OCEN COMMUNICATIONS INC, S-1/A, 2000-05-09

OCEN COMMUNICATIONS INC
S-1/A, 2000-05-09
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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As filed with the Securities and Exchange Commission on May 9, 2000

Registration No. 333-32920
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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OCEN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
Delaware 4813 95-4659521
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
</TABLE>
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oCen Communications, Inc.
4900 Rivergrade Road, C110
Irwindale, CA 91706
(626) 338-6611
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------

Alex Liu
Chief Executive Officer
oCen Communications, Inc.
4900 Rivergrade Road, C110
Irwindale, CA 91706
(626) 338-6611
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies To:

Curtis L. Mo, Esq. Rise B. Norman, Esq.
Peter S. Buckland, Esq. Simpson Thacher & Bartlett
Richard J. Colosimo, Esq. 425 Lexington Avenue
Alexander C. Chen, Esq. New York, NY 10017
Brobeck, Phleger & Harrison LLP (212) 455-2000
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
(650) 424-0160 ---------------

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities To Be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Common stock, $0.001 par
value.................. 4,370,000 $14.00 $61,180,000 $23,760(3)
</TABLE>
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(1) Includes shares that may be sold pursuant to the underwriters' over-
allotment option as well as shares that may be resold from time to time in
the United States in transactions requiring registration under the
Securities Act. Offers and sales of shares outside the United States are
being made pursuant to Regulation S and are not covered by this
Registration Statement.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).

(3) $23,760 previously paid.
The 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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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot 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
PROSPECTUS

3,800,000 Shares

[LOGO OF oCEN COMMUNICATIONS]

oCen Communications, Inc.

Common Stock

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This is our initial public offering of shares of common stock. We are offering
shares in the United States and Canada and shares
outside the United States and Canada.

No public market currently exists for our shares. We anticipate that the
initial public offering price per share will be between $12.00 and $14.00. We
expect that the shares will trade on the Nasdaq National Market under the
symbol "OCOM."

Investing in the shares involves risks. Risk Factors begin on page 5.

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds to oCen, before expenses............................... $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to an
additional 570,000 shares of our common stock to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Lehman Brothers expects to deliver the shares on or about , 2000.

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Lehman Brothers

Bear, Stearns & Co. Inc.

ING Barings

, 2000
<PAGE>

TABLE OF CONTENTS

<TABLE>
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Page
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Cautionary Notice Regarding Forward-
Looking Statements.................. 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Consolidated Financial
Data................................ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business............................. 37
</TABLE>
<TABLE>
<S> <C>
Management.......................... 56
Principal Stockholders.............. 66
Related Party Transactions.......... 68
Description of Capital Stock........ 71
Shares Eligible for Future Sale..... 74
Material United States Income Tax
Consequences for Non-U.S. Holders.. 76
Underwriting........................ 79
Legal Matters....................... 84
Experts............................. 84
Where You Can Find Additional
Information........................ 84
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

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Until , 2000, all dealers that buy, sell, or trade our common stock may be
required to deliver a prospectus, regardless of whether they are participating
in the offering. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information about us. It may not contain all
of the information that you find important. You should carefully read this
entire document, including the "Risk Factors" section beginning on page 5 and
the consolidated financial statements and their related notes beginning on page
F-1. Some technical terms not explained in this summary are more fully
described in "Business--Our Company," and "-- Industry and Market Background."

Our Company

We are an Asia-focused provider of high quality Internet Protocol, or IP,
communications services. We began offering international calling services in
March 1998. Since then we have continuously upgraded our communications network
and expanded our geographic coverage, primarily by entering into lease
agreements to obtain additional transmission capacity. In December 1999, we
substantially upgraded our network to increase its capacity and to provide high
quality service for carriers. We believe we have built one of the largest
managed IP networks that is dedicated to Internet telephone services connecting
Asia and the United States. We believe that our managed IP network provides our
customers with the cost savings of a data network and quality comparable to the
traditional telephone network. The number of minutes transmitted over our
network increased from approximately 18.5 million for the three months ended
December 31, 1999 to approximately 32.3 million for the three months ended
March 31, 2000.

Approximately 96.4% of our revenue was generated from the sale of U.S.
originated minutes for the six months ended March 31, 2000. For that same
period, approximately 88% of the minutes carried over our network was
terminated in Asia. The majority of our facilities in Asia are currently
located in Hong Kong and Taiwan. In the future, we intend to rapidly expand our
geographic coverage to build a pan-Asian network that is able to meet the
growing communications needs of our customers.

We develop and market our innovative IP communications services to three sets
of customers: consumers, carriers, and corporations. We offer reliable, low-
cost, IP international long distance services to consumers. Our Internet
telephone services enable consumers to place a call or send a fax inexpensively
from any telephone or fax machine to anywhere in the world. Through December
31, 1999, all of our revenues were generated from the sale of consumer long
distance services.

In December 1999, to expand into new markets and to maximize the use of our
network, we began to offer wholesale carrier transmission services. Our
revenues from the sale of wholesale carrier transmission services were
approximately $247,000, or 4.3% of total revenue, for the six months ended
March 31, 2000. These services include providing high quality voice and fax
services to traditional telecommunications providers, other IP carriers, and
Internet-based voice and data services providers. As of April 30, 2000, we had
17 carrier agreements with providers such as AT&T Global Clearinghouse, Capcom
International, New World Telephone, and Telia. In addition, Dialpad.com, one of
the largest Internet-based voice and service providers, has signed a non-
binding memorandum of understanding with us to purchase wholesale capacity on
our managed IP network to carry its PC-originated traffic.

We believe IP technologies can fully meet the integrated communications
services needs of corporations by providing voice, data, and enhanced services
over one network. In March 2000, we began trialing basic Internet telephone
services to five corporate customers in Taiwan through our voice and fax
product, oPhone. We are also developing our CommPortal product, an integrated
Internet-based suite of communications services that we expect to include
instant messaging, PC-based text and voice chat, conferencing services over the
Internet, and unified messaging, which provides a single location for accessing
voice, fax, and email messages. CommPortal, which we believe will be available
for testing by the end of 2000, together with oPhone,

1
<PAGE>

represents our full enhanced business communications services product. We
believe this product will allow our corporate customers to reduce
communications costs while improving productivity. To date, we have not yet
generated any revenues from sales of long distance or enhanced communications
services to corporate customers.

Our goal is to become the leading Asia-focused Internet communications
services provider for consumers, carriers, and corporations. We intend to
achieve this goal by pursuing the following strategies:

. Leverage our first-mover advantage in Asia;
. Rapidly expand our IP network throughout Asia;
. Leverage our strategic relationships throughout Asia;

. Continue to grow our existing consumer and carrier Internet telephone
services businesses;

. Capture pan-Asian corporate customers with business long distance and
enhanced communications services; and
. Develop and provide a broad offering of enhanced IP communications
services.

Information contained on our website does not constitute part of this
prospectus. "oCen" is a trademark of oCen Communications, Inc. All brand names
and trademarks appearing in this prospectus are the property of their
respective holders.

Our Principal Executive Offices

We incorporated in California in October 1997 under the name Pacific Telekey
Network, Inc. In October 1999, we changed our name to oCen Communications, Inc.
In 2000, we reincorporated in Delaware. Our principal executive offices are
located at 4900 Rivergrade Road, C110, Irwindale, CA 91706, and our telephone
number at that location is (626) 338-6611.

2
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The Offering

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<CAPTION>
Total common stock offered by oCen.................... 3,800,000 shares
<C> <S>
Offering in the United States and Canada........... shares
Offering outside the United States and Canada...... shares
Common stock to be outstanding after this offering ... 18,497,885 shares
Use of proceeds....................................... We estimate that our net
proceeds from this
offering will be
approximately $44.9
million. We intend to
use approximately
$22.0 million of our net
proceeds for network
development, sales and
marketing activities,
capital expenditures,
and technology
acquisition and
development. We expect
to use approximately
$22.9 million of our net
proceeds for other
general corporate
purposes, including
working capital. We may
also use a portion of
our net proceeds to
acquire or invest in
complementary businesses
or products. We have no
current plans,
agreements, or
commitments for any
acquisitions. Pending
these uses, we will
invest the net proceeds
of this offering in
interest-bearing,
investment grade
securities.
Proposed Nasdaq National Market Symbol................ OCOM
</TABLE>

The figures above are based on 14,697,885 shares of common stock outstanding
as of March 31, 2000 on a pro forma basis and assume no exercise of outstanding
options or warrants. As of March 31, 2000, we had reserved 340,185 shares of
common stock for future issuance under our stock option plan and 2,098,815
shares of our common stock for issuance upon exercise of outstanding options at
a weighted average exercise price of $4.11 per share. In addition, as of March
31, 2000, we had 85,333 warrants outstanding at a weighted average exercise
price of $1.62.

Except as otherwise noted, all information in this prospectus assumes:

. our reincorporation from California to Delaware prior to the
consummation of this offering,
. the conversion of the convertible notes into shares of preferred stock,
. the conversion of all outstanding shares of our preferred stock into
common stock upon the completion of this offering, and
. no exercise of the underwriters' over-allotment option.

Except as otherwise noted, all references in this prospectus to "$" or to
"dollars" are to U.S. dollars.

You should rely only on information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any
sale of our common stock.

3
<PAGE>

Summary Consolidated Financial Data

The following table sets forth summary consolidated financial data for our
company. You should read this information together with the consolidated
financial statements and the notes to those statements and the information
under "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.

<TABLE>
<CAPTION>
As of March 31, 2000
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Pro
Actual Forma As Adjusted
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(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $12,001 $12,001 $56,870
Working capital................................. 5,266 5,266 50,135
Total assets.................................... 23,857 23,857 68,726
Long-term debt and capital lease obligations,
excluding current portion...................... 8,628 5,628 5,628
Deferred stock compensation..................... (6,732) (6,732) (6,732)
Stockholders' equity............................ 4,617 7,617 52,486
</TABLE>
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. See note 13 of the notes to the consolidated financial statements for a
determination of the number of shares used in computing basic and diluted
net loss and pro forma net loss per share amounts.

. Pro forma balance sheet data reflects the conversion of all issued and
outstanding shares of convertible preferred stock into common stock upon
the closing of this offering and the portion of the convertible notes
issued in January 2000 for $10.0 million that will convert into 230,769
shares of common stock.

. Pro forma as adjusted balance sheet data reflects our receipt of the
estimated net proceeds from the sale of the shares of common stock we are
selling in this offering at an assumed initial public offering price of
$13.00 per share, after deducting the underwriting discount and estimated
offering expenses payable by us.

4
<PAGE>

RISK FACTORS

You should carefully consider the following risks in addition to other
information in this prospectus before purchasing our common stock.

Risks Related To Our Business

We have a history of losses, and we anticipate our losses will continue.

We have incurred significant losses since inception, and we expect to
continue to incur significant losses for the foreseeable future. We reported
net losses applicable to common stockholders of approximately $15.8 million for
the six months ended March 31, 2000, $4.1 million for the year ended
September 30, 1999, and $722,000 for the period from our inception to September
30, 1998. As a percentage of revenues, our net loss was 272% for the six months
ended March 31, 2000, 177% for the year ended September 30, 1999, and 731% for
the period from our inception to September 30, 1998. As of March 31, 2000, our
accumulated deficit was approximately $20.6 million. Our revenues may not
continue to grow or even continue at their current level. In addition, we
expect our operating expenses and capital expenditures to increase
significantly as we develop and expand our business, especially our offering of
business long distance and enhanced communications services. As a result, we
will need to increase our revenues significantly to become profitable. In order
to augment our revenues, we need to attract additional users to increase the
fees we collect for our services. If our revenues do not grow as much as we
expect or if our expenses increase at a greater pace than our revenues, we may
never be profitable, or if we become profitable, we may not be able to sustain
or increase profitability on a quarterly or annual basis. Furthermore, we will
have to recognize significant charges relating to non-cash compensation in
connection with options that we have granted through March 31, 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Because we have a limited operating history upon which you can evaluate us, it
is difficult to predict whether we will successfully develop new businesses,
build revenues, and compete effectively.

We have only a limited operating history upon which you can evaluate our
business and prospects. We commenced operations on October 14, 1997. You should
consider our prospects in light of the risks, expenses, and difficulties we may
encounter as an early-stage company in the new and rapidly evolving market for
IP communications services. The risks include our ability to:

. increase the number of users of our Internet telephone services;

. develop our business long distance and enhanced communications services;

. build revenues to cover the increased marketing expenditures we have
planned;
. compete effectively;

. increase awareness of our brand and build user loyalty; and
. keep pace with developing technology.

In addition, because we expect an increasing percentage of our revenues to be
derived from our business long distance and enhanced communications services,
our past operating results may not be indicative of our future results.

We may not be able to expand our revenues and achieve profitability.

Our strategy is to expand our revenue sources beyond our consumer long
distance services to the sale of wholesale carrier transmission services and
business long distance and enhanced communications services. This pursuit has
required and will continue to require us to make significant additions to our
sales and marketing and technology teams. The large investment in capital and
other resources required to create these new revenue streams will result in
significant losses for the foreseeable future, and we cannot assure you that we
will be able to expand our revenue sources or that this strategy will be
profitable.

5
<PAGE>

Currently our revenues are generated primarily from the sale of consumer long
distance services. These services generated 100% of our total revenues in each
of the period from inception to September 30, 1998, the year ended September
30, 1999, and the three months ended December 31, 1999. January 2000 was the
first month in which we generated any revenues from wholesale carrier
transmission services. Providing consumer long distance services and wholesale
carrier transmission services has not been profitable to date.

In the future, we intend to generate increased revenues from multiple
sources, many of which are unproven, including the commercial sale of business
long distance and enhanced communications services. We expect that our revenues
for the foreseeable future will be dependent on:

. our continued sale of wholesale carrier transmission services;

. our ability to develop, launch, and rollout business long distance and
enhanced communications services successfully;
. user traffic levels;
. continued rapid growth of the Internet consumer market;
. continued improvement of the quality of our global network;
. our ability to counteract the effects of competition, adverse regulatory
developments, decreasing international long distance rates, and rising
access and transmission costs on our prices;
. the acceptance and use of Internet communications; and
. the expansion of our service offerings.

We may not be able to sustain our current revenues from the sale of consumer
long distance services and wholesale carrier transmission services or to
generate revenues successfully from business long distance and enhanced
communications services in the future.

We have not yet developed our CommPortal product, and if we do not succeed in
being able to develop, launch, and rollout this product in a timely manner, our
business, operations, and potential for profitability will be severely harmed.

To improve our margins over the long run, we must capture the corporate
market for enhanced IP services in Asia and develop our integrated Internet-
based suite of communications services for corporate customers. We are
therefore in the process of developing a product that would offer corporate
customers a variety of enhanced IP services including instant messaging, PC-
based voice and text chat, conferencing services over the Internet, and unified
messaging.

We are, however, still in the initial stages of the development of
CommPortal. We must enter into agreements with technology providers to sell or
license the technologies that will comprise CommPortal. We cannot assure you
that we will be able to enter into these agreements on commercially reasonable
terms. In addition, even after we have identified and licensed or acquired the
applications, we will need to combine these applications into one integrated
solution and add security measures, such as firewalls. We cannot assure you
that we will be able to create an integrated and secure solution in time to
rollout CommPortal as planned or that we will ever be able to offer CommPortal.
If CommPortal is delayed, our business and financial condition will be
materially adversely affected and our reputation may be harmed. If we are
unable to offer CommPortal, we will not be able to expand our business, and our
financial condition and results of operations will be severely harmed.

Potential fluctuations in our quarterly financial results could make it
difficult for investors to predict our future performance, which may cause our
stock price to be volatile and decline.

Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control. The
factors generally within our control include:

. the resources we employ to attract users to purchase our business long
distance and enhanced communications services;

6
<PAGE>

. the amount and timing of expenses we incur to enhance marketing and
promotion efforts and to expand our infrastructure; and
. the timing of announcements or introductions of new services by us.

The factors outside our control include:

. changes in international or domestic telecommunications rates;
. the timing of announcements or introductions of new services by our
competitors;
. technical difficulties or network interruptions in the Internet or in our
managed IP network;
. changes in the regulatory environment; and
. general economic and competitive conditions specific to our industry.

We believe that quarter-to-quarter comparisons of our historical operating
results may not be a good indication of our future performance, nor would our
operating results for any particular quarter be indicative of our future
operating results.

We may be unable to manage our expansion and anticipated growth effectively,
which could reduce our chances of becoming profitable.

Our rapid growth has placed, and is likely to continue to place, a
significant strain on our managerial, accounting, operational, and financial
resources. To manage our growth, we must continue to implement and improve our
operational, accounting, and financial systems as well as our managerial
controls and procedures. We cannot assure you that we will not suffer from
unforeseen costs and risks associated with this expansion, that our systems,
procedures, or controls will be adequate to support our operations, or that our
management will be able to offer and expand our services successfully. We
currently rely on a relatively small core management team. As we grow, we must
not only manage demands on this team but also increase its resources so that it
can continue to expand, train, and manage our employee base and maintain close
coordination among our accounting, finance, marketing, and sales staff. If we
are unable to manage our expanding operations effectively, our revenues may not
increase, our cost of operations may rise, or we may not be profitable.

The loss of one or more of our key customers would cause a significant decrease
in our revenues.

We have historically derived the majority of our revenues from a small number
of customers, particularly Abest Communications and Abest International,
collectively referred to as Abest, STE Communications, Goldman Network, and
Star Communications. In the year ended September 30, 1999, Abest accounted for
44% of our revenues, STE Communications accounted for 14% of our revenues, and
Goldman Network accounted for 11% of our revenues. For the six months ended
March 31, 2000, Abest accounted for 7% of our revenues, Goldman Network
accounted for 15% of our revenues, STE Communications accounted for 28% of our
revenues, and Star Communications accounted for 23% of our revenues. None of
our customers is obligated to purchase additional products or services from us.
We cannot be certain that present or future customers will not terminate or
significantly reduce their purchasing arrangements with us. Any termination or
reduction by those customers would seriously harm our business, financial
condition, and results of operations.

We are experiencing difficulties in collecting accounts receivable from our
largest customer, and failure to collect this receivable could cause our
revenues and future cash flows to decline.

7
<PAGE>

1999, and we will recognize revenue on the outstanding receivable balance only
when we collect cash from Abest or otherwise assess the collectibility of the
receivable as probable. Deferred revenue related to the uncollected Abest
receivable at March 31, 2000 represented approximately 26% of our total
deferred revenue. Failure to collect this receivable balance will negatively
impact our financial condition and future cash flows.

We may experience difficulties in collecting future accounts receivable from
distributors, which could result in decreased profits and harm our business.

We primarily sell our calling cards to distributors who resell the cards to
third parties who then sell the calling cards to end users. We extend credit to
those distributors for the outstanding balances they owe us for these cards. We
are obligated to provide services to the end users of the cards regardless of
whether we collect the receivable balances from the distributors. The failure
to collect a significant portion of our accounts receivable from the
distributors will have a material adverse impact on our business, financial
condition, results of operations, and cash flows.

IP communications alternatives may not achieve widespread acceptance, which
could cause our business to fail.

Our ability to sell our services to end users, particularly in Asia, may be
inhibited by the reluctance of some end users to switch from traditional
communications carriers to IP communications carriers and by concerns about the
quality of Internet and Internet telephone services and the adequacy of
security in the exchange of information over the Internet. End users in markets
serviced by recently deregulated telecommunications providers are not familiar
with obtaining services from competitors of these providers and may be
reluctant to use new providers such as our company. In addition, international
and domestic telecommunications rates are declining, which in turn is reducing
the competitive pricing advantage that Internet telephone services provide to
end users. IP communications may not prove to be a satisfactory alternative to
traditional telephone service for reasons including:

. inadequate development of the necessary infrastructure;
. lack of acceptable security technologies; and
. lack of timely development and commercialization of performance
improvements.

Our ability to generate revenues from business long distance and enhanced
communications services depends on the migration of traditional telephone
network traffic to our IP network. We will need to devote substantial resources
to educating end users about the benefits of IP communications solutions in
general and our services in particular, and as a result, we expect to incur
significant expenditures for advertising and marketing activities in 2000.
Potential end users who have already invested substantial resources in
traditional telephone service may be reluctant or slow to adopt a new
technology that makes their existing equipment obsolete. If end users do not
accept our business long distance and enhanced communications services as a
means of sending and receiving communications, we will not be able to increase
our number of users or generate revenues from those services in the future.

In particular, critical issues such as security, reliability, cost, ease of
deployment, administration, and quality of service may affect the adoption of
Internet telephone services as the means to meet business needs in Greater
China and other parts of Asia.

We will need additional capital to finance our operations in the future, and it
may not be available on acceptable terms or at all, which could force us to
limit or cease our operations.

We intend to continue to enhance and expand our network to maintain our
competitive position and meet the increasing demands for service quality,
capacity, and competitive pricing. The introduction of our new business long
distance and enhanced communications services will require significant
marketing and promotional expenses. If our cash flow from operations and the
proceeds of this offering are not sufficient to meet our capital expenditure
and working capital requirements, we will need to raise additional capital.
Raising

8
<PAGE>

capital may require us to issue additional equity, which could cause investors
to experience dilution. We cannot assure you that any other source will be
willing or able to provide additional capital on acceptable terms or at all. If
we are unable to obtain additional capital, we may be required to reduce the
scope of our business or our anticipated growth, which would reduce our
revenues.

Because we are dependent on our suppliers for our continued operations, our
business could be materially harmed by the unavailability of certain equipment,
delays, or increased costs.

We are dependent upon our suppliers of equipment and software, including
Cisco routers, Clarent gateways and software, Oracle software, and Sun
Microsystems servers to develop and maintain our network and services. If our
suppliers cease to provide us with the equipment and software necessary for the
operation of our network or to maintain our current equipment, we may not be
able to identify alternate sources of supply in a timely fashion. Any
transition to alternate suppliers would be likely to result in delays,
operational problems, or increased expenses and may limit our ability to
provide services to our users or expand our operations.

Because we rely on our U.S. and Asian telecommunication service providers for
network access and termination services, any disruptions in service or problems
with service providers could harm our operations.

We rely on our telecommunication service providers to interconnect for access
and termination to carry our traffic, including consumer long distance traffic.
In Hong Kong, we rely on Cable & Wireless HKT, which has no competitors. The
interconnection agreements for access and termination with our
telecommunication service providers have a term of one year or less. Our
current providers, especially our non-U.S. providers, could deny service to us
in the future. In the event that we are unable to continue obtaining service
from our current providers, our operations could be harmed. All of our current
telecommunications service providers either are or could become potential
competitors, which may lead them to increase prices or refuse to offer us
future services.

If our network is unable to accommodate our capacity needs, this may damage our
reputation, which could result in a loss of customers.

We expect the volume of traffic we carry over our network to increase
significantly as we expand our operations and service offerings. Our network
may not be able to accommodate this additional volume. If the usage of IP
communications services grows, our managed IP network may not be able to
support the demands placed on it by that growth, and its performance or
reliability may then decline. To ensure that we are able to handle additional
traffic, we may have to enter into long-term agreements for leased capacity. To
the extent that we overestimate our capacity needs or the prices for capacity
decrease, we may be obligated to pay for more transmission capacity than we
actually use or to pay higher prices for the capacity we use, resulting in
costs without corresponding revenues. As we expand our network, we will incur
lease line, testing, and quality assurance costs. On the other hand, if we
underestimate our capacity needs, we may be required to obtain additional
transmission capacity from more expensive sources. Increased demand causes
traffic overflow onto higher cost traditional telephone networks, which would
increase, and has increased, our effective cost per minute. If we are unable to
maintain sufficient capacity to meet the needs of our users, our reputation
could be damaged and we could lose users.

