2.9 -- Agreement for the Sale and Purchase of Shares in Helix
Web Services Limited by ACG International Inc.
2.10 -- Agreement for the Sale and Purchase of Shares in Macro
Systems Limited by ACG International Inc.
2.11 -- Agreement for the Sale and Purchase of Shares in
Metro-Link Services Co. Limited and Hope Light Trading
Limited.
2.12A -- Share Purchase and Subscription Agreement relating to
Utusan Multimedia Sdn. Bhd.
2.12B -- Shareholders' Agreement between Asia Online Internet
Services Sdn. Bhd., Utusan Melayu (Malaysia) Berhad and
Utusan Multimedia Sdn. Bhd.
2.13 -- Share Sale and Purchase Agreement relating to Internet
Company of New Zealand.
2.14 -- Share Purchase Agreement relating to Avonsleigh Pty Ltd.
(Diezel/Dzign).
3.1 -- Restated Certificate of Incorporation of the Company.
3.2* -- Form of Restated Certificate of Incorporation of the
Company to become effective upon the closing of the
Offering.
3.3 -- Bylaws of the Company.
3.4* -- Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 -- Reference is made to Exhibits 3.1 through 3.4.
4.2* -- Specimen stock certificate representing shares of common
stock of the Company.
5.1* -- Opinion of Cooley Godward LLP regarding the legality of
the securities being registered.
</TABLE>
II-4
<PAGE> 316
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1* -- 1999 Equity Incentive Plan, as amended, and form of Grant
Notice and Stock Option Agreement.
10.2 -- Series A Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated February
26, 1999.
10.3 -- Series B Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated August 3,
1999.
10.4 -- Series C Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated March 24,
2000.
10.5 -- Second Amended and Restated Investor Rights Agreement
among the Company and certain of its stockholders, dated
March 24, 2000.
10.6 -- Key Employee Agreement for Kevin Randolph dated February
10, 1999.
10.7 -- Key Employee Agreement for Edward P. Roberto dated
February 10, 1999.
10.8 -- Reference is made to Exhibits 2.1(a) through 2.14.
10.9 -- Lease, dated September 24, 1999, between Mass Transit
Railway Corporation and Central Waterfront Property
Development Limited and the registrant.
11.1 -- Statement regarding computation of per share earnings.
21.1* -- Subsidiaries of Registrant.
23.1* -- Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 -- Consent of PricewaterhouseCoopers for The Internet
Company of New Zealand Limited.
23.3 -- Consent of PricewaterhouseCoopers for The Message
Exchange Pty Limited, Flexit Pty Limited, Morse
Corporation (Australia) Pty Limited, InterACT Technology
Group Pty Limited, Internet Access Australia Pty Limited,
Brisbane Internet Technology Pty Limited, and Dove
Australia Pty Limited.
23.4 -- Consent of PricewaterhouseCoopers for Asia Online, Ltd.,
Asia Communications Group Limited, Asia On-line Limited
and Asia Online (Phils.) Inc., Macro Systems Limited,
Helix Web Services Limited, Metro-link Services Company
Limited and Hope Light Trading Limited.
23.5 -- Consent of PricewaterhouseCoopers for Utusan Multimedia
Sdn Bhd.
23.6 -- Consent of Lord & Brown for The Dzign Trust/Diezel
Interactive Class Income Unit Trust.
24.1 -- Powers of Attorney (included on Page II-7).
27 -- Financial Data Schedule.
</TABLE>
---------------
* To be filed by amendment.
---------------
(b) Financial Statement Schedules.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or
II-5
<PAGE> 317
otherwise, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 318
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hong Kong, on August 2,
2000.
By: /s/ KEVIN H. RANDOLPH
----------------------------------
Kevin H. Randolph
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin H. Randolph and Gareth G. Stephens
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on August 2, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KEVIN H. RANDOLPH President and Chief Executive Officer
----------------------------------------------------- (Principal Executive Officer)
Kevin H. Randolph
/s/ GARETH G. STEPHENS Chief Financial Officer (Principal Financial
----------------------------------------------------- Officer and Principal Accounting Officer)
Gareth G. Stephens
/s/ BRADLEY A. FELD Co-Chairman of the Board, Director
-----------------------------------------------------
Bradley A. Feld
/s/ KARL K. FOOKS Director
-----------------------------------------------------
Karl K. Fooks
/s/ T. J. HUANG Director
-----------------------------------------------------
T. J. Huang
/s/ JAMES P. MCNIEL Director
-----------------------------------------------------
James P. McNiel
/s/ HENRY R. NOTHHAFT Director
-----------------------------------------------------
Henry R. Nothhaft
/s/ E. SCOTT RUSSELL Co-Chairman of the Board, Director
-----------------------------------------------------
E. Scott Russell
</TABLE>
II-7
<PAGE> 319
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1A -- Asset Purchase Agreement among Conrad ISP, Inc. and ACG,
Inc.