Damage to our systems and network could interrupt service and result in reduced
revenues and harm to our reputation.

Our business depends on the efficient and uninterrupted operation of our
computer and communications systems as well as those that connect to our
network. We maintain communications systems in Southern California and Taiwan,
which are seismically active regions. In addition, our systems and those that
connect to our network are subject to disruption from other natural disasters,
or other sources of power loss,

communications failures, intentional acts of vandalism, hardware or software
malfunctions, network failures,

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and other events both within and beyond our control. Any system interruptions
that cause our services to be unavailable, including significant or lengthy
telephone network failures or difficulties for users in communicating through
our network or our website, could damage our reputation and result in a loss of
users.

Our computer systems and operations may be vulnerable to security breaches,
which may cause interruptions of our operations, damage to our reputation, and
potential liabilities.

Our operations depend on the integrity and security of our network and
systems and our ability to protect them from unauthorized access,
modifications, or use by third parties. Our computer infrastructure is
potentially vulnerable to computer viruses, break-ins, and similar security
breaches that could cause interruptions, delays, or loss of services to our
users. We believe that the secure transmission of confidential information,
such as credit card numbers, over the Internet is essential in maintaining user
confidence in our services. We rely on licensed encryption and authentication
technology to effect secure transmission of confidential information. It is
possible that advances in computer capabilities, new technologies, or other
developments could result in a compromise or breach of the technology we use to
protect confidential information. A party who is able to circumvent our
security systems could misappropriate proprietary information or cause
interruptions in our operations. Security breaches also could damage our
reputation, result in the expenditure of significant financial and managerial
resources, and expose us to a risk of loss, litigation, or liability.

Potential third party infringement of our intellectual property may cause harm
to our business and competitive ability.

To protect our rights to our intellectual property, we rely on a combination
of trademark and trade secret laws and confidentiality agreements and other
contractual arrangements with our employees, affiliates, strategic partners,
and others. We do not currently own any issued patents. We may be unable to
prevent or detect the unauthorized use of, or to enforce effectively, our
intellectual property rights. In addition, effective trademark, copyright, and
trade secret protection may not be available in every country in which we offer
or intend to offer our services. We cannot assure you that any steps we take to
protect our intellectual property rights will be sufficient or effective.
Failure to protect our intellectual property adequately could harm our brand,
devalue our proprietary content, and affect our ability to compete effectively.
Defending our intellectual property rights could result in the expenditure of
significant financial and managerial resources.

Our services may infringe the intellectual property of third parties, which may
result in expensive and time-consuming litigation.

Third parties may assert claims that we have infringed a patent, copyright,
trademark, or other proprietary right belonging to them. If we are found liable
for infringement, we may have to pay damages or royalties to a third party or
be unable to offer the portion of our services that is found to be infringing.
Redesigning these services to avoid the infringement could result in the
expenditure of significant financial and managerial resources. Defending
against any infringement claims, even those that are not meritorious, could
result in the expenditure of significant financial and managerial resources.

Competition for highly skilled personnel is intense, and a failure to attract,
retain, and manage key personnel may threaten our future success.

Competition for qualified employees and personnel in the communications
services industry is intense, and there are a limited number of people with
knowledge of and experience in this industry, particularly in Asia. As we
continue to grow, we will need to hire additional personnel in all areas. In
particular, we will need to hire additional sales and marketing personnel to
expand sales to corporate customers if and when we roll out our CommPortal
product in Asia. Our success depends to a significant degree upon our ability
to attract and retain qualified management, technical, and sales and marketing
personnel and upon the continued contributions of our existing management and
personnel. In particular, our success is highly dependent upon the abilities of
our senior management, particularly Alex Liu, our chief executive officer,
Steven San Eng, our executive vice-

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president of corporate development, James Courtney, our chief operating
officer, and Mark Keithley, our chief financial officer. The loss of the
services of any one of these individuals could have a material adverse effect
on our business, financial condition, and results of operations. We do not have
employment agreements with any of our executive officers or maintain key person
insurance on them.

If we do not develop the oCen brand, we may not be able to secure and maintain
a leading position in our industry.

To secure a leading position in our industry, we must strengthen the
awareness of the oCen brand. If we fail to create and maintain brand awareness,
it could adversely affect our ability to sell consumer long distance services,
wholesale carrier transmission services, and business long distance and
enhanced communications services or reduce our attractiveness to potential
partners. Brand recognition may become more important in the future with a
growing number of IP communications providers.

Risks Related To Our Asian Operations

Operating internationally exposes us to risks from unpredictable political,
legal, and economic developments in foreign countries.

For the six months ended March 31, 2000, approximately 88% of our traffic was
terminated in Asia, generating approximately 93% of our revenues during the six
months ended March 31, 2000. We intend to continue to enter additional markets
in Asia and to expand our existing operations outside the United States,
specifically in East Asia including Taiwan, Hong Kong, and the People's
Republic of China. International operations are subject to inherent risks,
including:

. political, social, and economic instability;
. potentially weaker protection of intellectual property rights;
. unexpected changes in regulatory requirements and tariffs including any
that would reduce the cost benefits that Internet telephone services
currently provide;
. export restrictions;
. fluctuations in exchange rates and imposition of exchange controls;
. varying tax consequences;

. historical corruption and close ties between governments and state-owned
monopolies;

. limitations of communications infrastructures in some foreign countries;

. uncertain market acceptance of the Internet, particularly in Asia; and

. difficulties in marketing efforts because of cultural differences.

Volatility in economic, social, and political conditions in Asia may interrupt,
limit, or otherwise adversely affect our operations.

We expect to derive a substantial portion of our future revenues from Asian
markets. For the six months ended March 31, 2000, we generated 4% of our
revenues from Asia-originated traffic. In 1998, many countries in Asia began to
experience significant economic downturns and related difficulties, including:

. reduced or even negative economic growth rates;
. substantial currency depreciations;
. high interest rates;
. corporate bankruptcies;
. declines in the market values of shares listed on stock exchanges and
other assets;

. reduced foreign investments in those countries; and
. government-imposed austerity measures.

As a result, there was a general decline in business and consumer spending and
a decrease in economic growth as compared to prior years. The economic downturn
in Asia has not significantly slowed, and future economic developments in
countries throughout Asia could materially adversely affect our business,
financial condition, and results of operations.

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Volatility has historically been caused by:

. significant governmental influence over many aspects of local economies;
. political instability;
. unexpected changes in regulatory requirements;
. social unrest;
. imposition of trade barriers; and
. wage and price controls.

We have no control over these matters. Volatility resulting from these matters
may create uncertainty regarding our operating climate or adversely affect our
customers' operating budgets, which may adversely impact our business.

We may be forced to discontinue our operations in China as a result of the
uncertain legal status of our operations there.

For the six months ended March 31, 2000, 68% of our traffic was terminated in
China, and 77% of our revenues was generated from traffic terminated in China.
In addition, as of March 31, 2000, approximately 4% of our assets was located
in China. As a foreign investor, we are not permitted to provide telephone
services in China. We believe that we are permitted to supply equipment and
then enter into consulting or technical support agreements with Chinese
providers. To offer services in China, we must therefore develop and maintain
strategic partnerships with communications providers who are licensed to
operate in China. We may not be able to form or maintain these strategic
relationships in China or to structure our relationships with Chinese companies
in the manner most advantageous to us. Moreover, our operations in China are
subject to strict government scrutiny, and Chinese government officials may
disagree with our understanding that we are allowed to operate in China through
partnerships. Adjustments in policies of the Chinese government or changes in
laws and regulations could adversely affect our business.

Payment under business arrangements may be subject to currency risk and foreign
exchange control in China.

We expect to derive a significant portion of our revenues from our business
activities in China. These business activities will be subject to Chinese rules
and regulations on currency conversion. Exchange rate fluctuations of the
Renminbi, the currency of Mainland China, may adversely affect our operations.

The Renminbi fluctuates because of changes in Chinese government policies and
international economic and political developments. In early 1994, the Renminbi
experienced a devaluation against most of the major currencies. We cannot
assure you that the Renminbi will not become volatile or that it will not be
devalued by the Chinese government.

In the future, we may face restrictions on settlement of current account
transactions in currencies other than the Renminbi. For foreign exchange
transactions under capital accounts, such as capital contributions and purchase
of fixed assets, Chinese law imposes restrictions on the receipt and payment of
currencies other than the Renminbi and requires prior approval from the State
Administration of Foreign Exchange. We cannot assure you that our business
partners in China will be able to freely pay us in any currency other than the
Renminbi or that if we are paid in Renminbi, we will be able to remit the
Renminbi payments out of China.

If China does not become a member of the World Trade Organization, the Chinese
regulatory environment may liberalize more slowly than expected or not at all,
which could prevent us from expanding our operations in China.

We cannot assure you that China will honor or fulfill its agreements to
gradually open up the telecommunications sector to foreign investment upon its
accession to the World Trade Organization. In

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<PAGE>

addition, we cannot assure you that issuance of additional detailed regulations
intended to open up the telecommunications sector to foreign investment will
actually allow foreign ownership in telecommunications-related businesses in
China. If China continues to limit or prohibit foreign investment in
telecommunications businesses, we may be unable to expand our operations as
planned. If we are unable to expand our operations by direct investment, our
growth may be slowed and our results of operations may be materially adversely
affected. To expand, we may be forced to continue to rely on foreign
partnerships. This reliance creates difficulty in managing our operations,
which may harm our results of operations or limit our rate of growth.

The telecommunications infrastructure in China is developing and may not be
reliable.

Access to the Internet is accomplished primarily by means of the government's
backbone of separate national interconnecting networks that connect with the
international gateway to the Internet. This backbone is owned by the Chinese
government and is the only channel through which the domestic Chinese Internet
networks can connect to the international Internet network. Almost all access
to the Internet is accomplished through ChinaNet, China's primary commercial
network, which is owned and operated by the Chinese government. Internet users
have no means of getting access to alternative networks and service in the
event of any disruption or failure.

We cannot assure you that the Internet infrastructure in Greater China will
support the demands associated with continued growth. If the necessary
infrastructure standards or protocol or complementary products, services, or
facilities are not developed, our business could be materially adversely
affected.

The legal framework for telecommunications businesses in China is developing
and may change in ways that would adversely affect our ability to operate and
grow our business.

The legal framework governing the telecommunications industry in China is not
well established and may change. We cannot predict the effect of further
developments in the Chinese legal system, particularly with regard to the
Internet, including the promulgation of new laws, changes to existing laws or
their interpretation or enforcement, or the preemption of local regulations by
national laws.

In particular, the interpretation and enforcement of existing laws and
regulations may change. If the Chinese government should at any time construe
existing laws against Internet-related businesses more strictly or enact new
laws dealing with Internet-related businesses, our business could be materially
adversely affected.

The issuance of new regulations from various governmental departments may
result in overlapping mutually contradictory regulations. This situation could
result in uncertainty for business operations of Internet companies in China
and add to the complexity and intrusiveness of the regulatory environment in
which Internet companies operate.

Doing business in Taiwan subjects us to unpredictable risks from increased
Chinese involvement and to risks that Taiwan may not emerge from recession and
that the NT dollar may depreciate.

For the six months ended March 31, 2000, 10% of our traffic was terminated in
Taiwan, and 7% of our revenues was generated from traffic terminated in Taiwan.
In addition, as of March 31, 2000, 3% of our assets was located in Taiwan,
including a data center. In the future, we expect to generate a significant
portion of our revenues from originating traffic in Taiwan. China asserts
sovereignty over mainland China and Taiwan but does not exercise jurisdiction
or control over Taiwan. China does not recognize the legitimacy of the Taiwan
government. The Chinese government has indicated that in spite of the
significant economic and cultural relations established during recent years
between Taiwan and China, it may use military force to gain control over Taiwan
if Taiwan declares independence or if any foreign power interferes in Taiwan's
affairs. Adverse relations between Taiwan and China and other factors affecting
the political or economic conditions of Taiwan could negatively affect our
business and the market price and liquidity of our shares. If China increases
its level of control in the affairs of Taiwan, the increased regulation, and
even the uncertainty from increased control, may hinder our operations and
adversely affect our business.

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<PAGE>

Between late 1997 and early 1999, the NT dollar, the currency of Taiwan,
experienced considerable volatility and depreciation as a result of the
economic downturn in Asia. Continued volatility and depreciation of the NT
dollar could harm our business. Taiwan has recently experienced a recession
primarily due to a reduction in exports due to weakened demand for imported
goods in many Asian countries. A continued recession in Taiwan may adversely
affect our business.

Our subsidiary in Taiwan may be subject to investigation and penalties for
selling Internet telephone services to customers in Taiwan without the
appropriate license.

Taiwan commenced its deregulation of the Internet and telecommunications
fields in 1996. Current Taiwan law requires cellular phone, satellite
communications, and fixed communication network operators to obtain licenses to
operate. The Directorate General of Telecommunications regulates the
telecommunications industry under the Telecommunications Law and other
regulations. Our Taiwan subsidiary is considered an Internet service provider
and, as such, must be granted a type II license in order to conduct our
business.

As a type II license holder, we are not permitted to offer Internet telephone
services in competition with a type I license operator until after July 2001.
On September 7, 1998, the Directorate issued a news release that warned all
Internet service providers not to offer Internet telephone services because the
type II license issued to those providers does not allow them to encroach on
the services allowed to telecommunications network operators with a type I
license. The Directorate confirmed its determination to investigate violations
and invoke penalties under the Telecommunications Law.

If the Taiwanese government's announced deregulation does not occur in 2001
or if our partner in Taiwan has not obtained or maintained the proper license
required after deregulation, we may not be able to offer services in Taiwan.
This limitation would materially adversely affect the financial condition,
operating results, and future prospects of our business in Taiwan.

In addition, our wholly-owned subsidiary in Taiwan sells the equipment to
obtain access to Internet telephone services, which is permitted under Taiwan
law, and sells Internet telephone services to customers in Taiwan, which is not
permitted for a type II operator under Taiwan law until July 2001. Our
subsidiary has applied for but has not yet received a type II license. Thus,
based on the announced regulatory policy of the Directorate General, our
subsidiary in Taiwan may be subject to investigation and penalties for offering
Internet telephone services without a type II license. Furthermore, once our
Taiwan subsidiary obtains a type II license, it may be subject to investigation
and penalties for offering those services prior to the scheduled deregulation
of type II license operators.

Doing business in Hong Kong subjects us to unpredictable risks from increased
Chinese involvement and the risk that the Hong Kong economy may worsen.

For the six months ended March 31, 2000, 3% of our traffic was terminated in
Hong Kong, and 2% of our revenues was generated from traffic terminated in Hong
Kong. In addition, as of March 31, 2000, 4% of our assets was located in Hong
Kong. These assets include a data center. Hong Kong is a special administrative
region of China with its own government and legislature. We cannot assure you
that Hong Kong will continue to maintain autonomy from China. If China
increases its level of control in the affairs of Hong Kong, the increased
regulation, and even the uncertainty from increased control, may hinder our
operations and adversely affect our business.

Since mid-1997, interest rates in Hong Kong have risen significantly, real
estate and retail sales have declined, and Hong Kong has slipped into a
recession. In early 1999, Hong Kong suffered deflation, and the Hong Kong
dollar was subject to currency speculation. We cannot assure you that the Hong
Kong economy will not worsen or that the 17-year historical currency peg of the
Hong Kong dollar to the U.S. dollar will be maintained. Recession in Hong Kong,
deflation, or the discontinuation of the historical peg could adversely affect
our business.

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The legal framework with respect to the Internet and telecommunications is
developing in Hong Kong and may evolve in ways adverse to our business.

In Hong Kong, only a few pieces of legislation are directly applicable to
Internet-related businesses. It is possible that the legislature may introduce
new laws covering issues such as content, copyright, distribution, and quality
of products and services. The enactment of any new laws or regulations may
hinder the growth of our consumer long distance and wholesale carrier
transmission services businesses or our other prospective business activities.
In addition, changes in Hong Kong's telecommunications policies, including any
policy change regarding competition, could have a material adverse effect on
our business.

The introduction of any new laws and regulations or changes to existing laws
and regulations that restrict our ability to operate or that lead to increased
compliance costs would have a material adverse impact on our business. In
particular, operations set up on the basis of a current understanding of the
legislative regime may, in the event of a misinterpretation of applicable law
or practice, any changes in that law or practice, or a change in its
interpretation or enforcement policy, result in the established operations
being, or being deemed to be, in breach of law or subject to new or additional
requirements. If our operations cannot be modified to conform to the then
applicable law or practice or its interpretation, we may be unable to conduct
this part of our business.

Our business in Hong Kong is regulated by the Office of the
Telecommunications Authority of Hong Kong. Any additional restrictions or
conditions that the Authority imposes on our Hong Kong business may materially
adversely affect our results of operations.

Our subsidiary in Hong Kong currently operates with a public non-exclusive
telecommunications service license that was renewed in April 2000 and must be
renewed every 12 months. We cannot assure you that we will be able to maintain
and renew this license. Our license could be cancelled or withdrawn at any
time, or suspended for up to 12 months, for violating a telecommunications
ordinance or provisions of our license. Our license could also be cancelled or
suspended if the Authority considers it in the public interest. Our inability
to do business in Hong Kong could materially adversely affect our business.
Failure to maintain our telecommunications license in Hong Kong could subject
us to fines and imprisonment and would prevent us from doing business in Hong
Kong.

Fluctuations in the values of foreign currencies could have a negative effect
on our future profitability.

In the course of our international operations, we incur expenses in a number
of currencies. In the future, as we expand by providing business long-distance
and enhanced communications services, we may also receive revenues in foreign
currencies. We do not currently engage in currency hedging activities to limit
the risks of exchange rate fluctuations. Fluctuations in the value of foreign
currencies could have a negative impact on our global operations, which would
harm our business, financial condition, and results of operations. In addition,
fluctuations in the value of the U.S. dollar against foreign currencies may
make our products and services more expensive than local product offerings.

Risks Related to the IP Communications Industry

Intense competition could reduce our market share and harm our financial
performance.

Competition in the market for communications services is becoming
increasingly intense and is expected to increase significantly in the future
from a variety of companies both in the Internet and telecommunications
industries including traditional telecommunications carriers, Internet service
providers and Internet communications services providers. These and other
competitors may be able to bundle services and products that we do not offer
with enhanced communications services, which could place us at a significant
disadvantage. Many of these companies have greater resources and larger
subscriber bases than we have and have been in operation longer.

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<PAGE>

We compete in the growing market for competitively priced consumer long
distance services, including calling cards, call-back services, dial-around or
10-10 calling, and collect calling services. We also compete with
telecommunications providers, long distance carriers, and other long distance
resellers and providers of carrier services for our wholesale carrier
transmission services.

If we are unable to provide competitive service offerings, we may lose
existing users and be unable to attract additional users. In addition, many of
our competitors, especially traditional carriers, enjoy economies of scale that
result in a lower cost structure for transmission and related costs, which
causes significant pricing pressures within the industry. This pricing pressure
has begun to negatively impact our gross margin. In addition, many of our
Internet telephone services competitors use only the Internet, rather than a
managed IP network, to transmit traffic. Operating and capital costs of these
providers may be less than ours, potentially giving them a competitive
advantage over us in terms of pricing.

The Greater China and Asian IP communications market is intensely competitive
and characterized by an increasing number of entrants because the start-up
costs are low. In addition, the Asian telecommunications industry is relatively
new and subject to continuing definition and as a result, our competitors may
better position themselves to compete in this market as it matures. Recent and
pending deregulation of some of these markets may further encourage new
entrants.

The Hong Kong telecommunications industry is also highly competitive.
Companies compete in Hong Kong on the basis of price and quality. The
heightened level of competition in Hong Kong may result in a further reduction
in the prices for telecommunications services in the Hong Kong market. If
pricing pressures continue, this situation may have a material adverse effect
on the future growth and profitability of our Hong Kong business. Existing and
future competition may adversely affect our results of operations.

In addition to these competitive factors, recent and pending deregulation in
some of our markets may encourage new entrants. We cannot assure you that
additional competitors will not enter markets that we plan to serve or that we
will be able to compete effectively.

Decreasing telecommunications rates may diminish or eliminate our competitive
pricing advantage.

Decreasing telecommunications rates may diminish or eliminate the competitive
pricing advantage of our consumer long distance services services and wholesale
carrier transmission services. International and domestic telecommunications
rates have decreased significantly over the last few years in most of the
markets in which we operate, and we anticipate that rates will continue to
decline in all markets. Users who select our Internet telephone services to
take advantage of the current pricing differential between traditional
telecommunications rates and our rates may switch to traditional
telecommunications carriers as pricing differentials diminish or disappear. We
will be unable to use pricing differentials to attract new customers in the
future. In addition, our ability to market our consumer long distance services
services to customers depends upon the existence of spreads between the rates
offered by us and the rates offered by traditional telecommunications carriers
as well as a spread between the retail and wholesale rates charged by the
carriers from which we obtain wholesale service. Continued rate decreases will
require us to lower our rates to remain competitive and will reduce or possibly
eliminate our gross profit from our consumer long distance services. If
telecommunications rates continue to decline, we may lose users of our consumer
long distance services and may not be able to generate revenues from our other
Internet telephone services. Because the margins on our consumer long distance
services are continuing to decline, we must develop and introduce our business
long distance and enhanced communications services on a timely basis to achieve
long term profitability.

U.S. government regulation and legal uncertainties relating to Internet
telephone services could harm our business.

Changes in the regulatory environment in the United States could have a
material adverse impact on our business. Traditionally, voice communications
services were provided by regulated telecommunications

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common carriers over traditional telephone networks. We offer voice
communications to the public for international calls over data networks. We
believe that our Internet telephone services presently satisfy the legal and
regulatory definitions of information services. However, the Federal
Communications Commission, which regulates interstate and international
communications in the United States, has never ruled on the regulatory
classification of our Internet telephone services or of Internet telephone
services generally. There is therefore uncertainty as to the present legal
status of our services. Moreover, there could be at any time a determination of
the regulatory classification of our Internet telephone services as a result of
future regulatory action, judicial decisions, or legislation in any of the
jurisdictions in which we operate. In particular, the FCC could issue a
decision addressing the regulatory status of Internet telephone services. The
FCC has said that Internet telephone services appear to have many
characteristics of a telecommunications service. If the FCC ultimately
determines that Internet telephone services are, or shares many characteristics
with, a telecommunications service, the FCC could regulate Internet telephone
services as a telecommunications service or otherwise subject Internet
telephone services to increased regulation.

Much of the impetus for regulatory change could come from established
regulated telecommunications carriers who have sought and may continue to seek
regulatory, legislative, and judicial actions to restrict the ability of
companies such as ours to provide Internet telephone services or to increase
the cost, through additional regulatory burdens, of providing those services.
Whatever the impetus, one area of increased regulation could focus on the
distinction between phone-to-phone telephone service over managed IP networks
on the one hand and integrated PC-to-PC and PC-originated voice services over
the Internet on the other hand. Changes in laws or regulations could require
the former to be regulated as telecommunications services while leaving the
latter as unregulated information services. Since we offer phone-to-phone
Internet telephone services over managed IP networks, that kind of decision
could have a material adverse effect on our business.

Application of new regulatory restrictions or requirements could materially
increase our costs of doing business in other ways as well or, in some
circumstances, even prevent our provision of certain services. For example, if
our Internet telephone services become subject to the international settlement
rate regime or access charges, the material increase in our costs could offset
the competitive advantage we have over traditional international carriers. If
other regulatory changes prevent us from delivering our services under our
current arrangements, we would have to consider alternate arrangements for
providing our services, including changing our service arrangements with
partners or limiting our service offerings. Other changes in law or regulation
could similarly limit our service offerings, raise our costs, restrict our
pricing flexibility, and limit our ability to compete effectively. Regulations
and laws that affect the growth of the Internet could likewise hinder our
ability to provide our services over the Internet.

Recent international regulatory proposals, if implemented, could harm our
business.

A policy committee of the International Telecommunications Union, the
international body that coordinates international communications regulations,
has recently proposed that Internet telephone services be subject to
international settlement rates. That recommendation, if implemented, could
increase the cost of our service and make us less competitive with traditional
telecommunications carriers.

Although some of our customers may be using our calling cards to make
intrastate long distance calls, we are not authorized to provide intrastate
telecommunication services in all fifty U.S. states.

We are currently authorized to provide intrastate services only in New York
and California. Because these authorizations were obtained when we were
incorporated in California under the name Pacific Telekey Network, we must
obtain the prior approval of those state public utility commissions before we
can provide intrastate long distance services as a Delaware corporation under
the name oCen Communications. If our customers use our calling cards to make
intrastate telephone calls, we would be providing intrastate telecommunication
services without state authorization. Providing those services could be deemed
unlawful and could result in fines, penalties, and other sanctions, including
an order from a state public utility commission to

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cease operations in the state for some period of time. If we were ordered to
cease operating in a state, it could have a material adverse effect on our
business.

If we are unable to keep pace with rapid technological changes in the
communications industry, our revenues will decrease.

Our industry is subject to rapid technological change and evolving industry
standards. We cannot predict the effect of technological changes on our
business. We expect that new services and technologies will emerge in the
markets in which we compete. These new services and technologies may be
superior to the services and technologies that we use, or these new services
may render our services and technologies obsolete. In addition, widely accepted
standards have not yet developed for the technologies we use.

To be successful, we must adapt to our rapidly changing markets by
continually improving and expanding the scope of services we offer and by
developing new services and technologies to meet customer needs. Our success
will depend, in part, on our ability to license or acquire leading technologies
to develop our business long distance and enhanced communications services and
to respond to technological advances and emerging industry standards on a cost-
effective and timely basis. We will need to spend significant amounts of
capital to enhance and expand our services to keep pace with changing
technologies or our revenues will decline.

Risks Related To This Offering

Stock prices of Internet-related companies have fluctuated widely in recent
months, and the trading price of our common stock is likely to be volatile,
which could result in substantial losses to investors.

The trading price of our common stock is likely to be volatile and could
fluctuate widely in response to a number of factors, some of which are beyond
our control. For a list of these factors, see "Risk Factors--Potential
fluctuations in our quarterly financial results could make it difficult for
investors to predict our future performance, which may cause our stock price to
be volatile and decline." In particular, following initial public offerings,
the market prices for stocks of Internet and technology-related companies often
reach levels that bear no established relationship to the operating performance
of these companies. The market prices of the securities of Internet-related and
online companies have been especially volatile. These broad market and industry
factors may significantly harm the market price of our common stock, regardless
of our actual operating performance. In the past, securities class action
litigation has often been brought against a company following periods of
volatility in the market price of its securities. Securities class action
litigation, if initiated against us, could result in substantial costs and the
diversion of our management's attention and resources.

Sales of additional shares of our common stock into the public market may cause
our stock price to fall.

Sales of substantial amounts of our common stock in the public market after
this offering or the perception that substantial sales could occur may
adversely affect the prevailing market price of our common stock. These sales
also might make it difficult for us to sell equity securities in the future at
a time and price that we deem appropriate. Upon completion of this offering, we
will have 18,497,885 shares of common stock outstanding or 19,067,885 shares of
common stock outstanding if the underwriters exercise their over-allotment
option in full. This amount includes 3,800,000 shares we are selling in this
offering, which may be immediately resold in the public market. The holders of
the remaining shares have "demand" and "piggyback" registration rights, and
these shares will become eligible for resale 180 days following the date of
this prospectus, subject to Rule 144 under the Securities Act of 1933, as
amended. We, our officers, directors, and some existing stockholders have
agreed that without the prior written consent of Lehman Brothers, we and they
will not, directly or indirectly, offer, sell, or otherwise dispose of any
shares of capital stock or any securities that may be converted into or
exchanged for any shares of capital stock for a period of 180 days from the
date of this prospectus. In addition, as soon as practicable after the date of
this prospectus, we intend to file a registration statement on Form S-8 with
the Securities and Exchange Commission covering the shares of common stock
reserved for issuance under our 1998 and 2000 stock option plans and our 2000
employee stock purchase plan. We expect the

18
<PAGE>

additional registration statement to become effective immediately upon filing.
Sales of a large number of shares could have an adverse effect on the market
price of our common stock.

Provisions of our certificate of incorporation, bylaws, and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.

Provisions of our certificate of incorporation and bylaws impose various
procedural and other requirements, including the existence of a classified
board of directors with staggered, three-year terms, that could make it more
difficult for third parties to acquire us or for stockholders to effect certain
corporate actions. Upon consummation of the offering, our certificate of
incorporation will allow our board of directors to issue up to shares of
preferred stock and to fix the rights, privileges, and preferences of these
shares without any further vote or action by the stockholders. The rights of
the holders of our common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that we may issue
in the future. While we have no present intention to issue shares of preferred
stock, any issuance could be used to discourage, delay, or make more difficult
a change in control of us. In addition, our certificate of incorporation
imposes restrictions on calling special meetings of stockholders and prohibits
stockholder action by written consent. Our bylaws impose restrictions on
introducing stockholder proposals. Each of these features could also be used to
discourage, delay, or make more difficult a change in control of us. See
"Description of Capital Stock."

Minority stockholders may not be able to elect any of our directors, which
could deter a takeover even if beneficial to our stockholders.

Following the offering, our existing stockholders will, in the aggregate,
beneficially own 79% of our common stock. These stockholders will be able to
exercise control over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price.

You will face immediate and substantial dilution in net tangible book value.

The initial public offering price of our common stock is expected to exceed
substantially the tangible net book value per share of the common stock
immediately after this offering. As an investor in this offering, you will pay
$13.00 per share, and the net tangible book value per share is expected to be
$2.84 immediately after the offering. The net tangible book value per share
represents the amount of our total assets less total liabilities, divided by
the number of shares of common stock outstanding immediately after the
offering. In addition, to the extent that outstanding options and warrants to
purchase common stock are exercised, there could be substantial additional
dilution. Furthermore, investors in this offering will contribute approximately
86% of our net tangible assets but will own only approximately 21% of the
company.

19
<PAGE>

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that address:

. trends in Internet telephone services;
. trends in government and international regulations;
. our strategies;
. our use of proceeds;
. our liquidity; and
. our financial condition and results of operations.

These forward-looking statements may be found in "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere in this
prospectus. In some cases you can identify forward-looking statements by
terminology including "believe," "anticipate," "expect," "estimate," "may,"
"will," "should," "could," "plan," "predict," "potential," "continue," or
similar terms. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. The forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause actual results to be materially different from any future
results expressed or implied by the forward-looking statements. These factors
include those listed under "Risk Factors" and elsewhere in this prospectus. All
forward-looking statements contained in this prospectus are expressly qualified
in their entirety by this cautionary notice.

20
<PAGE>

USE OF PROCEEDS

Our net proceeds from the sale of the 3,800,000 shares of common stock in the
offering, assuming an initial public offering price of $13.00 per share and
after deducting an assumed underwriting discount and estimated offering
expenses, are estimated to be $44.9 million or $51.8 million if the
underwriters' over-allotment option is exercised in full. We intend to use
$22.0 for network development, sales and marketing activities, capital
expenditures, and technology acquisition and development. We expect to use
$22.9 for other general corporate purposes, including working capital. The
amounts actually expended for working capital purposes may vary significantly
and will depend on a number of factors, including the amount of our future
revenues and the other factors described under "Risk Factors." Accordingly, we
will retain broad discretion in the allocation of the net proceeds of this
offering. We may also use a portion of the net proceeds to acquire or invest in
complementary businesses or products. We have no current plans, agreements, or
commitments with respect to any acquisition. Pending these uses, we will invest
the net proceeds of this offering in interest-bearing, investment grade
securities.

DIVIDEND POLICY

We expect to retain any earnings to finance the expansion and development of
our business and have no plans to pay cash dividends after the offering for the
foreseeable future. The payment of dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements, and
operating and financial condition, among other factors.

21
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

. on an actual basis;

. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into shares of common
stock upon the closing of this offering and the portion of the
convertible notes issued in January 2000 for $10.0 million that will
convert into 230,769 shares of common stock; and

. on an as adjusted basis to give effect to the pro forma adjustments and
the receipt of the estimated net proceeds from the sale of 3,800,000
shares of common stock at an assumed initial public offering price of
$13.00 per share.

You should read this table in conjunction with "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the consolidated financial statements and their
related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of March 31, 2000
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 12,001 $ 12,001 $ 56,870
======== ======== ========
Long-term debt and capital lease obligations,
excluding current portion..................... 8,628 5,628 5,628
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $0.001 par
value; 11,700,000 shares authorized;
8,406,116 shares issued and outstanding,
actual; no shares issued and no shares
outstanding, pro forma and as adjusted...... 8 -- --
Common stock, $0.001 par value; 27,850,000
shares authorized; 6,061,000 shares issued
and outstanding, actual; 14,697,885 shares
issued and outstanding, pro forma;
18,497,885 shares issued and outstanding,
pro forma and as adjusted................... 6 15 18
Additional paid-in capital................... 32,050 35,049 79,915
Accumulated deficit.......................... (20,648) (20,648) (20,648)
Notes receivable from stockholders........... (67) (67) (67)
Deferred stock compensation.................. (6,732) (6,732) (6,732)
-------- -------- --------
Total stockholders' equity................. 4,617 7,617 52,486
-------- -------- --------
Total capitalization..................... $ 13,245 $ 13,245 $ 58,114
======== ======== ========
</TABLE>

The tables and calculations above assume no exercise of outstanding options
or warrants. As of March 31, 2000, there were 2,098,815 shares of our common
stock reserved for issuance upon exercise of outstanding options at a weighted
average exercise price of $4.11 per share and 85,333 warrants outstanding at
weighted average price of $1.62 per share.

22
<PAGE>

DILUTION

Our pro forma net tangible book value as of March 31, 2000 was approximately
$7.6 million, or approximately $0.52 per share, after giving effect to the
following:

. the automatic conversion of all outstanding shares of convertible
preferred stock into shares of common stock upon the closing of this
offering; and

. the assumed issuance of 230,769 shares of common stock related to the
portion of our convertible notes issued in January 2000 that
automatically convert into common stock upon the closing of this
offering.

Pro forma net tangible book value per share is equal to total tangible assets
(total assets less intangible assets) less total liabilities, divided by the
pro forma number of shares of common stock then outstanding. As of March 31,
2000, after giving effect to the sale by us of shares in the offering at an
assumed initial public offering price of $13.00, our pro forma net tangible
book value after deduction of an assumed underwriting discount and estimated
offering expenses would have been approximately $52.5 million or $2.84 per
share. This amount represents an immediate increase in pro forma net tangible
book value of $2.32 per share to existing stockholders and an immediate
dilution of $10.16 per share to new investors. The following table illustrates
this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share as of March 31,
2000....................................................... $0.52
Increase per share attributable to new investors............ 2.32
-----
Pro forma net tangible book value per share after the
offering..................................................... 2.84
------
Dilution per share to new investors........................... $10.16
======
</TABLE>

The following table summarizes on a pro forma basis as of March 31, 2000, the
relative investments of all existing stockholders and new investors, giving
effect to our sale of shares in the offering at an assumed initial public
offering price of $13.00 per share, without giving effect to the underwriting
discount and the offering expenses payable by us:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 14,697,885 79% $21,921,368 31% $ 1.49
New investors.............. 3,800,000 21 49,400,000 69 13.00
---------- ---- ----------- ----
Total.................... 18,497,885 100% $71,321,368 100%
========== ==== =========== ====
</TABLE>

The tables and calculations above assume no exercise of outstanding options
or warrants. As of March 31, 2000, we had reserved 2,098,815 shares of our
common stock for issuance upon exercise of outstanding options at a weighted
average exercise price of $4.11 per share and 85,333 warrants outstanding at a
weighted average exercise price of $1.62 per share. To the extent that these
options or warrants are exercised, there will be further dilution to new
investors. See "Management--Employee Benefit Plans" and "Description of Capital
Stock."

23
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for the period from
October 14, 1997 (Inception) through September 30, 1998, the year ended
September 30, 1999, and as of September 30, 1998 and 1999 have been derived
from our audited consolidated financial statements included elsewhere in this
prospectus. The selected consolidated financial data for the six months ended
March 31, 1999 and 2000 and as of March 31, 2000 have been derived from the
unaudited interim consolidated financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with our audited
consolidated financial statements and include all adjustments, which are only
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for the unaudited periods. Operating results
for the six months ended March 31, 2000 are not necessarily indicative of the
results for the year ending September 30, 2000, or for any future period. You
should read our consolidated financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
Period from
October 14, 1997 Six Months Ended
(Inception) to Year Ended March 31,
September 30, September 30, -----------------
1998 1999 1999 2000
---------------- ------------- ------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $ 99 $ 2,327 $ 163 $ 5,817
Operating expenses:
Cost of revenues........... 234 3,133 504 9,673
General and
administrative............ 305 1,730 449 2,527
Sales and marketing........ 11 404 60 874
Product development........ 42 435 88 1,880
Depreciation and
amortization.............. 27 270 46 1,122
Stock-based compensation... 199 490 148 1,046
------ ------- ------- --------
Total operating expenses.. 818 6,462 1,295 17,122
------ ------- ------- --------
Loss from operations......... (719) (4,135) (1,132) (11,305)
Interest, net................ (3) 26 15 (32)
------ ------- ------- --------
Net loss..................... (722) (4,109) (1,117) (11,337)
Beneficial conversion
feature..................... -- -- -- (4,480)
------ ------- ------- --------
Net loss applicable to common
stockholders................ $ (722) $(4,109) $(1,117) $(15,817)
====== ======= ======= ========
Net loss per share applicable
to common stockholders:
Basic and diluted.......... $(0.16) $ (0.75) $ (0.21) $ (2.80)
Weighted average shares
outstanding used in per
share calculation......... 4,629 5,493 5,433 5,655
Pro forma net loss per share
applicable to common
stockholders:
Basic and diluted.......... $ (0.54) $ (0.85)
Weighted average shares
outstanding used in pro
forma per share
calculation............... 7,582 13,283
</TABLE>

<TABLE>
<CAPTION>
As of September 30,
------------------- As of March 31,
1998 1999 2000
--------- ---------- ---------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 27 $ 4,311 $12,001
Working capital (deficit)............... (196) 1,478 5,266
Total assets............................ 178 9,386 23,857
Long-term debt and capital lease
obligations, excluding current
portion................................ 230 465 8,628
Deferred stock compensation............. (295) (341) (6,732)
Stockholders' equity (deficit).......... (299) 4,692 4,617
</TABLE>
- --------

. See note 13 of the notes to the consolidated financial statements for a
determination of the number of shares used in computing basic and
diluted net loss and pro forma net loss per share amounts.

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated
financial statements and notes to those statements and the other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements due to many factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.

Background

We are an Asia-focused Internet communications services provider,
transmitting voice, fax, and data traffic for consumers, carriers, and
corporations. We were incorporated and launched our services in October 1997 as
Pacific Telekey Network. We began offering international long distance services
in March 1998. In December 1999, we substantially upgraded our network to
increase its capacity and to provide high quality services for carriers. In
that same quarter, we changed our name to oCen Communications, Inc. Our aim is
to capitalize on the growth of the Internet as a communications tool by
offering Internet telephone services over our transpacific managed IP network,
which we are expanding throughout Asia through leasing and interconnect
agreements with telecommunications service providers.

Since our inception, our activities have included:

. developing our business model to market our services to consumers,
carriers, and corporations;
. hiring management and key personnel;
. building our managed IP network;

. conducting market research and developing a suite of enhanced business
communications services for our future CommPortal product;
. developing relationships with carriers in Asia and globally to expand our
managed IP network;
. developing software and operations processes to enable us to route high
quality voice and fax services over our managed IP network efficiently
and cost effectively; and

. establishing strategic relationships with companies such as Anderson
Group and New World group in Hong Kong, and the Pacific Group and Chung
Shing group in Taiwan, for regional marketing and distribution. For the
six months ended March 31, 2000, these strategic partners collectively
accounted for 3.6% of our revenues. The company believes that each of
these agreements were negotiated at arms-length and contain customary
commercial terms and pricing.

Since our inception, we have experienced significant operating losses and
negative cash flows from operations in each quarterly and annual period and
expect to continue to do so for the foreseeable future. As of March 31, 2000,
we had an accumulated deficit of $20.6 million. The profit potential of our
business is unproven, and our limited operating history makes it difficult to
evaluate us and our prospects. We may not achieve profitability, or if we
achieve profitability, we might not sustain profitability.

Overview

Revenues

Through December 31, 1999, we generated all of our consumer long distance
services revenues from the sale of calling cards to distributors, marketed
through both online and offline channels. Our distributors buy the calling
cards from us at various discounts to the retail price. Our distributors resell
the calling cards to third parties who in turn sell the cards directly to end
users. We recognize calling card revenues on a per minute basis as end users
use the balances in their prepaid cards by placing calls, provided that we have
no significant obligations remaining and that collection of the related
receivable from the distributor is probable. We have deferred revenues for all
unused balances in end users' accounts and for receivables from distributors
when we

25
<PAGE>

cannot assess collection as probable. In January 2000, we began generating
revenues from wholesale transmission services from the sale of wholesale
minutes to carriers. For the six months ended March 31, 2000, we generated
approximately $247,000, or 4.3% of total revenues, from the sale of wholesale
minutes to carriers. We expect our percentage of revenues from consumer long
distance services to decline and our revenues from wholesale carrier services
and business long distance and enhanced services to increase. We recognize
revenue from the sale of wholesale minutes to carriers as minutes of usage are
delivered assuming no significant company obligations remain and collection of
the related receivables from the carrier is probable.

We are experiencing difficulties in collecting our accounts receivable from
Abest. Abest was formerly our most significant customer, accounting for
approximately 38%, 44%, and 7% of our total revenues for the period from our
inception through September 30, 1998, the year ended September 30, 1999, and
the six months ended March 31, 2000, respectively. As of March 31, 2000, Abest
owed us approximately $786,000, which was past due. We believe that non-payment
is the result of a lack of liquidity at Abest. In January 2000, after we
stopped selling to Abest, Tianrong Internet Products and Services acquired the
assets of Abest but did not assume the liabilities of Abest. Tianrong gave
Abest shares of Tianrong stock in exchange for the assets it received from
Abest, but these shares, which constitute restricted stock and are traded on
the over-the-counter Nasdaq Bulletin Board, are not highly liquid. We have
instituted various measures that we expect will facilitate collection of those
receivables, including negotiating payment plans, refusing to sell Abest
additional calling cards, and retaining counsel. However, we cannot assure you
that we will be able to collect this receivable. Accordingly, we have deferred
recognition of the revenue on the outstanding uncollected receivable due from
Abest at March 31, 2000, and we will recognize revenue on the outstanding
receivable balance only when we collect cash from Abest or otherwise assess the
collectibility of the receivable as probable. Deferred revenue related to the
uncollected Abest receivable at March 31, 2000 represented approximately 26% of
our total deferred revenue. Failure to collect this receivable balance will
negatively impact our financial condition and future cash flows. We believe
that the loss of Abest as a customer will not have a significant impact on our
future results of operations because we have been able to replace lost revenues
from Abest with other customer revenues.

Because of continuing deregulation and increasing competition for
communications services, the price of long distance service has fallen in
recent years, and we expect this trend to continue. In the past, we have been
able to offset reductions in our gross margin caused by pricing pressures by
obtaining lower average costs per minute through scaling our network, reducing
our variable operating costs, and increasing high-margin traffic on some
routes. In particular, the margins on our Asia-originated traffic are higher
than on our U.S.-originated traffic because there is less price competition in
Asia. We cannot assure you that we will be able to continue to offset
reductions in our gross margin in the future.

Through December 31, 1999 all of our revenues were generated from sales of
consumer long distance services through distributors. In January 2000 we began
generating revenues from the sale of wholesale minutes to carriers. We expect
to generate additional revenues from the sale of long distance and enhanced
communications services to businesses. We anticipate our revenue mix will
continue to shift to sales of wholesale minutes to carriers. We expect to
launch our business long distance and enhanced communication services by the
end of 2000. We do not expect to generate any significant revenues from the
sale of long distance and enhanced communication services to businesses until
fiscal year 2001. To date, we have derived a significant portion of our
revenues from a small number of distributors. Any termination or reduction in
sales by these distributors could seriously harm our business.

Operating Expenses

Operating expenses consist of cost of revenues, general and administrative
expenses, sales and marketing expenses, product development expenses,
depreciation and amortization, and stock-based compensation.

Cost of revenues. Cost of revenues consists primarily of the costs of
providing our customers with access to our managed IP network and the costs
associated with the transmission and termination of customer voice

26
<PAGE>

and fax traffic via our network. We divide cost of revenues into the following
categories: termination, access, and transmission.

. Termination costs are costs associated with terminating voice and fax
traffic onto global traditional telephone networks. Termination costs are
subject to significant economies of scale due to volume based discounts
and are the most significant element of cost of revenues.

. Access costs relate primarily to inbound toll-free number charges for our
U.S. consumer long distance services. The toll-free number costs are
charged on a per minute basis and are directly proportional to the volume
of minutes for this service and are the second most significant element
of cost of revenues.

. Transmission costs are costs associated with providing connectivity
between points of presence, or POPs, on our managed IP network. These
costs consist of public Internet access costs and costs of leased private
data circuits including terrestrial, undersea, and satellite circuits.
Transmission costs are proportional to the effective minute capacity of
the links. Significant economies of scale may apply to transmission costs
because larger capacity circuits will result in much lower costs per
minute as the volume of minutes over the circuit increases.

Historically, our cost of revenues has at times been extremely high due to
two factors. First, there have been times when rapidly increasing demand from
our customers has exceeded the capacity of our managed IP network. This demand
has resulted in periodic traffic overflow onto higher cost traditional
telephone networks, which has increased our effective cost per minute. Second,
as we expand our network through the addition of new IP routes and higher
capacity circuits, we incur additional related costs including lease line
costs, testing costs, and quality assurance. Because lease line costs are
fixed, our effective cost per minute over these new routes remains high until
we achieve significant volumes of traffic. As we continue to grow, we
anticipate that from time to time our operating expenses may increase on a per
minute basis. We expect that these increases will relate to our decision to
route additional traffic over the traditional telephone network or to add to or
increase capacity levels of our network.