2.1B -- Letter of amendment to Asset Purchase Agreement among
Conrad ISP, Inc. and ACG, Inc.
2.2A -- Share Sale and Purchase Agreement relating to Brisbane
Internet Technology Pty Ltd.
2.2B -- Shareholders Deed relating to Brisbane Internet
Technology Pty Ltd.
2.3 -- Share Sale and Purchase Agreement relating to Dove
Australia Pty Ltd.
2.4 -- Share Purchase Agreement relating to Fast Access Network
Pty Ltd.
2.5A -- Share Sale and Subscription Agreement relating to Flex
Information Technology Pty Ltd.
2.5B -- Shareholders Deed relating to Flex Information Technology
Pty Ltd.
2.6A -- Share Subscription Agreement relating to Internet Access
Australia Pty Ltd.
2.6B -- Shareholders Deed relating to Internet Access Australia
Pty Ltd.
2.7A -- Share Purchase and Subscription Agreement relating to
InterACT Technology Group Pty Ltd.
2.7B -- Shareholders Deed relating to Interact Technology Group
Pty Ltd.
2.8 -- Share Sale and Purchase Agreement relating to The Message
Exchange Pty Ltd.
2.9 -- Agreement for the Sale and Purchase of Shares in Helix
Web Services Limited by ACG International Inc.
2.10 -- Agreement for the Sale and Purchase of Shares in Macro
Systems Limited by ACG International Inc.
2.11 -- Agreement for the Sale and Purchase of Shares in
Metro-Link Services Co. Limited and Hope Light Trading
Limited.
2.12A -- Share Purchase and Subscription Agreement relating to
Utusan Multimedia Sdn. Bhd.
2.12B -- Shareholders' Agreement between Asia Online Internet
Services Sdn. Bhd., Utusan Melayu (Malaysia) Berhad and
Utusan Multimedia Sdn. Bhd.
2.13 -- Share Sale and Purchase Agreement relating to Internet
Company of New Zealand.
2.14 -- Share Purchase Agreement relating to Avonsleigh Pty Ltd.
(Diezel/Dzign).
3.1 -- Restated Certificate of Incorporation of the Company.
3.2* -- Form of Restated Certificate of Incorporation of the
Company to become effective upon the closing of the
Offering.
3.3 -- Bylaws of the Company.
3.4* -- Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 -- Reference is made to Exhibits 3.1 through 3.4.
4.2* -- Specimen stock certificate representing shares of common
stock of the Company.
5.1* -- Opinion of Cooley Godward LLP regarding the legality of
the securities being registered.
10.1* -- 1999 Equity Incentive Plan, as amended, and form of Grant
Notice and Stock Option Agreement.
</TABLE>
<PAGE> 320
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2 -- Series A Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated February
26, 1999.
10.3 -- Series B Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated August 3,
1999.
10.4 -- Series C Preferred Stock Purchase Agreement, among the
Company and the purchasers named therein, dated March 24,
2000.
10.5 -- Second Amended and Restated Investor Rights Agreement
among the Company and certain of its stockholders, dated
March 24, 2000.
10.6 -- Key Employee Agreement for Kevin Randolph dated February
10, 1999.
10.7 -- Key Employee Agreement for Edward P. Roberto dated
February 10, 1999.
10.8 -- Reference is made to Exhibits 2.1(a) through 2.14.
10.9 -- Lease, dated September 24, 1999, between Mass Transit
Railway Corporation and Central Waterfront Property
Development Limited and the registrant.
11.1 -- Statement regarding computation of per share earnings.
21.1* -- Subsidiaries of Registrant.
23.1* -- Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 -- Consent of PricewaterhouseCoopers for The Internet
Company of New Zealand Limited.
23.3 -- Consent of PricewaterhouseCoopers for The Message
Exchange Pty Limited, Flexit Pty Limited, Morse
Corporation (Australia) Pty Limited, InterACT Technology
Group Pty Limited, Internet Access Australia Pty Limited,
Brisbane Internet Technology Pty Limited, and Dove
Australia Pty Limited.
23.4 -- Consent of PricewaterhouseCoopers for Asia Online, Ltd.,
Asia Communications Group Limited, Asia On-line Limited
and Asia Online (Phils.) Inc., Macro Systems Limited,
Helix Web Services Limited, Metro-link Services Company
Limited and Hope Light Trading Limited.
23.5 -- Consent of PricewaterhouseCoopers for Utusan Multimedia
Sdn Bhd.
23.6 -- Consent of Lord & Brown for The Dzign Trust/Diezel
Interactive Class Income Unit Trust.
24.1 -- Powers of Attorney (included on Page II-7).
27 -- Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