General and administrative. General and administrative expenses consist
primarily of salary, payroll tax, and benefit expenses and related costs for
general corporate functions, including executive management, administration,
facilities, and human resources. We expect that general and administrative
expenses will increase in the future as we hire additional personnel and incur
additional costs related to the growth of our business and operations. In
addition, we expect to expand our facilities and incur associated expenses to
support our anticipated growth and to incur expenses associated with being a
public company, including costs of increased insurance and professional fees.

Sales and marketing. Sales and marketing expenses consist primarily of
expenses relating to the salaries, payroll taxes, benefits, and commissions
that we pay for sales personnel and expenses associated with the development
and implementation of our promotion and marketing campaigns. We anticipate that
sales and marketing expenses will increase in the future as we expand our
internal sales force, hire additional marketing personnel, and increase
expenditures for promotion and marketing.

Product development. Product development expenses consist primarily of salary
and related expenses for engineers and information technology personnel,
consulting fees, lab costs, and market research. Our strategy is to select and
deploy best-of-breed IP system components and to integrate them into a single
service offering. The main focus of our development work to date has been
developing technology and processes to integrate and efficiently manage our IP
network infrastructure and to develop business long distance and enhanced
communications services. Specific applications of the technology that we
develop include managing an IP network, measuring IP traffic, operating with
other systems, researching business long distance and enhanced communications
services and billing. We believe that continued investment in product
development is critical to the success of our company and therefore expect this
expenditure to increase in the future.

Depreciation and amortization. Depreciation and amortization primarily relate
to our networking hardware, gateways, and Internet telephone service software.
We depreciate our network equipment over its

27
<PAGE>

estimated useful life of three to seven years using the straight-line method.
We plan to acquire more hardware and software to provide additional capacity to
handle the expected increase in traffic as our volume grows.

Stock-based compensation. In connection with the grant of stock options to
employees, we recorded total deferred stock-based compensation of approximately
$8.5 million through March 31, 2000. This deferred compensation represented the
difference between the deemed fair value of our common stock for accounting
purposes and the exercise price of these options at the date of grant. We are
amortizing these amounts over the vesting periods of the applicable options,
resulting in non-cash expense of approximately $490,000 for the year ended
September 30, 1999. Annual amortization of deferred compensation for options
granted as of September 30, 1999 will be approximately $192,000, $93,000,
$45,000, and $11,000, for the years ending September 30, 2000, 2001, 2002, and
2003, respectively. These charges will be expensed, generally over the next
four years, in connection with the vesting periods of the options granted.

In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock for approximately $8.0 million, or $7.50 per share. We incurred an
estimated non-cash charge to equity of approximately $4.5 million relating to
the beneficial conversion feature on the Series D convertible preferred stock.
The beneficial conversion feature charge was calculated using the deemed fair
value of common stock on the date of issuance, subtracting the conversion price
and then multiplying the resulting amount by the 1,066,665 shares of common
stock into which the shares of Series D convertible preferred stock are
convertible. This non-cash equity charge adversely impacted our net loss per
share applicable to holders of common stock for the six months ended March 31,
2000.

Interest income and interest expense

Interest income is comprised of income earned on our cash equivalents.
Interest expense is comprised of interest paid on notes payable and capital
leases under which we have financed hardware components of our network.

In January 2000, we issued convertible notes in exchange for $10.0 million.
As defined in the agreement, these notes are convertible into equity securities
upon the occurrence of certain events and mature in January 2005 if not
converted. Thirty percent of the outstanding principal will automatically
convert into equity securities upon the closing of a sale of equity securities
in which we receive gross proceeds of at least $10.0 million, referred to as a
qualified financing. The remaining 70% of the outstanding principal may, in our
discretion, be converted into equity securities or repaid. We expect this
offering of common stock to constitute a qualified financing. The conversion
rate will be $17.00 per equity security, or if the qualified financing is an
initial public offering, the lesser of $17.00 or the initial public offering
price per share.

Regulatory Environment

We believe that the services we provide over our managed IP network are not
currently actively regulated in the United States. Several efforts have been
made, however, to enact federal legislation that would regulate certain aspects
of our operations. If adopted, this legislation could increase our costs
significantly and could materially adversely affect our business, operating
results, financial condition, and future prospects. See "Risk Factors--U.S.
government regulation and legal uncertainties relating to Internet telephone
services could harm our business" and "Business--Regulatory Environment."

28
<PAGE>

Results of Operations

The following table sets forth our statement of operations data as a
percentage of revenues:

<TABLE>
<CAPTION>
Period from
October 14,
1997 Six Months
(Inception) Ended
to Year Ended March 31,
September 30, September 30, --------------
1998 1999 1999 2000
------------- ------------- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Revenues......................... 100 % 100 % 100 % 100 %
Operating expenses:
Cost of revenues............... 236 135 309 166
General and administrative..... 309 74 275 44
Sales and marketing............ 11 17 37 15
Product development............ 43 19 54 32
Depreciation and amortization.. 27 12 28 19
Stock-based compensation....... 202 21 91 18
---- ---- ------ -----
Total operating expenses..... 828 278 794 294
---- ---- ------ -----
Loss from operations............. (728) (178) (694) (194)
Interest, net.................... (3) 1 9 (1)
---- ---- ------ -----
Net loss......................... (731) (177) (685) (195)
Beneficial conversion feature.... -- -- -- (77)
---- ---- ------ -----
Net loss applicable to common
stockholders.................... (731)% (177)% (685)% (272)%
==== ==== ====== =====
</TABLE>

Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999

Revenues

Revenues for the six months ended March 31, 2000 were approximately $5.8
million compared to approximately $163,000 for the six months ended March 31,
1999, an increase of approximately $5.6 million. This increase was attributable
to growth in the number of our distributors and minutes used by end users and
was partially offset by rate declines from the comparable period. The number of
distributors increased from 45 at March 31, 1999, to 263 at March 31, 2000.
Average sales for distributors for the six months ended March 31, 1999 were
approximately $4,000 and increased to approximately $22,000 for the six months
ended March 31, 2000. For the six months ended March 31, 2000, three of our
customers, Goldman Network, STE Communications, and Star Communications
accounted for 15%, 28%, and 23% of our revenues, respectively.

Operating expenses

Cost of revenues. Cost of revenues for the six months ended March 31, 2000,
was approximately $9.7 million compared to approximately $504,000 for the six
months ended March 31, 1999, an increase of approximately $9.2 million. This
increase was primarily due to costs incurred to expand our network and
increased demand from our customers that exceeded the capacity of our managed
IP network that required additional costs for the expansion of our network,
which resulted in traffic overflow onto the higher cost traditional telephone
network. Expansion of our network resulted in increased expenses of
approximately $6.6 million and traffic overflow to traditional telephone
networks totaled $2.6 million. Total minutes of usage increased from
approximately 850,000 to approximately 50 million for the six months ended
March 31, 1999 and March 31, 2000, respectively.

General and administrative. General and administrative expenses for the six
months ended March 31, 2000 were approximately $2.5 million compared to
approximately $449,000 for the six months ended March 31, 1999, an increase of
approximately $2.1 million. This increase was due to an increase in personnel
costs of $642,000, professional fees of $402,000, facilities of $646,000 and
excise taxes of $329,000 resulting from the growth in our business. Our general
and administrative personnel increased from 7 employees to 25 employees at
March 31, 1999 and March 31, 2000, respectively.

29
<PAGE>

Sales and marketing. Sales and marketing expenses for the six months ended
March 31, 2000 were approximately $874,000 compared to approximately $60,000
for the six months ended March 31, 1999, an increase of approximately $814,000.
This increase was due to the expansion of our sales and marketing staff,
advertising and promotions. Personnel costs increased by approximately
$342,000, advertising increased by approximately $322,000, and promotion
expense increased by approximately $149,000. Sales and marketing personnel
increased from 5 at March 31, 1999 to 19 at March 31, 2000.

Product development. Product development expenses for the six months ended
March 31, 2000 were approximately $1.9 million compared to approximately
$88,000 for the six months ended March 31, 1999, an increase of approximately
$1.8 million. This increase resulted from hiring technical staff, building our
network, and developing routing processes in the United States and Asia.
Personnel costs increased by approximately $959,000, which includes the costs
of engineers, software developers, research, network and route testing. Product
development personnel increased from 8 to 64 employees as of March 31, 1999 and
March 31, 2000, respectively.

Depreciation and amortization. Depreciation and amortization expenses for the
six months ended March 31, 2000 were approximately $1.1 million compared to
approximately $46,000 for the six months ended March 31, 1999, an increase of
approximately $1.0 million. This increase was due to additions of networking
and telephone hardware and software placed in service during the six months
ended March 31, 2000.

Stock-based compensation. For the six months ended March 31, 2000, we
recorded approximately $1.0 million related to the amortization of deferred
compensation incurred in connection with the grant of stock options compared to
approximately $148,000 for six months ended March 31, 1999, an increase of
approximately $898,000. The increase was due to additional option grants and
additional amortization on existing option grants during the six months ended
March 31, 2000.

Loss from operations

Loss from operations for the six months ended March 31, 2000 was
approximately $11.3 million compared to approximately $1.1 for the six months
ended March 31, 1999, an increase of approximately $10.2 million. This increase
was due to the increased costs of expanding our commercial operations and
support staff. It is difficult to draw a meaningful comparison between the two
periods because the six months ended March 31, 1999 reflect operations prior to
the network expansion while the six months ended March 31, 2000 represent the
establishment and operation of our network. We anticipate that we will incur
additional operating and net losses for the foreseeable future.

Interest expense, net

Our interest expense, net for the six months ended March 31, 2000 was
approximately $32,000 compared to interest income, net of approximately $15,000
for the six months ended March 31, 1999. The increase in interest expense was a
result of interest on notes payable, capital leases and convertible notes,
which was partially offset by increased interest income from our cash
equivalents.

Net loss

Net loss for the six months ended March 31, 2000 was approximately $11.3
million compared to approximately $1.1 million for the six months ended March
31, 1999, an increase of approximately $10.2 million as a result of the factors
described above. In addition, the net loss applicable to common stockholders
includes an estimated non-cash charge to equity of approximately $4.5 million
relating to the beneficial conversion feature on the Series D convertible
preferred stock.

30
<PAGE>

Year Ended September 30, 1999 Compared to Period From Inception to September
30, 1998

Revenues

Revenues for the year ended September 30, 1999 were approximately $2.3
million compared to approximately $99,000 for the period from inception to
September 30, 1998, an increase of approximately $2.2 million. This increase
was due to growth in the number of our distributors and sales per distributor,
partially offset by rate declines from the comparable period. Our 14
distributors at March 31, 1999, increased to 130 at March 31, 2000. Average
distributor revenues increased from approximately $7,000 to approximately
$18,000 for the six months ended March 31, 1999 and March 31, 2000
respectively.

Operating expenses

Cost of revenues. Cost of revenues for the year ended September 30, 1999 was
approximately $3.1 million compared to approximately $233,000 for the period
from inception to September 30, 1998, an increase of approximately $2.9
million. This increase was due to increased demand from our customers that
exceeded the capacity of our managed IP network and resulted in traffic
overflow onto the higher cost traditional telephone networks. It was also due
to higher costs per minute associated with the expansion of our network through
the addition of new IP routes and higher capacity circuits.

General and administrative. General and administrative expenses for the year
ended September 30, 1999 were approximately $1.7 million compared to
approximately $305,000 for the period from inception to September 30, 1998, an
increase of approximately $1.4 million. This increase was due to an increase in
personnel costs of approximately $695,000, professional fees of approximately
$312,000, facilities expenses of approximately $252,000, and taxes of
approximately $178,000.

Sales and marketing. Sales and marketing expenses for the year ended
September 30, 1999 were approximately $403,000 compared to approximately
$11,000 for the period from inception to September 30, 1998, an increase of
approximately $392,000. This increase was due to higher personnel costs of
approximately $198,000 and commissions of approximately $43,000.

Product development. Product development expenses for the year ended
September 30, 1999 were approximately $435,000 compared to approximately
$42,000 for the period from inception to September 30, 1998, an increase of
approximately $393,000. This increase resulted from hiring engineers, software
developers and consultants, conducting market research, building our network,
and testing new routing processes. Personnel costs increased approximately
$379,000.

Depreciation and amortization. Depreciation and amortization expenses for the
year ended September 30, 1999 were approximately $270,000 compared to
approximately $27,000 for the period from inception to September 30, 1998, an
increase of approximately $243,000. This increase resulted from the usage of
networking and Internet telephone service hardware and software placed in
service.

Stock-based compensation. Stock-based compensation expense for the year ended
September 30, 1999 was approximately $490,000 compared to approximately
$199,000 for the period from inception to September 30, 1998, an increase of
approximately $291,000 representing amortization of deferred compensation
incurred in connection with the grant of options at exercise prices less than
the deemed fair value. This increase was due to increased option grants and
additional amortization on existing option grants.

Loss from operations

Loss from operations for the year ended September 30, 1999 was approximately
$4.1 million compared to approximately $719,000 for the period from inception
to September 30, 1998, an increase of approximately $3.4 million. The increase
in loss from operations was due to the increased costs of expanding our
commercial operations and support staff. It is difficult to draw a meaningful
comparison between the two periods because the period from inception to
September 30, 1998 reflects operations prior to the network expansion while the
year ended September 30, 1999 represents the establishment and operation of our
network. We anticipate that we will incur additional operating and net losses
for the foreseeable future.

31
<PAGE>

Interest income, net

Interest income, net for the year ended September 30, 1999 was approximately
$26,000 compared to interest expense, net of approximately $3,000 for the
period from inception to September 30, 1998. Our interest income, net
principally represents income from our cash and cash equivalents as a result of
increased cash balances raised from our sale of preferred stock.

Net loss

Net loss for the year ended September 30, 1999 was approximately $4.1 million
compared to approximately $722,000 for the period from inception to September
30, 1998, an increase of approximately $3.4 million as a result of the factors
described above.

32
<PAGE>

Quarterly Results of Operations

The following table sets forth quarterly consolidated financial data for the
six quarters ended March 31, 2000. This quarterly financial data is unaudited,
has been prepared on the same basis as the audited consolidated financial
statements, and, in our opinion, reflects all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the information
for the periods presented. Operating results for any quarter are not
necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31, March 31,
1998 1999 1999 1999 1999 2000
------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 62 $ 101 $ 576 $ 1,587 $ 1,960 $ 3,857
Operating expenses:
Cost of revenues...... 226 278 744 1,885 3,381 6,292
General and
administrative....... 164 285 303 978 1,149 1,378
Sales and marketing... 17 43 125 219 336 538
Product development... 25 63 103 243 724 1,156
Depreciation and
amortization......... 11 35 75 148 436 686
Stock-based
compensation......... 61 87 103 239 380 666
----- ----- ----- ------- ------- --------
Total operating
expenses........... 504 791 1,453 3,712 6,406 10,716
----- ----- ----- ------- ------- --------
Loss from operations.... (442) (690) (877) (2,125) (4,446) (6,859)
Interest, net........... 8 7 8 3 -- (32)
----- ----- ----- ------- ------- --------
Net loss................ (434) (683) (869) (2,122) (4,446) (6,891)
Beneficial conversion
feature................ -- -- -- -- -- (4,480)
----- ----- ----- ------- ------- --------
Net loss applicable to
common stockholders.... $(434) $(683) $(869) $(2,122) $(4,446) $(11,371)
===== ===== ===== ======= ======= ========

<CAPTION>
As a Percentage of Revenues
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100 % 100 % 100 % 100 % 100 % 100%
Operating expenses:
Cost of revenues...... 364 275 129 119 173 163
General and
administrative....... 265 282 53 62 59 36
Sales and marketing... 27 43 22 14 17 14
Product development... 40 62 18 15 37 30
Depreciation and
amortization......... 18 35 13 9 22 18
Stock-based
compensation......... 99 86 18 15 19 17
----- ----- ----- ------- ------- --------
Total operating
expenses........... 813 783 253 234 327 278
----- ----- ----- ------- ------- --------
Loss from operations.... (713) (683) (153) (134) (227) (178)
Interest, net........... 13 7 1 -- -- (1)
----- ----- ----- ------- ------- --------
Net loss................ (703) (683) (152) (134) (227) (179)
Beneficial conversion
feature................ -- -- -- -- -- (116)
----- ----- ----- ------- ------- --------
Net loss applicable to
common stockholders.. (700)% (676)% (152)% (134)% (227)% (295)%
===== ===== ===== ======= ======= ========
</TABLE>

We have experienced growth in revenues in each quarter since inception. The
increase in revenues was attributable to growth in the number of our
distributors and sales per distributor, partially offset by rate declines from
the comparable period. We expect this growth to continue as we diversify our
customer base and expand our capacity to handle traffic over our managed IP
network.

33
<PAGE>

Historically, we have generated all of our revenues through the sale of
consumer long distance services. In January 2000, we began to generate revenues
from the sale of wholesale carrier transmission services. We expect to begin
generating revenues from the sale of business long distance and enhanced
communications services in fiscal year 2001. We cannot assure you that we will
continue to generate any additional revenues from the sale of minutes to
communication carriers or that we will generate any revenues from sales to
corporations.

The initial establishment of our network and the rapid growth in customer
demand have caused volatility in our quarterly cost of revenues. At times of
peak demand, overflow is directed towards high cost traditional telephone
networks. After we incur initial bandwidth costs, our average per minute costs
gradually decline as we increase traffic flow. This trend was evidenced by the
declining cost of revenues as a percentage of revenues for the three months
ended June 30, 1999 and September 30, 1999. Cost of revenues as a percentage of
revenues increased for the three months ended December 31, 1999, primarily
because of the expansion of our network and the deferral of revenue related to
the uncollected receivable from Abest.

Liquidity and Capital Resources

From our inception through March 31, 2000, we have funded losses and capital
expenditures from cash provided from financing activities of approximately
$28.9 million from the sale of equity securities and convertible notes payable.

Net cash used in operating activities was approximately $276,000 for the
period from inception to September 30, 1998, approximately $1.1 million for the
year ended September 30, 1999, and approximately $7.8 million for the six
months ended March 31, 2000. This increase in net cash used in operations was
due to increasing net losses and an increase in accounts receivable, which were
partially offset by increases in accounts payable, accrued expenses, and
deferred revenue.

Net cash used in investing activities was approximately $127,000 for the
period from inception through September 30, 1998, approximately $3.1 million
for the year ended September 30, 1999, and approximately $4.5 million for the
six months ended March 31, 2000. This increase was due to capital expenditures
for our IP network and switching infrastructure. For the six months ended March
31, 2000, capital expenditures totaled $4.5 million, related primarily to our
new Los Angeles SuperPOP, one of our three large, monitored, secure points of
presence, including expenditures for construction and networking
infrastructure.

Net cash provided by financing activities was approximately $430,000 for the
period from inception through September 30, 1998, approximately $8.5 million
for the year ended September 30, 1999, and approximately $20.0 million for the
six months ended March 31, 2000. Cash flows were primarily derived from
proceeds from equity financings and convertible notes completed during those
periods. The convertible notes issued in January 2000 raised $10.0 million in
proceeds and bear interest at 6.0% per year, and 30% of the principal amount of
the notes will be automatically converted into common stock upon the closing of
this offering. Upon the closing of this offering, the remaining 70% of the
outstanding principal may, at our discretion, be converted into common stock or
repaid.

In November 1999, we executed a $1.0 million equipment lease line with a
lender. The term of this line is 36 months with payments due on the first day
of each month. The rate is 3.20% of the applicable equipment cost per month. As
of March 31, 2000, we had no borrowings against this line.

In February 2000, we executed a $1.0 million equipment lease line with a
lender. This line may be used through June 2000 and bears interest at the yield
on 36-month U.S. Treasury Notes, as quoted by the bank, plus 300 basis points.
As of March 31, 2000, we had no borrowings against this line.

As of March 31, 2000, we had approximately $12.0 million in cash and cash
equivalents. Principal uses of cash have been to fund working capital
requirements and capital expenditures. We estimate that we will make

34
<PAGE>

at least $21.7 million of capital expenditures during the six month period
ending September 30, 2000. We expect our capital expenditures for the year
ending September 30, 2000, to include expansion and improvement of our existing
data centers in the United States and Asia, development of CommPortal, growth
of our customer base in Asia, and acquisition of network and switching
infrastructure.

We intend to use approximately $36.6 million of the gross proceeds of this
offering on capital expenditures in calendar year 2000. Approximately $24
million of this sum will be used to expand our network capacity, including to
scale our managed IP network, gateway, and telecommunications infrastructure
and to expand data centers and extension of our Asian network. Approximately
$8.6 million of this sum will be used for product development and licensing
costs associated with providing enhanced Internet communications services
including associated operations, service management, billing and Internet
business systems infrastructure. The remaining $4.0 million will relate to
office automation, enterprise resource planning, data warehousing, and decision
support infrastructure for business operations.

We have entered into access, interconnect, transmission, or termination
agreements with various telecommunications companies extending through 2002.
The future minimum commitments under these service agreements at March 31, 2000
were approximately $2.5 million, $1.8 million, and $0.8 million for the years
ended September 30, 2000, 2001, and 2002, respectively. If we are unable to
meet these commitments, our telecommunication service providers would refuse to
offer us additional services.

Additionally, we will evaluate possible acquisitions of, or investments in,
complementary businesses, technologies, or services and plan to expand our
sales and marketing programs. Any acquisition may be material and may require
us to incur a significant amount of debt or issue a significant number of
equity securities. Furthermore, any businesses that we acquire will likely have
their own capital needs, which may be significant and which we could be called
upon to satisfy independent of the acquisition price.

Our ability to fund planned capital expenditures will depend on our future
performance, which is subject to general economic, financial, competitive,
regulatory, and other factors that are beyond our control. Our financials have
been prepared on the basis that we will continue as a going concern. In
addition, since inception, we have incurred significant operating losses and
have generated negative cash flows from operations. We have funded operations
primarily through the sale of equity securities and debt borrowings. We believe
that the net proceeds received from this offering, together with our operating
revenues, will be sufficient to meet our anticipated cash needs for at least
the next 12 months. If we need to raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of our stockholders will
be diluted. Furthermore, any new securities could have rights, preferences, and
privileges senior to those of our common stock. We currently do not have any
commitments for additional financing. We cannot be certain that additional
financing will be available when and to the extent required or that, if
available, it will be available on acceptable terms. If adequate funds are not
available on acceptable terms, we may not be able to fund our expansion, to
develop or enhance our services, or to respond to competitive pressures.

Segment and Geographic Information

We operate in one industry segment providing IP communications services. Our
business operations are principally based in the United States, and we had no
foreign operations during the period October 14, 1997 (Inception) though
September 30, 1998. For the year ended September 30, 1999, all of our revenues
were generated within the United States. For the six months ended March 31,
2000, we generated approximately 96% and 4% of our revenues within the United
States and Hong Kong, respectively.

35
<PAGE>

Long-lived assets by geographical location at September 30, 1999 and March
31, 2000 are as follows:

<TABLE>
<CAPTION>
September 30, March 31,
1999 2000
------------- ----------
<S> <C> <C>
United States....................................... $2,969,773 $5,904,273
Mainland China...................................... -- 1,053,814
Taiwan.............................................. 392,203 748,559
Hong Kong........................................... 383,496 1,027,243
---------- ----------
Total............................................. $3,745,472 $8,733,889
========== ==========
</TABLE>

Year 2000 Compliance

We have not experienced, and do not expect to experience, any significant
problems associated with year 2000 issues. Similarly, to our knowledge, our
distributors, suppliers, and other third parties with whom we conduct business
have not experienced material year 2000 problems to date. We did not incur
material expenditures to test, repair, or replace equipment in connection with
year 2000 issues.

Qualitative and Quantitative Disclosures About Market Risk

Foreign currency risk

We have operations within the United States and Asia. As a result, our
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the foreign markets in
which we operate. Our operating results are currently exposed and will
increasingly be exposed to changes in exchange rates between the U.S. dollar
and various Asian currencies. We do not currently engage in currency hedging
activities to limit the risks of exchange rate fluctuations.

Interest rate risk

We do not hold financial instruments for trading or speculative purposes. Our
financial assets are not subject to significant interest rate risk due to their
short duration. Our only financial liability that bears interest rate risk is
our most recent equipment lease line of credit, which has a stated interest
rate based on that associated with U.S. treasury notes. We do not use any
derivatives or similar instruments to manage our interest rate risk.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, No. 98-1, Software for Internal
Use, which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. We do not expect
that the adoption of SOP No. 98-1 will have a material impact on our financial
statements.

In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP 98-5 during the third quarter of 1998 did not have a
significant impact on our financial position, results of operations, or cash
flows.

36
<PAGE>

BUSINESS

Our Company

We are an Asia-focused Internet communications service provider transmitting
voice, fax, and data communications for consumers, carriers, and corporations.
In October 1997, we founded oCen to capitalize on the opportunity presented by
the convergence of voice and data networks. We began offering international
calling services in March 1998. Since then we have continuously upgraded our
communications network and expanded our geographic coverage, primarily by
entering into lease agreements to obtain additional transmission capacity. In
December 1999, we substantially upgraded our network to increase its capacity
and to provide high quality service for carriers. We believe we have built one
of the largest transpacific, commercial quality, managed IP networks dedicated
to Internet telephone services. Our managed IP network is a premium data
network built with high quality IP equipment linked by a combination of the
public Internet, international leased lines, and satellite access. We monitor
and control our network on a 24x7x365 basis to deliver high quality voice and
data services. We believe that our managed IP network provides our customers
with the cost savings associated with a data network and quality comparable to
the traditional telephone network.

The majority of our points of presence are located in Asia. 96.4% of our
revenues were generated from the sale of U.S. originated minutes for the six
months ended March 31, 2000. For that same period approximately 88% of the
minutes carried over our network was terminated in Asia. The majority of our
facilities in Asia are currently located in Hong Kong and Taiwan. In the
future, we plan to expand our managed IP network throughout Asia to meet the
growing communications needs of our target customers in the region.

Our services include:

. Consumer Long Distance Services: We market reliable, low-cost
international long distance Internet telephone services to consumers in
the United States and Canada through our traditional and online
distributors. Our Internet telephone services enable our customers to
place a call or send a fax inexpensively from any telephone or fax
machine to anywhere in the world. Phone-to-phone calls originate and
terminate on the public telephone network but travel primarily over our
managed IP network. Our current products include traditional calling
cards, virtual calling cards, which can be purchased over the Internet,
and refill accounts, which comprise the long distance service we provide
to our registered residential users. Through December 31, 1999, all our
revenues were from the sale of consumer long distance services.

. Wholesale Carrier Transmission Services: We offer competitive, high
quality, Internet telephone services to traditional telecommunications
carriers that have substantial Asia-bound traffic, such as New World
Telephone, to Internet telephone service exchanges and clearinghouses,
such as Asian Capacity Exchange, AT&T Global Clearinghouse, and Telia,
and to Internet-based voice and data service providers, such as
Dialpad.com. Since launching our wholesale carrier transmission services
in December 1999, we have signed 17 carrier agreements and are seeing a
steady increase in traffic under these agreements. We did not begin
generating revenue from the sale of wholesale minutes until January
2000. For the six months ended March 31, 2000, wholesale carrier
transmission services accounted for approximately 4% of our revenues.

. Business Long Distance and Enhanced Communications Services: Our goal is
to be the preferred provider of business long distance and enhanced
communications services to corporate customers in Asia. In March 2000,
we began to trial oPhone, our voice and fax product, to five corporate
customers in Taiwan. oPhone offers corporate customers transparent
direct dial international Internet telephone services at significant
savings. Our research and development team is also developing
CommPortal, an integrated Internet-based suite of enhanced
communications services such as instant messaging, PC-based text and
voice chat, conferencing services over the Internet, and unified
messaging, which provides a single location for accessing voice, fax,
and email messages. oPhone and CommPortal together will represent our
enhanced business communications services product. By the end of 2000,
we expect to offer a test version of CommPortal to oPhone customers. To
date, we have not generated any revenues from corporate customers.

37
<PAGE>

We have achieved growth in the use of our managed IP network since we
upgraded it in December 1999. The number of minutes of traffic over our managed
IP network increased from approximately 18.5 million minutes during the three
months ended December 31, 1999, to approximately 32.3 million minutes during
the three months ended March 31, 2000. Of these 32.3 million minutes, 30.5
million, or 93.6%, were attributable to consumer long distance services and 1.8
million minutes, or 6.4%, were attributable to wholesale carrier transmission
services.

We believe the benefits of Internet telephone services and the convergence of
voice and data networks cannot be fully realized by Internet communication
service providers until they are able to deliver multiple applications from
numerous time zones with different peak access periods and over various access
devices. Those Internet communication services providers who are able to
provide this level of service can enjoy multiple revenue streams, maximize
capacity usage of their network, and reduce unit costs. We have designed our
marketing implementation and product development plan so that we can fully
capitalize on the benefits of IP technologies.

Industry and Market Background

Voice and data networks are rapidly converging

Historically, there have been two different kinds of communications
networks--voice and data. Traditional telecommunications service providers have
built voice networks based on circuit-switching technology, which establishes
and maintains a dedicated path for each telephone call until the call is
terminated. Although a traditional telecommunications network reliably
transmits voice communication, this system is inefficient because it requires
use of the dedicated path for the entire call, regardless of how much
information is transmitted over the circuit. In most data communications, data
does not flow equally in both directions, and the reserved circuit is therefore
underused. Unlike traditional telecommunications networks, data networks use
technology which divides the traffic carried on the network into packets routed
over the Internet or other IP mediums. This technology provides for more
efficient use of network capacity because it does not require a fixed amount of
bandwidth to be reserved for each transmission. Traditionally, data networks
have carried data traffic, such as email, and traditional telephone networks
have carried voice and fax traffic.

Traditional telecommunications service providers have avoided the use of
packet technology for transmitting voice calls due to delays and lost packets
that prevent immediate transmission and result in poor sound quality. In 1996,
however, some companies began to develop technologies that allowed voice to be
transmitted over data networks from computer to computer over the public
Internet. These technologies have evolved so that voice and fax can now be
transmitted reliably over data networks, without the use of computers, using a
regular telephone or fax machine. As a result of the emerging opportunities to
transmit voice and fax communications over the Internet inexpensively and
reliably, traditional telecommunications providers and Internet service
providers, as well as emerging service providers using more recent and improved
technologies, are rapidly building data networks to provide voice and data
services.

IP has benefits over traditional telephone services

IP data networks are superior to traditional telephone networks from both a
cost and applications perspective. The cost advantages include the following:

. Network and capital expenditures. A network based on packet technology
requires lower capital expenditures and lower ongoing maintenance costs
because one network can be used for both voice and data and because IP
equipment generally costs less.

. Bandwidth. The increased capacities associated with a data network lead
to lower bandwidth costs.

. Settlement charges. A data network allows providers to bypass the
international settlement charges that are generally paid by traditional
telecommunications providers, allowing Internet telephone services
providers to offer lower rates for international calls.

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<PAGE>

In addition to cost advantages, IP technology enables the provision of
enhanced services such as PC-to-PC and PC-to-phone telephone services, instant
messaging, and conferencing services over the Internet, as well as traditional
data services such as Internet connectivity and hosting. Data networks also
provide connectivity to a greater set of devices than traditional telephone
networks. These devices include digital cellular and other wireless devices,
the Internet, and computers. With a richer set of applications and connection
devices, IP networks have larger addressable markets and an increased ability
to offer a more complete set of communications solutions to customers over the
same network.

Customer needs and IP technology are driving the trend towards integrated
communications services

We believe communications services customers are seeking integrated
communications services, or the ability to source all or most of their
communications services needs from one provider. Today, most consumers buy
voice, data and other communications services from multiple service providers.
We believe that Internet communication service providers, because of cost
efficiencies and their ability to deliver a wide spectrum of communications
services over one network, are best positioned to meet the demands of
customers. We believe that successful service providers are those with IP
networks, the ability to develop or bundle integrated communications services
to the end user in a single network platform, and the ability to provide the
end user with a single bill and source for customer service.

Internet telephone services are gaining acceptance by consumers, carriers and
corporations

When Internet telephone services were first introduced in 1996, calls were
transmitted over the public Internet using first generation technologies. This
resulted in poor or inconsistent quality of service. Nonetheless, due to
favorable pricing, consumers adopted Internet telephone services, particularly
in the form of competitively priced prepaid calling cards for international
long distance. Over the course of two years, quality of service has improved
significantly because of enhancements made in the next generation of IP
hardware and software, the buildout of managed IP networks, and implementation
of quality of service measures by service providers. Although Internet
telephone services still suffer from perceptions of poor quality, carriers,
both traditional and emerging services providers, have adopted the service.
According to TeleGeography 2000, an independent market research firm, Internet
telephone services minutes have grown over 300% from 300 million minutes in
1998 to under 1 billion minutes in 1999. With the growing use of Internet
telephone services by consumers and carriers, we believe that corporations will
begin to widely adopt Internet telephone services and enhanced communications
solutions to better meet their business communications needs.

Global Internet telephone services and IP communications services revenues are
expected to grow rapidly

International Data Corporation, or IDC, another independent market research
firm, estimated that worldwide Internet telephone services minutes will grow
from approximately 2.7 billion minutes in 1999 to approximately 135 billion
minutes in 2004, which is equal to an estimated compound annual growth rate of
119%. IDC further estimated that revenues generated from Internet telephone
services will grow from approximately $480 million in 1999 to approximately $19
billion in 2004, which is equal to an estimated compound annual growth rate of
approximately 108%.

Large potential for Internet telephone services and IP communications services
in Asia

According to Frost & Sullivan, an independent market research firm, the Asia-
Pacific region will account for approximately 18% of all global origination and
22% of all global termination Internet telephone services minutes between 1996
and 2006. Frost & Sullivan estimated that approximately 211 million Internet
telephone services minutes and $51 million of related revenues were generated
from the Asia-Pacific region in 1999. By 2006, these figures are estimated to
grow to approximately 128 billion Internet telephone services minutes and
$19 billion in related revenues, which would represent estimated compound
growth rates of 150% and 134%, respectively.

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<PAGE>

We believe that Internet telephone services and the communications market in
Asia will grow faster than in most other parts of the world because of three
primary factors. First, Asia has relatively fewer pre-existing traditional
telephone networks than the United States and Europe. We believe that many new
communications networks in the Asia-Pacific region will be data networks.
Second, in most Asian markets, traditional telephone networks are more highly
regulated than in other parts of the world, which has led to less competition
and higher international direct dial costs. The cost savings associated with
Internet telephone services, which can bypass international settlement charges,
are therefore even more pronounced. Third, Asia's growing need for
communications services comes at least in part from the growing population and
per capita income that characterize the region.

Each of the above market estimates and associated statistics for the Internet
telephone services in the Asia-Pacific region is a third-party estimate and may
not accurately reflect the growth rates or market potential for our Asia-
Pacific Internet telephone services. China, Taiwan and Hong Kong are our
countries of focus but are merely a subset of the Asia-Pacific region. As a
result, third party growth estimates and related statistics for Asia-Pacific as
a whole may not accurately reflect the growth rates for individual countries
such as China, Taiwan and Hong Kong which may be lower.

Our Strategy

Our goal is to be the leading provider of Internet telephone services and
enhanced business communications solutions to customers in Asia. To achieve
this goal we intend to:

Leverage our first-mover advantage in Asia

We initially began offering international long distance services to Asia in
March 1998. We were one of the first companies to establish an IP network and
to offer Internet telephone services to Greater China. Having an enduring and
leading presence in Asia has allowed us to gain a better understanding of what
our target customer base in Asia demands. Because of our early entrant status,
we have been able to work closely with our target customers and our technology
partners to develop innovative integrated communications solutions for pan-
Asian corporations. We believe that our history of operations in Asia will
facilitate our efforts to attract carrier customers as well as our efforts to
be the first service provider to deploy business long distance and enhanced
communications services on a mass scale. For six months ended March 31, 2000,
approximately 93% of our revenues was attributable to the termination of
minutes in Asia.

Rapidly expand our network throughout Asia

Our managed IP network contains 19 POPs located in 14 cities in 7 countries,
including China, Hong Kong, The Philippines, Singapore, Taiwan, and the United
States. Prior to its deployment, Frost & Sullivan predicted that our network
would be the largest transpacific IP network. Our triangular network of
SuperPOPs in Los Angeles, Hong Kong, and Taipei is capable of supporting up to
50, 30, and 30 million minutes of Internet telephone services traffic per
month, respectively. We feel that this capacity will be sufficient to meet our
needs for the near term. This network is also able to be expanded to
accommodate a large number of users. We are able to offer services to our users
by providing local access to our network. In addition, through our POPs and
call termination services provided to us by the 21 carriers with which we
interconnect, we are able to cost effectively terminate voice and fax
communications over the Internet in 225 countries. We intend to continue to
rapidly add POPs in additional cities within Asia to provide our customers with
additional access and termination points.

Leverage our strategic relationships throughout Asia

We intend to leverage our stockholder base to continue to deploy our managed
IP network, accelerate the development, launch, and roll-out of CommPortal,
create marketing and cross-promotional opportunities, and enter new markets.
Our strategic investors include an affiliate of Anderson Information
Technology, New

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<PAGE>

World Cyberbase, and Pacific Resource Technology. Anderson Information
Technology, an affiliate of Anderson Group, a privately held conglomerate with
various interests in real estate and technology in Greater China and the United
States, is helping us expand into Greater China. New World Cyberbase, the
Internet arm of the New World group, one of Hong Kong's largest companies and
the largest foreign investor in China, is one of our strategic partners. We
intend to leverage the significant resources of the New World group, such as
its access to engineers in China, to develop our CommPortal product. In
addition, New World Telephone, an affiliate of the New World group, has signed
an agreement with us under which we intend to continue to sell it significant
wholesale minutes. Pacific Resource Technology, a part of the Pacific Group of
Taiwan, is helping us expand throughout Asia.

Continue to grow our existing consumer and long distance carrier telephone
services businesses

As of December 31, 1999, all of our revenues were derived from the sale of
consumer long distance services. We intend to aggressively grow our existing
consumer and carrier telephone services businesses, in part by generating Asia-
originated traffic. We intend to expand our voice and fax services to gain
economies of scale that will drive down network and transmission costs. We
believe that voice and fax communications over the Internet will continue to be
attractive services for us to offer, particularly with scale and Asia-
originated traffic, where the margins are higher than traffic originated from
the United States because there is less price competition in Asia.

Capture pan-Asian corporate customers with business long distance and enhanced
communications solutions

We expect to derive significant revenues in the future by providing business
long distance and enhanced communications services to pan-Asian corporations,
beginning with basic voice and fax long distance services over the Internet via
our oPhone product. To ensure consistent high quality service, our team, in
conjunction with our marketing partners, such as NetStar, will market, deploy,
and service enterprise gateways directly on the corporate site to offer
transparent international direct dial services over our managed IP network at
significant savings. This implementation will allow the corporate customer to
switch from a legacy network to our network to achieve quality of service
levels and recognize substantial cost savings with minimal inconvenience to the
user. We recently began trials of oPhone with select corporate customers in
Taiwan. We intend to continue to pursue additional marketing relationships to
accelerate the development, launch, and roll-out of our solution.

Develop and provide a broad offering of business long distance and enhanced IP
communications services

Over the last six months, our research and development team has been
developing CommPortal, an integrated Internet-based suite of communications
services, such as instant messaging, PC-based text and voice chat, conferencing
services over the Internet and unified messaging. We will introduce this
service to our customers later this year as part of our business enhanced
communications services offering. Through oPhone and CommPortal, we believe we
will have a unique integrated services offering that will help us to gain and
retain corporate customers and generate diversified, sustainable revenues with
higher margins.

Our Customers and Services

We develop and market innovative IP-based services to three distinct customer
groups--consumers, carriers, and corporations. We provide all of our services
over a single managed IP network.

Consumer long distance services

We market international long distance services to consumers in the United
States and Canada through our traditional and online distributors. Our current
products include traditional calling cards, virtual calling cards, and refill
accounts. These products are described below:

. Traditional Calling Cards. We sell traditional prepaid calling cards for
international long distance, typically in retail denominations of $5,
$10, and $20 per card. All cards provide global termination services as
well as domestic U.S. long distance. Where we have a POP, our rates are
more competitive

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<PAGE>

than those offered by traditional telecommunication providers. To use the
cards, consumers typically dial a toll-free number and then enter the
card's personal identification number to access our network and are later
billed for the service. We market oCen branded and co-branded cards in
North America.

. Virtual Calling Cards. Virtual calling cards are similar to our
traditional calling cards, without a physical card presented. We
wholesale these cards and provide personal identification numbers to
Internet partners and distributors or sell directly to the end user via
the Internet.

. Refill Accounts. We have a limited number of residential refill account
customers who, after registering their home phone numbers with us, can
access our network for long distance services without entering a personal
identification number. These services are on a post-paid basis.

Approximately 96% of our consumer long distance business comes from the sale
of calling cards to wholesale distributors. We have entered into written
agreements on an annual basis with most of these distributors. These agreements
allow the distributors, in their sole discretion, to market and sell the
calling cards as either oCen-labeled calling cards or calling cards under their
own label to retail stores or to consumers directly. Under these agreements,
distributors buy the cards from us at a discount from the face value of the
card, depending upon the volume purchased by the distributor. The distributor
pays on credit in an amount that is determined based upon a credit check of the
financial status of the distributor.

We generally offer discounts to distributors that range from 30% to 50% based
on several negotiated factors, including the number of cards being sold and the
credit quality of the distributor. The discounts are negotiated prior to the
sale of the cards and the distributor is required to pay the negotiated
contractual amount after taking into account the discount. Once the cards are
sold, they are non-refundable and no formal right of return exists. In the past
and under special circumstances, we have accepted the return of cards. These
returns have not been significant and have not impacted our revenues because
revenues are recognized as minutes are used by the end users rather than when
cards are sold to the distributors.

Wholesale carrier transmission services

We offer competitive high quality voice and fax communications over the
Internet to traditional carriers, IP carriers, clearinghouses, and Internet-
based voice and data service providers.

. Traditional Carriers. Carrier customers connect to one of our SuperPOPs
in Los Angeles, Hong Kong, or Taipei to buy and sell wholesale
international Internet telephone services through us. Traditional
carriers do not need an IP network but can connect their traditional
telephone network directly to our data center. The open and flexible
architecture of our data center allows rapid and easy interconnection
with all types of carriers. Traditional telecommunications carriers
connect to us because we offer high quality and competitive international
rates for their routes. Some of our carrier customers include Hong Kong-
based New World Telephone and U.S.-based DirectNet Telecommunications.

. IP Carriers. Other IP carriers, particularly those using Clarent
technology, connect to our managed IP network to buy and sell wholesale
traffic. These include emerging carriers such as Capcom International in
Spain, which connects to us to purchase Asia capacity. Traditional
carriers who are moving to Internet telephone services, such as SK
Telelink, a subsidiary of SK Telecom, in South Korea, also connect to us
to exchange minutes. The opportunity to exchange wholesale traffic with
other Clarent-based IP carriers is significant, especially in the Asia-
Pacific region.

. Clearinghouses and Exchanges. Several Internet telephone service
clearinghouses and exchanges have emerged in the last two years to
capitalize on the growth of the industry. They act as brokers among many
different carriers, IP or traditional, to exchange traffic. We have
negotiated agreements and connected our network with Asian Capacity
Exchange, Telia, and AT&T Global Clearinghouse.

. Internet-based voice and data service providers. Internet-based voice and
data service providers offer real-time applications over the Internet,
such as PC or Internet-originated voice traffic. Most Internet-based
voice and data service providers offer free or heavily discounted PC-to-
PC or PC-to-

42
<PAGE>

phone services in exchange for revenues from advertisers. Most Internet-
based voice and data service providers today carry their traffic over the
public Internet, but some are beginning to offer services over managed IP
networks, such as ours. Dialpad.com, one of the largest Internet-based
voice and data service providers, has signed a non-binding memorandum of
understanding with us to purchase wholesale capacity on our managed IP
network, which it will use to carry its PC-originated traffic. We cannot
be sure that we will be able to enter into a definitive agreement with
Dialpad on commercially reasonable terms, if at all.

For all categories of carrier customers, we offer three points of
interconnection--Los Angeles, Hong Kong, or Taipei. U.S.-based carriers can
easily connect to our SuperPOP in Los Angeles, and Asia-based carriers have the
convenience of two separate SuperPOPs in Hong Kong and Taipei. Because we have
one of the largest transpacific managed IP networks and are able to source
highly competitive global rates from the Los Angeles telecommunications hub,
our wholesale rates are generally very competitive. Since starting our carrier
transmission business in December 1999, we have signed 17 carrier agreements.

Business Long Distance and Enhanced Services

We have developed a business plan to offer business long distance and
enhanced communications services to pan-Asian firms. Our total service offering
includes oPhone, our basic international Internet telephone services product,
and will include CommPortal, our enhanced services product, which we intend to
release for testing by the end of 2000. Our target customers include trading
firms and conglomerates, hotels, food distributors, and financial institutions.
We intend to be the first provider in Asia with an enterprise solution for
enhanced communications services to businesses. We believe we can succeed
because we are one of a few select companies focusing on the growing Asian
corporate market for these services.

. oPhone. oPhone is our international telephone services product for
corporations. We install IP equipment, such as gateways, at the
customer's site and connect this equipment to the customer's internal
telephone system. Through a dedicated line to our local data center, the
customer can access our managed IP network to enjoy transparent
international direct dial services at significant savings to traditional
service providers. We may partially finance the IP hardware, software,
and other charges, depending on the customer's expected traffic volume.
We believe oPhone will prove valuable to enterprises that wish to connect
multiple offices in Asia but do not have existing data or virtual private
networks.

. CommPortal. We expect CommPortal to be an Internet-based suite of
integrated communications services designed to enhance communications and
improve productivity for corporate users. We further expect oPhone
corporate customers will be able to choose and customize from a menu of
CommPortal services they find useful. We plan to transmit all real-time
services over our managed IP network to ensure consistent quality of
service. We also plan to build in security measures and customize
CommPortal for the language and usage needs of each corporate customer.

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<PAGE>

We currently expect CommPortal to eventually include the following services:

<TABLE>
<CAPTION>
Enhanced Service Description
---------------- -----------
<C> <S>
Instant Messaging Provides real-time notification of when a
person is online and enables the user to
send text and voice messages immediately.

PC-originated voice and fax Enables a user to send or receive phone
calls directly through the user's PC or
browser while remaining online. For example,
a user on the Internet will receive a pop-up
screen stating that someone is calling. The
user can then choose to forward the call to
voicemail or to answer the call from the
computer without logging off the Internet.

Internet conferencing services Enables a user to set up a conference call
through our interactive communications
portal either by sending a notice of the
planned call to all of the participants and
having each participant dial a toll-free
number or by arranging for each of the
participants to be called by the automated
system at the designated call time. This
service eliminates the need for a conference
operator.

Unified Messaging/Universal Inbox Enables a user to retrieve all voicemails,
faxes and emails from one convenient
location on a user's desktop or via a
browser.

IP Virtual Private Networks Provide basic voice and fax over IP services
within an intranet structure for medium and
large multinational corporate customers.

Collaboration Enables multiple users to view and edit the
same document on their computers while
speaking or interacting with each other
through their PCs.

Information services Enables a user to have easy access to
communications information, such as phone
and e-mail directory services.

Internet Access and Web Hosting Provides standard Internet access to the
Web, similar to that provided by Internet
service providers.

Video Conferencing Enables users to have real time video-based
meetings with one or more individuals using
their PCs.
</TABLE>

Sales and Customer Service

We have a dedicated sales force that is supplemented by members of our
executive management team. Our salespeople are based regionally within the
United States, Hong Kong, and Taiwan. Our senior management focuses on
maintaining and cultivating relationships with our customers. We assign our
sales representatives specific accounts based on their level of experience,
location, and the quality of the relationship between the representative and
the customer. Our primary marketing and sales support is centralized and
directed from our headquarters in Irwindale, California. We also have a full-
time staff dedicated to our marketing efforts. The marketing and sales support
staff implement our marketing strategies and programs, developing leads,
producing proposals, and making sales presentations. Currently, our marketing
and sales force consists of 18 people, 10 of whom are dedicated to sales of our
consumer long distance services, five of whom are dedicated to sales of our
wholesale carrier transmission services, and three of whom are dedicated to
sales of oPhone.

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<PAGE>

Consumer long distance services

We market our consumer products via both traditional offline channels and
online Internet channels. For the period from inception through March 31, 2000,
sales through online channels were negligible. Our distributors typically
purchase a large quantity of personal identification numbers or calling cards
from us for resale to the consumer. These distributors make a commission from
each card sold. In exchange, they sell our products, provide the first level of
customer service, and manage customer collections. Our top distributors for the
six months ended March 31, 2000 were:

. STE Communications

. Star Communications
. Abest
. Goldman Network

We are increasing our online marketing via Internet-based businesses, such as
AsianConnections.com, Asia-Links, Click2Asia.com, and Sina.com, with whom we
conduct joint marketing and branding campaigns. We supplement our channel sales
with print and online advertising. Currently, our calling card business is
focused on Asian communities and consumers in the United States. To reach these
consumers, we have implemented a well-defined direct marketing strategy, using
local foreign language publications and cultural events. Distribution partners
and end users can access their accounts to check billing status via our
website.

Wholesale carrier transmission services

We market to carriers and Internet-based voice and data service providers
mainly through targeted direct mail and marketing campaigns, attendance and
speaking opportunities at conferences and tradeshows, and word-of-mouth from
vendors such as Clarent. To date, we have not conducted any advertising for
carrier marketing but expect to do so in the future. Registered carrier
customers and partners can check rates and billing status via our website.

Business long distance and enhanced communications services

We have been developing our business enhanced communitcations services
product, the combination of oPhone and CommPortal, closely with Clarent, who
will be the supplier of IP equipment, because Clarent is increasingly
interested in developing the corporate Internet telephone services market. We
have conducted market research and analysis in connection with our development
of CommPortal. In addition, we have signed a non-binding memorandum of
understanding to partner with NetStar, a pan-Asian network integrator that
currently employs over 200 information technology professionals and services
over 300 existing corporate customers. Based on a revenue sharing model, we
expect that NetStar will serve as our marketing and implementation arm to
attract and service corporate customers of oPhone and, eventually, CommPortal.

Our Network and Operations

Network Strategy and Design

We have designed our managed IP network and operations to fully support the
marketing initiatives and requirements of our consumer, carrier, and corporate
products and services. Our managed IP network is a premium data network built
with commercial quality IP equipment, linked by a combination of the public
Internet, international leased lines, and satellite access. We monitor and
control our network on a 24x7x365 basis to deliver high quality voice and data
services. We have built our network using components selected from leading
suppliers after conducting extensive analysis to determine the highest
performers in each category, or best-of-breed components, such as Clarent IP
gateways and software, Cisco routers, Oracle database software, and Sun
servers. In addition, our network is firewall and security protected and
continuously monitored by our 24x7x365 proprietary quality management system.
We have designed our network to deliver the upgradeable, reliable, and high
quality services that our consumer, carrier, and corporate customers demand.

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<PAGE>

Our network characteristics include the following:

. Blended Bandwidth. We continue to rapidly deploy our managed IP network,
which consists primarily of dedicated point-to-point IP bandwidth types,
such as international private leased lines and satellite capacity. When
managed capacity is not available and quality is acceptable, we also use
the public Internet to transmit traffic. In addition, we have agreements
with international IP carriers and traditional carriers, such as Qwest,
to give us competitive global routing for overflow traffic and to help us
reach new markets. Our blended bandwidth strategy helps us to scale
faster by using a variety of transport mediums, to keep costs low by
leveraging the most cost-effective bandwidth, and to ensure consistent
quality of service. In the past, we have experienced periods when
customer demand has exceeded our network capacity. This has resulted in
the routing of some of our traffic on the relatively higher priced
traditional telephone network, thereby reducing our margins.

. Network Components. We deploy best-of-breed IP technologies to build our
premium data IP network. These components include Clarent IP gateways and
command centers, Cisco routers and Summa switching platforms, Synapsis
switch controllers, HP Openview Operations support systems, and Oracle
databases.

. Management Systems. We have developed and continue to invest in
management systems that allow centralized, proactive monitoring and
control of traffic on our network. We have established a network
operations center at our Los Angeles data center from which we monitor
and control our global network on a 24x7x365 basis. The network
operations center monitors all aspects of our network including routes,
hardware, software, and call quality statistics. We have developed a
sophisticated, proprietary, Internet-based traffic routing and call
quality management reporting system. In addition, network operations
center staff are equipped with real time tools to monitor critical system
performance levels and IP quality attributes of our routes. Network
operations center technicians use this information to make real time re-
routing and maintenance decisions to ensure that quality levels are
maintained. In addition, we are in the process of updating our network
management tools based upon the HP Open View system.

. Firewall and Security. Our approach to network security is to screen and
control traffic flows on our private IP backbone through the use of a
firewall system. Our network is protected by perimeter security at all
points of public interconnection. Individual corporate and production
servers are locked down according to industry standard security
checklists. All these measures are to ensure the availability,
reliability, and integrity of our network.

Network locations and capacity

As of May 1, 2000, our network had approximately 3,440 IP ports in service
under our command center control, distributed across 14 cities in 7 countries,
including China, Hong Kong, Korea, The Philippines, Singapore, Taiwan, and the
United States. Through our interconnect agreements with traditional carriers
and other IP networks, we are able to terminate traffic in 225 countries. Our
network backbone is anchored by three SuperPOPs located in Los Angeles, Hong
Kong, and Taipei. Each SuperPOP serves as both a hub to aggregate traffic as
well as a transit point for termination routes. By establishing multiple
traffic hubs, we have the flexibility to choose from multiple bandwidth
suppliers, allowing us to optimize quality and cost savings. Our multiple hub
structure also enables us to direct the routing of traffic more efficiently. In
addition, traditional carriers can connect their circuit-switch networks
directly to any of our three SuperPOPs. We have designed the infrastructure of
our SuperPOPs to support up to 50 million minutes of voice traffic per month in
Los Angeles and up to 30 million minutes per month for each of Hong Kong and
Taiwan. We believe that this capacity will be sufficient to meet our needs for
the near term. In addition, we can quickly increase these capacity levels as
demand increases by populating our SuperPOPs with additional equipment and
provisioning additional bandwidth.

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<PAGE>

Customer Service and Billing

We have developed customer care and billing capabilities tailored to each of
our customer groups.

. Consumers and distributors. Our consumer services are supported by our
online interactive customer care and billing center, which enables a
distributor or user to monitor and set up an account, receive an account
number and a PIN, pay by credit card for services and contact our
customer service representatives. Most consumer concerns can be addressed
online. In addition, customers can use our multilingual toll-free number
on a 24x7x365 basis. Our customer support department responds to user
inquiries primarily through e-mails typically within 24 hours. We strive
to continually improve our customer care center to meet the evolving
needs of our users.

. Carriers. Our support to carrier customers is similar to the support we
provide to our distributors with additional support from our network
operations center. The network operations center staff is available on a
24x7x365 basis. Our engineering staff also directly assists our carrier
customers by handling all technical problems referred by the network
operations center. Our carrier services department handles all rate
administration, billing, account reconciliation, deposits, and credit
management functions for carrier accounts. In addition to these support
activities, we provide professional project management support for all
new provisioning activity associated with these accounts. The project
management team coordinates and oversees all activities associated with
new service introduction including engineering, ordering, installation,
rate and route administration and acceptance testing.

. Corporations. We have extended the core capabilities of our distributor
and carrier billing systems to provide support for our corporate
customers. Internet-based access to corporate account information is a
centerpiece of our approach to the corporate market. We are developing
and intend to launch a new support function associated with CommPortal
that includes a customer care and billing requirements definition phase
that will result in further enhancements to our billing and customer care
system capabilities.

Access, Transmission and Termination

We have entered into contractual arrangements with third parties to purchase
access, transmission and termination services. The terms of these contracts
typically range from one to three years. The contracts may require initial
deposits that may be refundable. We may be charged a fixed cost each month for
these services and/or on a cost per minute basis. The contracts specify
payments, obligation of each party, and cancellation provisions.

Access contracts connect customers to one of our POPs. We pay a local carrier
a charge for this service on a per minute basis. Qwest Communications is a
major access provider of these services, and we entered into a one-year
agreement in July 1999. We also entered into various transmission service
agreements to move traffic between our POPs and between our POPs and a third
party carrier. International transmission is made up of international private
lines. We entered into one-year agreements with Cable & Wireless HKT in
September 1999 and MCI Telecommunications in December 1999 for transmission
services for Asia. We entered into various termination contracts with third
parties to deliver voice, data and video traffic. We use these third parties to
deliver our traffic. We entered into agreements with Bell Technologies in
October 1999 and RSL in April 1999 for termination services.

Competition

We compete in both the market for consumer long distance services and the
market for wholesale carrier transmission services. Each of these markets is
highly competitive and has numerous service providers. We intend to enter the
market for business long distance and enhanced communications services, which
is currently in its infancy in Asia.

The market for IP communications services is new and rapidly evolving. We
believe that the primary competitive factors determining success in the IP
communications market are:

. quality of service;
. price;

47
<PAGE>

. the ability to meet and anticipate customer needs;
. responsive customer care services;
. breadth of geographic presence; and
. broad offering of communications services, especially enhanced services.

Consumer Long Distance Services

We compete in the growing market for competitively priced consumer long
distance services, including calling cards, call-back services, dial-around or
10-10 calling, and collect calling services. We believe that our nearest
competitor is Wherever.net, which, like oCen, focuses on Internet telephone
services terminated in Asia. We also compete with Internet telephone services
providers such as Net2Phone and deltathree.com. In addition, we compete with
traditional telecommunications carriers, including industry leaders such as
AT&T and MCI/WorldCom. These providers are significantly larger than we are,
and many have:

. substantially greater financial, technical and marketing resources;
. larger networks;
. a broader portfolio of services;
. stronger name recognition and customer loyalty;
. well-established relationships with many of our target customers; and
. an existing base of users to whom they can cross-sell their services.

Wholesale Carrier Transmission Services

We compete with telecommunications providers, long distance carriers and
resellers, and providers of carrier services for our wholesale carrier
transmission services. Our primary competitors in providing wholesale carrier
transmission services include:

. long distance carriers, including AT&T and MCI/WorldCom;

. global telecommunications alliances, including British Telecom/AT&T;
. emerging carriers providing transmission services over the Internet,
including AT&T Global Clearinghouse, iBasis, and ITXC; and
. wholesale carrier providers, including STAR and Pacific Gateway Exchange.

Competition for carrier traffic is primarily based on price and access to
limited routes and markets. Decreasing telecommunications rates have resulted
in intense price competition, and we expect that competition will continue to
increase significantly as telecommunications rates decrease. Increased
competition could force us to further reduce our prices and may reduce our
profit margins and market share. Our need to stay competitive may require us to
invest in new routes or to pay for access into other key markets, each of which
could negatively impact our margins.

Business Long Distance and Enhanced Communications Services

Future competition could come from a variety of companies in both the
Internet and telecommunications industries, including traditional
telecommunications carriers, Internet service providers, and Internet
communications service providers. These and other competitors may be able to
bundle services and products that we do not offer with enhanced communications
services, which could place us at a significant disadvantage. Many of these
companies have greater resources and larger subscriber bases than we have and
have been in operation longer.

Proprietary Rights

We rely or expect to be able to rely on trademark and trade secret laws and
confidentiality agreements and other contractual arrangements with our
employees, strategic partners, and others to protect our proprietary rights.

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We have a registered trademark for "oCen." We do not currently own any
registered copyrights or patents.

Regulatory Environment

The use of the Internet and managed IP networks to provide telephone service
is a recent market development. While we believe that the provision of voice
communications services over the Internet and managed IP networks is currently
permitted under U.S. law, some foreign countries, including Taiwan and China,
have laws or regulations that may restrict or prohibit voice communications
over the Internet.

The Regulatory Framework in the United States

In the United States, we operate under a regulatory framework that
distinguishes between "telecommunications services," which are heavily
regulated, and "information services," which are largely unregulated. There is
considerable uncertainty concerning the classification within this framework of
Internet telephone services in general and phone-to-phone Internet telephone
services in particular. To date, the FCC has not acted to treat Internet
telephone services as a telecommunications service. For that and other reasons,
we believe that our Internet telephone services presently qualify as an
information service. As a result, our international Internet telephone services
traffic is not subject to access charges or the international settlement rate
regime, which dramatically reduces our cost in providing international calling
services. Without an express ruling by the FCC, our present regulatory status
remains uncertain.

By contrast, the overflow international traffic that we carry overseas using
traditional telephone carriers qualifies as regulated telecommunications
traffic and is therefore subject to access charges or the international
settlement rate regime. Some of our other services are also governed by the
regulations applied to traditional telecommunications service providers. It is
possible for our customers to use our calling cards to place both intrastate
and interstate domestic calls. Those calls, which constitute a minimal portion
of our traffic, are carried through the resold services of traditional long
distance providers and constitute a regulated telecommunications service
offering.

In addition to the regulatory framework governing the provision of
telecommunications and information services, our services may be subject to the
general regulation of the Internet, including provisions concerning disclosure
of confidential communications, copyright matters, and excise taxes.

Internet Telephone Services

Federal Regulation. We believe that, under U.S. law, the Internet telephone
services that we provide constitute information services. To the extent that
our Internet telephone services are information services, they are not
currently regulated by the FCC, but the FCC has not definitively tested this
issue. Thus, there is thus uncertainty as to the present legal status of our IP
telephone services. For this reason, we cannot assure you that our Internet
telephone services services will not be regulated by the FCC in the future.
Although it has not reached any definitive conclusions, the FCC could determine
that Internet telephone services, or certain categories of Internet telephone
services services, should be classified as regulated telecommunications common
carrier services or otherwise subjected to increased regulation. On April 10,
1998, the FCC issued a report to Congress discussing its implementation of
universal service provisions contained in the 1996 amendments to the
Communications Act of 1934. In the report, the FCC indicated that it would
examine the question of whether some forms of phone-to-phone Internet telephone
services are information services or telecommunications services. The FCC
explained that it did not have an adequate record as of the date of the report
on which to make a definitive ruling. However, the FCC said that the incomplete
record it did have suggested that some forms of phone-to-phone Internet
telephone services appear to have the same functionality as non-IP
telecommunications services and lack the characteristics that would render them
information services. The implication of this FCC report is that some forms of
Internet telephone services, including in particular phone-to-phone Internet
telephone services, should, and in the near future might be, regulated as
telecommunications services or otherwise regulated more heavily.

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Many of our competitors and other interested parties have taken the position
that Internet telephone services should be subject to the same regulatory
framework as telecommunications services. For example, in September 1998, two
regional Bell operating companies advised Internet telephone services providers
that they would impose on Internet and Internet telephone services traffic the
same access charges applied to traditional telecommunications service
providers. It is uncertain at this time whether or when these companies will
actually succeed in imposing access charges on Internet telephone services
traffic. However, one of these companies recently filed a petition with the FCC
seeking approval of the imposition of access charges on phone-to-phone Internet
telephone services.

If the FCC determines that phone-to-phone Internet telephone services are
subject to FCC regulation as telecommunications services, the FCC may subject
Internet telephone services providers to traditional telecommunications common
carrier regulation. Among other things, Internet telephone services providers
could be required to make universal service contributions and pay access
charges. That determination by the FCC could also result in Internet telephone
services calls becoming subject to the international settlement rate regime. It
is also possible that the FCC could adopt a regulatory framework for Internet
and Internet telephone services providers that would differ from traditional
common carrier regulation. In either event, our Internet telephone services
could be regulated more heavily, which could have a material adverse effect on
our business, financial condition, and results of operations. For example, if
the FCC determines that Internet telephone calls are subject to access charges
and/or the international settlement rate regime, we would lose much of our cost
advantage over conventional providers of international long distance calling
services.

The intense focus on the regulatory status of the Internet and Internet
telephone services has resulted in efforts to have Congress enact legislation
that would either regulate or exempt from regulation communications services
provided over the Internet. Congressional dissatisfaction with the FCC's
conclusions could result in requirements that the FCC impose greater
regulation, which in turn could materially adversely affect our business,
financial condition, and results of operations.

State Regulation. State regulatory authorities may also retain jurisdiction
to regulate the provision of intrastate Internet telephone services. Several
state regulatory authorities have initiated proceedings to examine the
regulation of these services, and other states could follow.

Telecommunications Services

To the extent that we use traditional telephone networks to provide
interstate long-distance services and overflow international traffic, we must
comply with federal telecommunications laws and FCC regulations governing
telecommunications services. We are similarly regulated by state public utility
commissions to the extent we use traditional telephone networks to provide
intrastate long distance services.

Federal Regulation. The Communications Act of 1934 and FCC regulations govern
the interstate and international long distance telecommunications services we
provide over traditional telephone networks. The FCC has established different
levels of regulation for dominant and non-dominant long distance carriers. We
are a non-dominant carrier under FCC regulation and are less heavily regulated
than dominant carriers. For example, the FCC does not regulate the rates that
we charge for our interstate and international long distance services.

The FCC has also decided that non-dominant long distance carriers should not
file tariffs setting forth their rates for interstate services. However, that
ruling has been stayed until the matter is resolved in a pending court case.
Until the stay is lifted, we are required to file tariffs for our interstate
long distance services. If and when the decision not to require the filing of
tariffs becomes effective, we could benefit from a decrease in compliance costs
and the possible elimination of delays in getting new products and services to
market.

Despite our non-dominant carrier status, we must comply with those sections
of the Communications Act of 1934 that pertain to providing interstate and
international long distance services over traditional telephone networks. We
are subject to the general requirement that the rates, terms, and conditions of
our services be "just and reasonable" and that we refrain from making any
"unjust or unreasonable" discrimination in our rates, terms, and conditions.
The FCC has the authority to enforce our compliance with these requirements.

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State Regulation. We are subject to state laws and the jurisdiction of the
state public utility commissions for the intrastate long distance services we
provide using traditional telephone networks. Although the degree of regulation
varies from state to state, our calling card services are subject to regulation
by the state public utility commissions in virtually all states because our
customers could use our calling cards to make long distance intrastate calls,
which would then be carried over traditional telephone networks. In most of the
states in which we do or intend to do business, we are required to obtain
authorization from the state public utility commission in order to provide
those intrastate long distance services. In addition, in many states we are
required to file and maintain tariffs setting forth the terms, conditions, and
prices for our intrastate long distance service offerings.

Our Regulatory Status. We are authorized by the FCC to provide resold
international long distance services, and we have tariffs on file with the FCC
under which we may provide interstate and international long distance services.
On the state level, we are not authorized to provide intrastate long distance
services over traditional telephone networks. We have sought the authorization
to provide intrastate services in the states of California and New York.
Because we have not filed the associated requisite tariffs, we are not
authorized to provide Internet telephone services over traditional telephone
networks in these states. Furthermore, because those authorizations were
obtained when we were incorporated in California under the name Pacific Telekey
Network, we must obtain the prior approval of the state public utility
commissions in those states before we can provide intrastate long distance
services as a Delaware corporation or under the name oCen. We are in the
process of securing those necessary approvals.

We anticipate being authorized to provide intrastate long distance services
over traditional telephone networks under the name oCen in the remaining 48
states by the end of 2000. Although we believe that our intrastate traffic in
states other than New York and California is negligible at present, the calling
cards we have already issued may be used by customers for that purpose and, if
so, the provision of that service would be outside the scope of any
authorization that we have or need. Those operations could be deemed unlawful
and could result in fines, penalties, and other sanctions, including an order
from a state public utility commission to cease operations in the state for
some period of time. If we were ordered to cease operating in a state, it could
have a material adverse effect on our business.

The status of our Internet telephone services could be affected by the
International Telecommunications Union, the body responsible for coordination
of international communications regulation and policy. A Union policy committee
has recommended that the international settlement rate regime currently applied
to traditional providers of telecommunication services be applied to Internet
telephone services. That recommendation, if implemented, could increase the
cost of our service and make us less competitive with traditional
telecommunications carriers. While the United States and some other member
nations have expressed their objections to the Union recommendation, it is
impossible to predict if or when the recommendation will be adopted.

The Internet

Congress has recently adopted legislation that regulates certain aspects of
the Internet, including on line content, user privacy, and taxation. For
example, the Internet Tax Freedom Act prohibits certain taxes on Internet uses
through October 21, 2001. We cannot predict whether substantial new taxes will
be imposed on our services after that date. In addition, Congress and other
federal entities are considering other legislative and regulatory proposals
that would further regulate the Internet. Congress is, for example, currently
considering legislation on a wide range of issues including Internet spamming,
database privacy, gambling, pornography and child protection, Internet fraud,
privacy, and digital signatures. Various states have adopted and are
considering Internet related legislation. Increased U.S. regulation of the
Internet may slow its growth, particularly if other governments follow suit,
which may negatively impact the cost of doing business over the Internet and
materially adversely affect our business, financial condition, results of
operations, and future prospects.

Regulation in the People's Republic of China

Although we are not permitted under Chinese law to provide telephone services
in China, we are providing equipment, consulting, and technical support
services to our partners in China. The Chinese

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telecommunications industry is still developing. It is regulated by a series of
administrative and departmental regulations. The principal regulations include
the 1993 Notice Regarding the Further Strengthening of the Management of the
Telecommunications Business Market issued by the State Council, the 1993
Interim Measures for the Examination and Approval and Administration of
Conducting De-regulated Telecommunications Business issued by the Ministry of
Post and Telecommunications, and the 1994 Ministry of Post and
Telecommunications Notice Regarding Joint Investment on an Experimental Basis
to Further Accelerate the Development of Communications. The Ministry of
Information Industries, which was formerly the Ministry of Post and
Telecommunications, is the national regulatory authority for telecommunications
network operations and service provision in China.

The Chinese government is in the process of drafting a unified
telecommunications law. We do not know when the new law will be enacted. With
the recent restructuring of various communications-related entities into the
Ministry of Information Industries,as well as China's likely accession into the
WTO, the promulgation of the telecommunications law may be further delayed.

Internet Telephone Services

The Chinese government regulates access to the Internet by imposing strict
licensing requirements and requiring Internet service providers in China to use
the international inbound and outbound Internet backbones. In 1996, the State
Council promulgated the Ministry of Information Industries Provisional Measures
on International Link-up of Computer Information Networks, or the Link-up
Measures, and in 1998 it further promulgated the Implementing Rules for the
Link-up Measures, which collectively provided for an operation licensing
system. The Ministry of Information Industries, then issued the 1998 Notice
Regarding Licensing of Business Operations of International Linkups of Computer
Information Networks containing further provisions for the implementation of
the licensing system.

The types of services which can be provided over the Internet are not limited
to data transmission. However, it is unclear which services may be provided in
China. According to Article 9 of the notice issued in 1998, only computer
information services may be provided over the Internet in China, and no
telecommunications services such as telephone and fax may be provided over the
Internet. Recently, this complete ban has been liberalized and certain pilot
local telecommunications operators have been selected to provide Internet
telephone services. There are indications that if the trial operation is
regarded by the Chinese government as successful, more Chinese providers may be
allowed to engage in this business. Foreigners remain prohibited from investing
in Internet telephone services companies in China.

Restrictions on Foreign Investment

The Chinese government has consistently reiterated that foreign involvement
in the operation of telecommunications networks and ownership of equity in
these networks is prohibited. The 1993 Opinion of the Ministry of Post and
Telecommunications on Further Strengthening Control of the Telecommunications
Services Market says that foreigners are not allowed to operate or participate
in the operation of telecommunications businesses in China, and at the same
time mainland Chinese are not allowed to attract foreign equity participation
in the operation of telecommunications businesses.

In June 1995, the State Council promulgated the Interim Provisions on
Guidelines for Foreign Investment and the Foreign Investment Industrial
Guidance Catalogue. The Guidance Catalogue provides that foreign operation and
management of the postal services and telecommunications business are
prohibited. The same prohibition exists in the revised Guidance Catalogue that
went into effect on January 1, 1998. Because Chinese officials have interpreted
telecommunications services to include Internet services, foreign involvement
in Internet services is not allowed.

Some foreign investors attempted to avoid the prohibition by setting up Sino-
foreign joint ventures, which under Chinese laws are domestic entities, which
then operate the telecommunications networks of local Chinese
telecommunications companies under a servicing agreement. In 1998, the Ministry
of Information Industries

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declared these arrangements "improper," and the Chinese government has imposed
a time limit for these creatively structured transactions to be terminated.

China's WTO Bid and Possible Further Deregulation of the Telecommunications
Industry

In a significant step towards opening up the telecommunications industry,
China has agreed to adopt a more pro-competitive regulatory regime in the U.S.-
China Trade Agreement signed in November 1999. The Trade Agreement sets out the
terms of China's admission to the World Trade Organization as agreed between
the United States and China. Under the Trade Agreement, China will, subject to
admission to the World Trade Organization, immediately allow foreigners to
invest in the telecommunications industry in China. Tariffs on
telecommunications products such as computers, semiconductors and Internet
equipment will be reduced from the current average of 13.5% to 0% by the end of
2005. China must also agree to the regulatory principles in the 1997 World
Trade Organization Agreement on Basic Telecommunications, including cost-based
pricing and separation of the regulatory authority from the service provider.

However, the actual impact of China's admission to the World Trade
Organization is not yet known. We do not know when, if at all, China will
formally become a member of the World Trade Organization. On conclusion of
individual bilateral deals between China and the World Trade Organization
member countries, the World Trade Organization must combine them into a
multilateral deal, and China for its part must implement those aspects of the
agreements which are a prerequisite to its admission. Notwithstanding the
signing of the Trade Agreement last year, negotiations between China and the
European Union and a few remaining member countries are still taking place, and
those bilateral agreements need to be reached. The European Union has asked for
greater concessions than those already covered in the Trade Agreement. We
believe that a deal can eventually be reached, but we cannot assure you of the
timing.

The granting of Permanent Normal Trading Relations by Congress in late May
this year before China gains admission to the World Trade Organization is a
more problematic issue. Failure to receive Permanent Normal Trading Relations
would not derail China's admission to the World Trade Organization. However, it
would prevent U.S. companies from enjoying the concessions granted by China.
Because World Trade Organization regulations require member countries to extend
equal and unconditional trading rights to each other, failure to confer
Permanent Normal Trading Relations to China by Congress would mean invoking
exceptions to the World Trade Organization rules, thereby depriving U.S.
businesses of the concessions and benefits granted to the other World Trade
Organization member countries.

Political Control of the Information Industry in China

Under the Link-up Measures and the State Secret Protection Regulations for
Computer Information Systems on the Internet, the Chinese government controls
Internet access and the distribution of news and other information. The
Propaganda Department of the Communist Party is responsible for censoring news
published in China to ensure, supervise and control political correctness. The
Ministry of Information Industries has published implementing regulations that
subject online information providers to potential liability for content
included on their portals and the actions of subscribers and others using their
systems including liability for violation of Chinese laws prohibiting the
distribution of content deemed to be socially destabilizing. Because many
Chinese laws, regulations and legal requirements relating to the Internet are
relatively new and untested, their interpretation and the enforcement of what
is deemed to be socially destabilizing by Chinese authorities involves
significant uncertainty.

From time to time, the Ministry of Public Security has stopped the
distribution of information over the Internet that it believed to be socially
destabilizing. The Ministry of Public Security has the authority, in its sole
discretion, to cause any local Internet service provider to block any website
maintained outside of China.

Regulation in Hong Kong

Telecommunications activities in Hong Kong are primarily governed by the
Telecommunication Ordinance and the Telephone Ordinance and their subsidiary
legislation. The Telecommunication (Amendment) Bill is now

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being considered by the legislature in Hong Kong. The exact amendments to the
Telecommunication Ordinance and the impact of any amendments will only be known
after the bill has been debated and enacted in its final form.

Under Section 5 of the Telecommunication Ordinance, a public officer is
appointed as the Telecommunications Authority to administer the
Telecommunication Ordinance and the Telephone Ordinance and to regulate all
different forms of telecommunications. The Telecommunication Authority is also
the Director-General of Telecommunications in Hong Kong. The Telecommunication
Authority's principal responsibilities include the licensing of
telecommunications activities, the promotion of an open and competitive
telecommunications market, the protection of consumer interests, the economic
and technical regulation of the telecommunications industry and the enforcement
of license conditions.

Since the end of Hong Kong Telecom's exclusive license on local fixed
telecommunications network services in 1995, the deregulation of the domestic
telecommunications industry has resulted in four fixed network operators, six
mobile network operators and a number of non-exclusive telecommunications
services providers. Following the deregulation of the domestic market, the
external telecommunications market has been progressively liberalized since
1999. The Hong Kong government further issued licenses for domestic and
external telecommunications facilities in February 2000.

In 1995, the Telecommunications Authority issued a written statement that
Internet service providers are required to be licensed under the
Telecommunication Ordinance. An Internet service provider license does not
authorize the licensee to provide external real-time voice messages through the
Internet. If an Internet service provider provides services over the
traditional telephone network in Hong Kong, a public non-exclusive
telecommunications license is required to operate this business. The license is
valid for twelve months only and is renewable at the discretion of the
Authority of Hong Kong.

We currently lease circuits from Cable & Wireless HKT. Not all
telecommunications traffic must go through Cable & Wireless HKT or its
subsidiaries, for there are no mandatory requirements for our Hong Kong
subsidiary to interconnect with Cable & Wireless HKT or its subsidiaries. Our
Hong Kong subsidiary is required to provide Internet telephone services in Hong
Kong through one of the fixed telecommunications network services licensees in
Hong Kong by way of interconnection. These licensees include Cable & Wireless
HKT's subsidiaries, New T&T Hong Kong Limited, New World Telephone Limited, and
Hutchinson Global Crossing Limited. Under the Telecommunications Ordinance, the
Telecommunications Authority is entitled to direct our Hong Kong subsidiary to
interconnect with any licensed telecommunications operators.

Regulation in Taiwan

Taiwan regulates Internet telephone services by licensing operators. A type I
license operator may offer telecommunications services while a type II license
operator must wait until further deregulation before it may offer Internet
telephone services in the form of voice simple resale. Taiwan's regulatory
agency, Directorate General of Telecommunications has announced plans to
deregulate limitations that currently inhibit the offering of Internet
telephone services by a type II license operator. Currently, we do not directly
offer Internet telephone services in Taiwan but have made such services
available through our partner in Taiwan who has a type II license. If the
anticipated deregulation does not occur in 2001 as announced by Directorate
General or if our partner in Taiwan has not obtained or maintained the proper
license required after deregulation, we may not be able to offer services in
Taiwan. This would materially adversely affect the financial condition,
operating results, and future prospects of our business in Taiwan.

Direct trade between people in Taiwan and people in China is prohibited
except that people in Taiwan may, after obtaining official approval, conduct
some business activities in China. Our business may therefore be limited by the
foregoing restriction in some circumstances.

Other International Regulation

The regulatory treatment of Internet telephone services outside of the United
States varies widely from country to country. A number of countries that
currently prohibit competition in the provision of traditional

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telephone services may also prohibit Internet telephone services. Other
countries permit but regulate Internet and Internet telephone services. Some
countries will evaluate proposed Internet telephone services on a case-by-case
basis and determine whether it should be regulated as a voice service or as a
different telecommunications service. In many countries, Internet telephone
services has not yet been addressed by legislation or regulatory action.
Increased regulation of the Internet and/or Internet service providers and
Internet communications service providers, or the prohibition of Internet and
Internet telephone services, in one or more countries could materially
adversely affect our business, financial condition, operating results, and
future prospects.

As we make our services available in foreign countries, and as we facilitate
sales by our partners to end users located in foreign countries, some countries
may require us to qualify to do business in that country. Those countries may
also regulate our company or our services, including through requirements to
obtain authorization for the provision of voice communications over the
Internet or other telecommunications services or for the operation of
telecommunications networks. These countries may instead prohibit us in all
cases from providing our services or conducting our business as presently
conducted or intended to be conducted in those countries. Our failure to
qualify as a foreign corporation in a jurisdiction in which we are required to
do so or to comply with foreign laws and regulations could materially adversely
affect our business, financial condition, and results of operations, including
by subjecting us to taxes and penalties or by precluding us from, or limiting
us in, enforcing contracts in those jurisdictions.

Our foreign partners may be, or become, subject to requirements to qualify to
do business in a particular country, to comply with regulations, including
requirements to obtain authorizations for the provision of voice communications
over the Internet or other telecommunications services or for the operation of
telecommunications networks, or to stop providing services or conducting their
business as presently conducted, or intended to be conducted, in that country.
We cannot be certain or assure you that our partners are in compliance, will be
able to comply, or will remain in compliance with these or similar
requirements. The failure of our partners to comply with these types of
requirements could materially adversely affect our business, financial
condition, and results of operations.

Properties

We lease our executive offices at 4900 Rivergrade Road, C110, Irwindale, CA
91706. This lease expires in 2004.

We have two data centers in the United States. We lease a data center at 800
West Sixth Street, Suite 1250, Los Angeles, California. This lease expires in
January 2004. We also lease a data center at 1000 Lakes Drive, Suite 220, West
Covina, California. This lease expires in October 2000.

We lease our Hong Kong data center at New Commerce Center, 19 On Sum Street,
Sha Tin, New Territories, Hong Kong. This lease expires in August 2001.

We lease our Taiwan data center at No. 8, Lane 609, Chung Hsin Road, Section
5; Sung Chung City, Taipei Hsein, Taiwan. This lease expires in January 2001.

Employees

As of March 31, 2000, we employed 85 employees in the United States and 25
employees in Asia. We consider our relationship with our employees to be good.
None of our employees is covered by a collective bargaining agreement.

Legal Proceedings

We are not a party to any material litigation and are not aware of any pending
or threatened litigation that could have a material adverse effect on us or our
business, taken as a whole.

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MANAGEMENT

The following table sets forth information with respect to our directors,
executive officers, and other key employees as of the date of this prospectus.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Ron Higgins.................... 42 Chairman
Alex Liu....................... 41 Chief Executive Officer
Steven San Eng................. 30 Executive VP of Corporate Development and
Director
James Courtney................. 37 Chief Operating Officer
Mark Keithley.................. 36 Chief Financial Officer
Thomas Bao..................... 29 VP of Greater China and Director
William Haner.................. 47 VP of Sales
Eckhart Gouras................. 39 VP of Business Development
Gunther Gee.................... 31 VP of Technology
Chris Au....................... 33 VP of Legal and Secretary
Lloyd Fischer.................. 38 Director
Chan Ki........................ 40 Director
Simon Lo....................... 44 Director
Jean Salata.................... 34 Director
</TABLE>

Officers.

Ron Higgins. Mr. Higgins has served as chairman since February 2000. He has
been an advisor to oCen since it was founded in 1997 and has been an active
board member since 1998. Mr. Higgins is the founder and former chairman and
chief executive officer of Digital Island, a global e-business delivery network
for business-critical applications. For nearly two decades, Mr. Higgins has
helped build successful technology companies in the networking, communications,
desktop publishing, and multimedia areas. With an extensive background in
international strategy and marketing, he has developed and implemented sales
and marketing programs for a variety of companies ranging from start-ups to
large corporations with revenues in excess of $500 million. Before founding
Digital Island in February 1994, Mr. Higgins held senior marketing positions at
Tut Systems, Mobius Technologies, Radius, Letraset, and General Parametrics.

Alex Liu. Mr. Liu became chief executive officer of oCen in April 2000,
having served as managing director of Asia since February 2000. Mr. Liu has
over 20 years of experience marketing professional and information services to
corporate and carrier customers around the world, and over 10 years of direct
work experience with these enterprises in Asia. Some of his corporate and
carrier customers in the region have included traditional and wireless service
providers, manufacturers of computer and electronic equipment, software
companies, and Internet-based enterprises. Previously, Mr. Liu was the officer-
in-charge of the Asia and Americas Communications and Electronics practice of
A.T. Kearney, the management consulting arm of EDS, an integrated information
technology services firm. He joined A.T. Kearney in 1997 to lead the practice
in Asia and relocated to Silicon Valley in 1999 to co-lead the Americas
practice. Before joining A.T. Kearney, he worked for the Boston Consulting
Group in the United States during the 1980s and in Asia, as a partner and co-
founder of the Asia practice, during the 1990s. Mr. Liu holds a B.A. in
economics, magna cum laude and Phi Beta Kappa, from Yale University and an
M.B.A. from Harvard Business School.

Steven San Eng. Mr. Eng has served as vice-chairman and executive vice-
president of corporate development since April 2000 and as a director since
January 2000. Prior to that, he served as chief executive officer, chief
financial officer, vice-president of business development, and vice-president
of marketing and sales for oCen. Mr. Eng has nearly 10 years of strategy and
operations consulting, venture capital, and start-up experience. In 1996, Mr.
Eng served as an investment manager at AIG Investment Corp. where he helped
manage the $1.1 billion Asian Infrastructure Fund, focusing on private equity
telecom investments throughout Asia. Before AIG, Mr. Eng joined Asia Online,
one of Hong Kong's largest Internet service providers at the time, to manage
their customer service and technical support departments. From October 1994 to
September

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1996, he was a management consultant with AT Kearney in Asia. From May 1992 to
October 1994, he was a consultant with the strategic services group of Anderson
Consulting based in New York. Mr Eng has a B.S.E. degree from the Wharton
School of the University of Pennsylvania, and speaks fluent Cantonese,
Mandarin, and Hakkanese.

James Courtney. Mr. Courtney has served as chief operating officer since
November 1999. Before joining oCen, Mr. Courtney held executive positions in
several international joint ventures in communications. From March 1997 to July
1998, Mr. Courtney served as group executive of information systems at Mobile
Telephone Networks, a subsidiary of Cable & Wireless. From January 1996 to
February 1997, Mr. Courtney served as chief operating officer for M-Tel, a GSM
cellular operator and another subsidiary of Cable & Wireless in Johannesburg,
South Africa, where he was responsible for a staff of 800. There, he grew M-
Tel's operations to over 230,000 subscribers. Before that, Mr. Courtney was
with Mobile Telephone Networks from March 1995 to December 1995, Occell
Cellular in Columbia from July 1994 to March 1995, and RTC Mobfion in Bulgaria
from October 1992 to June 1994, holding positions in business development,
information technology, and business operations, respectively. In the United
States, Mr. Courtney held several management and engineering positions with GTE
Corporation from July 1986 to July 1990. Mr. Courtney has an M.B.A. from the
University of Chicago, where he graduated cum laude. He also holds an M.S. in
economics from the London School of Economics, as well as B.S. degrees in both
electrical engineering and physics from the University of South Florida.

Mark Keithley. Mr. Keithley has served as chief financial officer since April
2000. He has over 15 years of financial management experience with several
major telecommunications companies around the world. Before joining oCen, Mr.
Keithley was chief financial officer for Global One Communications Limited
responsible for the Asia, Middle East and Africa division. He joined Global One
in 1996 to take over financial management of their Asian operations. Before
joining Global One, Mr. Keithley led the development of Sprint International's
Asia/Pacific Finance Infrastructure. His previous corporate positions also
include various roles of increasing management and leadership responsibility in
budgeting, accounting, audit and treasury for U.S.-based Sprint and United
Telecommunications. Mr. Keithley holds a B.S. in accounting with a minor in
finance from University of Illinois at Urbana-Champaign, and a M.B.A. with
scholar distinction in international business and markets analysis from the
University of Kansas.

Thomas Bao. Mr. Bao is a co-founder and investor in oCen, and has served as
president and director since October 1997 and as vice-president of Greater
China since November 1998. Before founding oCen, he founded, funded, and
managed Pacific Sunrise, a real estate development company in Los Angeles from
October 1994 to October 1996. From February 1993 to September 1994, Mr. Bao
worked for Transamerica and from February 1993 to September 1994 for Chung
Shing Textiles in various management capacities. Mr. Bao attended the
University of San Francisco and is fluent in Mandarin.

William Haner. Mr. Haner has served as vice-president of sales since April
2000 and has over 15 years experience in the telecommunications industry. He
has extensive experience in international sales to carriers and commercial
customers. Prior to oCen, Mr. Haner was senior vice president at Pacific
Gateway Exchange, where he helped launch the company's international wholesale
services. From 1993 to 1994, Mr. Haner served in a similar position with IDB
Communications Group, Inc., an international telecommunications company, which
has since been acquired by WorldCom. From 1985 to 1993, Mr. Haner was a
director of sales for TRT International, Inc., where he was responsible for
international data services and implementing enhanced facsimile services.

Eckhart Gouras Mr. Gouras became vice-president of business development in
August 1999. Before joining oCen, from August 1997 to July 1999, Mr. Gouras
founded and developed one of Europe's first and largest Internet communications
service providers, POPTEL Telecommunications AG in Berlin, Germany. Before his
pioneering efforts at POPTEL, Mr. Gouras served as managing director of Silk
Road International Limited from August 1993 to July 1997, advising European
companies on doing business in China. He also advised the German Privatization
Agency on the sale of state-owned enterprises from 1991 to 1992.

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Mr. Gouras is a member of the New York bar and worked as a lawyer for Coudert
Brothers, an international law firm based in New York. He holds B.A. (Phi Beta
Kappa) and J.D. degrees from Columbia University and speaks German, Italian,
and Mandarin.

Gunther Gee. Mr. Gee became vice-president of technology in February 1999.
From October 1994 to January 1999, Mr. Gee was the vice-president of operations
(and de facto vice-president of technology) at DirectNet Telecommunications, an
alternative international telecommunications carrier, where he managed the
operations during the company's growth from the start-up stage to $80 million
in sales and 150 employees. Mr. Gee oversaw the design and deployment of
DirectNet's large-scale wholesale and retail networks in the United States and
Europe. Prior to DirectNet, Mr. Gee was a senior consultant with
PricewaterhouseCoopers bankruptcy and litigation consulting group. Mr. Gee
holds a B.S. in business finance, magna cum laude, from the University of the
Pacific.

Chris Au. Mr. Au became vice-president of legal in August 1998, secretary in
January 1999, and vice-president of Asia operations in October 1999. He served
as the chief operating officer at oCen from December 1998 to October 1999. Mr.
Au is an attorney with over 10 years of law and entrepreneurial experience.
Before joining oCen, from September 1995 to June 1998, Mr. Au founded and
managed the New York law firm of Au & Yuen, P.C. Before Au & Yuen, he served
externships with the Honorable Sonia M. Sotomayor, a Federal District Court
Judge, from January 1994 to May 1994 and the New Jersey Attorney General's
Office from September 1993 to December 1993. Mr. Au holds a B.S. in finance and
international business from New York University and a J.D. from Rutgers
University School of Law. He also studied the legal systems of Hong Kong and
China at Hong Kong University. Mr. Au is a member of the New York and New
Jersey bars and speaks Cantonese.

Lloyd Fischer. Mr. Fischer became a director of oCen in November 1998. Mr.
Fischer is a managing director of ING Barings. Prior to joining ING Barings in
October 1999, Mr. Fischer was head of regional telecommunications research for
Salomon Smith Barney from March 1998 to October 1999, and held a similar
position at Barclays de Zoete Wedd during February 1996 to March 1998. From
January 1993 to January 1996, Mr. Fischer was the Asian director of corporate
finance for NYNEX Network Systems. Mr. Fischer holds B.S. and J.D. degrees from
the University of Illinois and is accredited with a C.F.A. and C.P.A.

Chan Ki. Mr. Chan became a director of oCen in August 1999. Mr. Chan founded
Anderson Group Limited, a real estate and technology corporation, in 1993 and
developed it into a HK$1 billion enterprise involved in properties and high
technology. Anderson Group is based in Hong Kong with investments in the United
States, Hong Kong, and China. An Anderson Group company, Anderson Data
Transmission Limited, is an investor in oCen. Mr. Chan is a member of the
Tianjin Political Consultative Conference, Life Chairman of the Tianjin
University Chan Ki Scholarship, Life Chairman of Tianjin Shing Kin College Chan
Ki Scholarship, Life Chairman of Xi'an Transportation College Chan Ki
Scholarship, Honorary President of Tianjin Chinese Culture Association, and
Honorary President of Chaoshan District Galaxy Award Fund.

Simon Lo. Mr. Lo became a director of oCen in August 1999. Mr. Lo has over 19
years of experience in the financial, securities, and futures industries. He
has been a member of the Chicago Mercantile Exchange since 1986 and holds
memberships in the Index & Option Market and the International Monetary Market.
He is currently the deputy chairman of Tai Fook Securities Group Limited,
managing director of New World CyberBase Limited and executive director of Huey
Tai International Limited, The Kwong Sang Hong International Limited and
Pacific Ports Company Limited, each of which is a listed company on the Stock
Exchange of Hong Kong. New World Cyberbase is the Internet investment arm of
the New World group of companies and an investor in oCen.

Jean Salata. Mr. Salata became a director of oCen in November 1998. Mr.
Salata is the founder and the managing member of the general partner of the
$305 million Baring Asia Private Equity Fund, an Asia-focused and Asian-based
venture fund advised by Baring Private Equity Partners Asia, which belongs to
the ING

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Group, a leading integrated financial services institution. Mr. Salata has
regional responsibility for the fund's investment activities. The fund has
closed over 20 investments throughout the region since its inception in 1997,
including management-led buyouts in the technology sector and early-stage
Internet investments. Mr. Salata is chairman of NetStar, a pan-Asian network
integrator, in which the fund holds a controlling interest. He is also a
director of ActionAce.com, an interactive entertainment software applications
and service provider. Mr. Salata has previously worked for the Asian private
equity arm of AIG from 1995 to 1997, for Shiu Wing Steel Limited, an Asian
industrial group, from 1991 to 1995, and for Bain & Company, the management
consulting firm, from 1988 to 1991. He graduated with honors with a B.S. in
economics from the Wharton School of the University of Pennsylvania.

Committees of the Board

We have established an audit committee, comprised of Lloyd Fischer, Chan Ki,
and Simon Lo. The audit committee reviews our internal accounting procedures
and consults with and reviews the results and scope of the audit and other
services provided by our independent accountants. We have also established a
compensation committee, comprised of Steven San Eng, Ron Higgins, Chan Ki, and
Jean Salata. The compensation committee administers our share option plans and
reviews and approves the compensation and benefits for our key executive
officers. This committee also establishes and reviews general policies relating
to compensation and benefits of our employees.

Director Compensation

Other than reimbursing directors for customary and reasonable expenses of
attending board and committee meetings, we do not currently compensate our non-
employee directors.

Compensation Committee Interlocks and Insider Participation

Prior to this offering, our board of directors has not had a compensation
committee, and all compensation decisions relating to our officers have been
made by the full board of directors. Upon the closing of this offering, the
compensation committee will make all compensation decisions regarding our
officers. No interlocking relationship exists between the compensation
committee and the board of directors or compensation committee of any other
company, nor have any interlocking relationships existed in the past.

Executive Compensation

Compensation Summary. The following table sets forth compensation information
for the chief executive officer and the three other most highly compensated
executive officers of oCen for the year ended September 30, 1999.

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Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
Securities
Underlying Other Annual
Name and Principal Positions Salary($) Bonus($) Options Compensation($)
- ---------------------------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Alex Liu, Chief Executive
Officer (1)...................
Steven San Eng, Executive VP of
Corporate Development (2)..... $67,615 $50,000 3,650(6) --
Thomas Bao, VP of Greater China
(3)........................... 61,011 20,000 3,650(6) --
Chris Au, VP of Legal and
Secretary (4) ................ 60,403 30,000 2,830(7) --
Gunther Gee, VP of Technology
(5)........................... 47,610 10,000 81,070(8) --
</TABLE>
- --------

(1) Mr. Liu became chief executive officer in April 2000. Prior to serving as
our chief executive officer, Mr. Liu served as our managing director of
Asia from February 2000 to April 2000.

(2) Mr. Eng was our chief executive officer from January 1999 to April 2000.
Prior to serving as our chief executive officer, Mr. Eng served as our
chief financial officer, vice-president of business development, and vice-
president of marketing and sales.

(3) Mr. Bao served as our chief executive officer from October 1997 until
January 1999.

(4) Mr. Au served as our chief operating officer from December 1998 to October
1999.

(5) Mr. Gee has served as our vice-president of technology since February 1999
and, therefore, these amounts are for less than a full year.

(6) The options are subject to a four year vesting period starting from June 1,
1998.

(7) The options are subject to a four year vesting period starting from August
19, 1998.

(8) The options are subject to a four year vesting period starting from
February 15, 1998.

Option Grants in Last Fiscal Year. The following table provides certain
information regarding stock options granted to the executive officers named in
the Summary Compensation Table during the fiscal year ended September 30, 1999.
We granted to our employees options to purchase 994,490 shares of our common
stock during fiscal year 1999. All options were granted with an exercise price
equal to the fair market value of the common stock on the date of grant, as
determined by the board of directors. Options will terminate before their
expiration date if the optionee is no longer an employee or consultant of oCen.
Please note that for purposes of calculating the potential realizable value, we
have done the following, in accordance with Securities and Exchange Commission
Rules:

. multiplied the number of shares subject to each option by $ , the
assumed initial public offering price per share; and
. calculated the gains or "option spreads" that would exist for the
options assuming an annual compounded stock appreciation of 5% and 10%
from the date the option was granted over the full option term.

These assumed annual compound rates are mandated by the Securities and
Exchange Commission and do not represent our estimate or projection of future
stock prices.

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<PAGE>

Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at Assumed
------------------------------------------- Annual Rates
% of Total of Stock Price
Number of Options Appreciation for
Securities Granted Exercise Option Term
Underlying to Employees or Base (thousands)
Options in Fiscal Price Expiration -----------------
Name Granted(#) Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alex Liu......... -- -- -- -- -- --
Steven San Eng... 3,650 0.4% $0.20 7/8/09 $ 49 $ 51
Thomas Bao....... 3,650 0.4 0.20 7/8/09 49 51
Chris Au......... 2,830 0.3 0.20 7/8/09 38 40
Gunther Gee...... 81,070 8.1 0.20 7/8/09 1,090 1,143
</TABLE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table provides summary information regarding
options/stock appreciation rights (SARs) held by the executive officers named
in the Summary Compensation Table as of September 30, 1999. The value realized
is equal to the fair market value of the purchased shares on the date of option
exercise, less the price paid for such shares. The value of unexercised in-the-
money options is based on an assumed initial public offering price of $13.00
per share, less the exercise price payable for the shares.

Aggregated Option Exercises in 1999 and Year-End Option Values

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs the-Money Options/SARs
at Year-End(#) at Year-End($)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alex Liu................ -- -- -- -- --
Steven San Eng.......... -- -- 3,650 -- --
Thomas Bao.............. -- -- 3,650 -- --
Chris Au................ -- -- 2,830 -- --
Gunther Gee............. -- -- 81,070 -- --
</TABLE>

Employee Benefit Plans

2000 Stock Incentive Plan

Introduction. Our 2000 stock incentive plan is intended to serve as the
successor equity incentive program to our 1998 stock option/stock issuance
plan. Our 2000 plan was adopted by our board on March 15, 2000 and approved by
the stockholders in 2000. Our 2000 plan will become effective on the date
the underwriting agreement for this offering is signed. At that time, all
outstanding options under the predecessor 1998 stock option/stock issuance plan
will be transferred to our 2000 plan, and no further option grants will be made
under that predecessor plan. The transferred options will continue to be
governed by their existing terms, unless our compensation committee elects to
extend one or more features of our 2000 plan to those options. Except as
otherwise noted below, the transferred options will have substantially the same
terms as in effect for grants made under the discretionary option grant program
of our 2000 plan.

Share Reserve. shares of common stock have been authorized for issuance
under our 2000 plan. Such share reserve consists of the number of shares we
estimate will be carried over from our 1998 stock option/stock issuance plan,
including the shares subject to outstanding options thereunder, plus an
additional increase of approximately shares. The number of shares of
common stock reserved for issuance under our 2000 plan will automatically
increase on the first trading day in January each calendar year, beginning in
calendar year 2001, by an amount equal to % of the total number of shares of
common stock

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<PAGE>

outstanding on the last trading day in December of the preceding calendar year,
but in no event will any such annual increase exceed shares. In addition,
no participant in our 2000 plan may be granted stock options, separately
exercisable stock appreciation rights, or direct stock issuances for more than
shares of common stock per calendar year.

Equity Incentive Programs. Our 2000 plan is divided into five separate
components:

. the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
. the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at
a price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones
or the completion of a specified period of service;
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below-market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to acquire special below-
market option grants.

Eligibility. The individuals eligible to participate in our 2000 plan include
our officers and other employees, our non-employee board members, and any
consultants we hire.

Administration. The discretionary option grant program and the stock issuance
program will be administered by the compensation committee, which shall be
divided into a primary committee and a secondary committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when such option grants or
stock issuances are to be made, the number of shares subject to each such grant
or issuance, the status of any granted option as either an incentive stock
option or a non-statutory stock option under the federal tax laws, the vesting
schedule to be in effect for the option grant or stock issuance and the maximum
term for which any granted option is to remain outstanding. The compensation
committee will also have the exclusive authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is activated
for one or more calendar years.

Plan Features. Our 2000 plan will include the following features:

. The exercise price for the shares of common stock subject to option
grants made under our 2000 plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The
option may also be exercised through a same-day sale program without any
cash outlay by the optionee. In addition, the plan administrator may
provide financial assistance to one or more optionees in the exercise of
their outstanding options or the purchase of their unvested shares by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise or purchase.

. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
transferred from the 1998 plan, in return for the grant of new options
for the same or a different number of option shares with an exercise
price per share based upon the fair market value of our common stock on
the new grant date.

. Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the fair market value of the
vested shares of common stock

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<PAGE>

subject to the surrendered option, less the aggregate exercise price
payable for those shares. Such appreciation distribution may be made in
cash or in shares of common stock. None of the outstanding options under
our 1998 plan contain any stock appreciation rights.

. The 2000 plan will include the following change in control provisions
which may result in the accelerated vesting of outstanding option grants
and stock issuances:

. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary
option grant and stock issuance programs will immediately vest, except
to the extent our repurchase rights with respect to those shares are
to be assigned to the successor corporation.

. The compensation committee will have complete discretion to structure
one or more options under the discretionary option grant program so
those options will vest as to all the option shares in the event those
options are assumed in the acquisition but the optionee's service with
us or the acquiring entity is subsequently terminated. The vesting of
outstanding shares under the stock issuance program may be accelerated
upon similar terms and conditions.

. The compensation committee will also have the authority to grant
options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor corporation.

. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a successful tender
offer for more than 50% of our outstanding voting stock or a change in
the majority of our board through one or more contested elections for
board membership. Such accelerated vesting may occur either at the
time of such transaction or upon the subsequent termination of the
individual's service.

. The options currently outstanding under our 1998 plan will immediately
vest in the event we are acquired by merger or sale of substantially
all our assets, unless those options are assumed by the acquiring
entity or our repurchase rights with respect to any unvested shares
subject to those options are assigned to such entity. However, a
number of those options also contain a special acceleration provision
pursuant to which the shares subject to those options will immediately
vest upon an involuntary termination of the optionee's employment
within 18 months following an acquisition in which the repurchase
rights with respect to those shares are assigned to the acquiring
entity.

Salary Investment Option Grant Program. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year
by a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely election will automatically be
granted, on the first trading day in January of the calendar year for which his
or her salary reduction is to be in effect, an option to purchase that number
of shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is to be in effect.

Automatic Option Grant Program. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
shares on the date such individual joins the board, provided such
individual has not been in our prior employ. In addition, on the date of each
annual stockholders meeting held

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<PAGE>

after the completion of this offering, each non-employee board member who is to
continue to serve as a non-employee board member, including each of our current
non-employee board members, will automatically be granted an option to purchase
shares of common stock, provided such individual has served on our board
for at least six months.

Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
initial -share automatic option grant will vest in a series of four
successive annual installments upon the optionee's completion of each year of
board service over the four-year period measured from the grant date. The
shares subject to each annual -share automatic option grant will vest upon
the optionee's completion of one year of board service measured from the grant
date. However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.

Director Fee Option Grant Program. If the director fee option grant program
is activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any cash retainer fee for the year to
the acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for which
the retainer fee would otherwise be payable in cash. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the election is to
be in effect. However, the option will become immediately exercisable for all
the option shares upon the optionee's death or disability while serving as a
board member.

Our 2000 plan will also have the following features:

. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.

. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.

. The board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later
than the last business day of July 2010.

Employee Stock Purchase Plan.

Introduction. Our employee stock purchase plan was adopted by the board on
March 15, 2000 and approved by the stockholders in 2000. The plan will
become effective immediately upon the signing of the underwriting agreement for
this offering. The plan is designed to allow our eligible employees and the

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<PAGE>

eligible employees of our participating subsidiaries to purchase shares of our
common stock, at semi-annual intervals, with their accumulated payroll
deductions.

Share Reserve. shares of our common stock will initially be reserved for
issuance. The reserve will automatically increase on the first trading day in
January each calendar year, beginning in calendar year 2001, by an amount equal
to 1% of the total number of outstanding shares of our common stock on the last
trading day in December in the prior calendar year. In no event will any such
annual increase exceed shares.

Offering Periods. The plan will have a series of successive overlapping
offering periods, with a new purchase interval beginning on the first business
day of February and August each year. Each purchase interval will have a
duration of 24 months, unless otherwise determined by the compensation
committee. However, the initial offering period may have a duration in excess
of 24 months and will start on the date the underwriting agreement for this
offering is signed and will end on the last business day in January 2002. The
next purchase interval will start on the first business day in August 2000.

Eligible Employees. Individuals scheduled to work more than 20 hours per week
for more than five calendar months per year may join an offering period on the
start date of that period. However, employees may participate in only one
offering period at a time.

Payroll Deductions. A participant may contribute up to 15% of his or her cash
earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the participant's entry date into the offering period or, if lower,
85% of the fair market value per share on the semi-annual purchase date. Semi-
annual purchase dates will occur on the last business day of January and July
each year. However, a participant may not purchase more than shares on any
purchase date, and not more than shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.

Reset Feature. If the fair market value per share of our common stock on any
purchase date is less than the fair market value per share on the start date of
the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.

Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than 50% of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of the acquisition. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.

Plan Provisions. The following provisions will also be in effect under the
plan:

. The plan will terminate no later than the last business day of July
2010.
. The board may, at any time, amend, suspend, or discontinue the plan.
However, certain amendments may require stockholder approval.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of January 31, 2000, as adjusted to
reflect the sale of common stock in this offering, by:

. each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock,
. each of our directors,
. each of our named executive officers, and
. all directors and executive officers as a group.

Except as otherwise noted, the address of each person listed in the table is
c/o oCen Communications, Inc., 4900 Rivergrade Road, C110, Irwindale, CA 91706.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned. The applicable percentage of ownership for each stockholder is based on
14,406,116 shares of common stock outstanding as of January 31, 2000, assuming
the conversion of all outstanding preferred stock into common stock and the
portion of the convertible notes that automatically convert into 230,769 shares
of common stock upon the closing of this offering, and 18,497,885 shares
outstanding after the completion of this offering, based on 14,697,885 shares
outstanding as of March 31, 2000 in each case together with applicable options
for that stockholder. The 14,697,885 shares outstanding as of March 31, 2000
excludes 2,098,815 shares of common stock reserved for issuance upon exercise
of outstanding options at a weighted average exercise price of $4.11 per share
and 85,333 warrants outstanding at a weighted average exercise price of $1.62.
Shares of common stock issuable upon exercise of options and other rights
beneficially owned that are exercisable within 60 days of January 31, 2000 are
deemed outstanding for the purpose of computing the percentage ownership of the
person holding those options and other rights but are not deemed outstanding
for computing the percentage ownership of any other person. A portion of the
shares issued to officers or issuable upon exercise of options by officers is
subject to repurchase by us at the original exercise price in the event of
termination of that officers' employment, which repurchase right lapses over
time.

<TABLE>
<CAPTION>
Percentage of
Total Shares
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with ING Group
P.O. Box 431, Alexander House,
13-15 Victoria Road, St. Peter Port,
Guernsey, Channel Islands, GY1 3ZD (1)........ 2,912,480 20.2% 15.7%

Excel-Foundation Limited
36/F New World Tower
16-18 Queen's Road Central, Hong Kong (2)..... 2,192,999 15.2% 11.9%

Entities affiliated with Anderson Data
Transmission Limited
Room 3307-9, 33/F, Office Tower,
Convention Plaza, No.1 Harbour Road
Wanchai, Hong Kong (3)........................ 2,192,998 15.2% 11.9%

Goodrich Communications
1950 Samara Dr.
Rowland Heights, CA 91748..................... 1,682,619 11.7% 9.1%

Thomas Bao (4)................................. 1,142,591 7.9% 6.2%

Joe Bao........................................ 847,266 5.9% 4.6%

Steven San Eng (4)............................. 731,150 5.1% 4.0%

Chris Au (5)................................... 182,830 1.3% 1.0%

Gunther Gee (6)................................ 121,070 * *

Ron Higgins (7)................................ 95,000 * *

Lloyd Fischer (1) (8).......................... 3,057,481 21.1% 16.5%

Jean Salata (1)................................ 2,912,480 20.2% 15.7%

Simon Lo (2)................................... 2,192,999 15.2% 11.9%

Chan Ki (3).................................... 2,192,998 15.2% 11.9%

All directors and executive officers as a group
(13 persons) (9).............................. 9,841,119 68.3% 53.2%
</TABLE>

66
<PAGE>

- --------
* Less than one percent.

(1) Consists of 2,912,480 shares held by BAPEF Investments IV Limited. Mr.
Salata is a managing member of the general partner of BAPEF Investments IV
Limited. Mr. Fischer is a director of ING Barings Asia Limited. Mr. Fischer
disclaims beneficial ownership of the shares owned by ING Group and its
affiliates, except to the extent of his pecuniary interest, if any.

(2) Consists of 2,192,999 shares held by Excel-Foundation Limited, which are
beneficially owned by New World CyberBase Limited. Excel-Foundation Limited
disclaims beneficial ownership of the 2,192,999 shares beneficially owned
by New World CyberBase Limited except to the extent of its pecuniary
interest, if any. Mr. Lo is a director of Excel-Foundation Limited and New
World CyberBase Limited. Mr. Lo disclaims beneficial ownership of those
shares, except to the extent of his pecuniary interest, if any.

(3) Consists of 2,192,998 shares held by Anderson Data Transmission Limited.
Anderson Information Technology Limited transferred the 2,192,998 shares
held by them to Anderson Data Transmission Limited on February 1, 2000. Mr.
Chan is President of Anderson Data Transmission Limited and Anderson
Information Technology Limited. Mr. Chan disclaims beneficial ownership of
those shares, except to the extent of his pecuniary interest, if any.

(4) Includes options exercisable for 3,650 shares.

(5) Includes options exercisable for 2,830 shares and 180,000 shares held by
Mr. Au's spouse. Mr. Au disclaims beneficial ownership of those shares.

(6) Includes options exercisable for 121,070 shares.

(7) Includes options exercisable for 95,000 shares.

(8) Includes options exercisable for 65,000 shares.

(9) Includes options exercisable for 416,200 shares.

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<PAGE>

RELATED PARTY TRANSACTIONS

We have entered into an indemnification agreement with our in-house legal
advisor, Chris Au.

From our inception, we have funded losses and capital expenditures with cash
from financing activities. These activities included the private placement of
the following:

. Common Stock. Common stock sold to our founders for an aggregate amount
of approximately $200,000 in October 1997; as of March 31, 2000, the
cumulative exercise of options to purchase 61,000 shares for an aggregate
exercise price of approximately $13,000.

. Convertible Notes. Convertible notes with an aggregate principal amount
of approximately $280,000 sold to a group of private investors during
fiscal years 1998 and 1999.

. Series A. Convertible preferred stock sold to the Baring Asia Private
Equity Fund, and private investors for an aggregate amount of
approximately $2 million in November 1998.

. Series B. Convertible preferred stock sold to Excel-Foundation, a wholly-
owned subsidiary of New World Cyberbase, and Anderson Information
Technology, for an aggregate amount of approximately $6.5 million in
September 1999.

. Series C. Convertible preferred stock sold to existing stockholders,
Lotus Asset Management under the Lotus Liberator Fund, and private
investors for an aggregate amount of approximately $2.2 million in
November 1999.

. Series D. Convertible preferred stock sold to existing stockholders for
an aggregate amount of approximately $8 million in January 2000.

. Convertible Notes. Convertible notes with an aggregate principal amount
of $10 million sold to a group of private investors in January 2000.

The number of shares of common stock and convertible preferred stock below
reflects a 10,000 for 1 stock split in August 1998 and 3 for 1 stock split in
April 1999.

In October 1997, we issued an aggregate of 4,888,800 shares of common stock
for an aggregate purchase price of approximately $200,000 to our founders, Joe
Bao, Thomas Bao, Kal Wong, Mitch Wang, Edward Manolos, Goodrich Communications
Co., and Pacific Resources Technology Corp. We also issued convertible notes
with an aggregate principal amount of approximately $280,000 during fiscal
years 1998 and 1999. These notes bear interest at the rate of 5.5% annually and
expire in July 2001. In the event of a qualified financing of at least $1
million in gross proceeds, the noteholders have the option to convert these
notes into equity securities at the same price as the securities issued in the
qualified financing. Approximately $230,000 of the notes outstanding were
converted into 186,234 shares of Series A preferred stock in November 1998.

In November 1998, we issued 1,600,023 shares of Series A convertible
preferred stock for $2 million, which included the conversion of some
promissory notes in November 1998. The Baring Asia Private Equity Fund
purchased 2,512,480 shares of Series A convertible preferred stock, Lloyd
Fischer purchased 80,004 shares of Series A convertible preferred stock, Thomas
Bao purchased 79,701 shares of Series A convertible preferred stock, and Joe
Bao purchased 32,466 shares of Series A convertible preferred stock. In
connection with this offering, we issued a warrant to the Baring Asia Private
Equity Fund to purchase shares of Series A preferred stock if we did not meet
certain revenue milestones. The warrant became fully vested, immediately
exercisable and unable to be forfeited on July 31, 1999, when we did not meet
these milestones. The warrant was exercised in August 1999, and we issued
1,312,480 shares of Series A preferred stock.

In September 1999, we issued 3,403,141 shares of Series B convertible
preferred stock for $6.5 million to a subsidiary of New World Cyberbase and to
Anderson Information Technology. New World Cyberbase purchased 1,701,571 shares
of Series B convertible preferred stock and Anderson Information Technology
purchased 1,701,570 shares of Series B convertible preferred stock.

68
<PAGE>

In November 1999, we issued 1,023,807 shares of Series C convertible
preferred stock for $2.2 million to Lotus Asset Management, a group of private
investors, and existing stockholders. New World Cyberbase purchased 238,095
shares of Series C convertible preferred stock and Anderson Information
Technology purchased 238,095 shares of Series C convertible preferred stock.

In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock to existing stockholders for approximately $8 million. The Baring Asia
Private Equity Fund purchased 400,000 shares of Series D convertible preferred
stock, New World Cyberbase purchased 253,333 shares of Series D convertible
preferred stock, and Anderson Information Technology purchased 253,333 shares
of Series D convertible preferred stock.

All of our preferred stock financings had substantially the same terms. The
preferred stock has voting rights equal to the shares of common stock into
which the preferred stock is convertible, limited dividend rights, liquidation
preferences of the original purchase price plus 6% per annum, no redemption
rights, and the right to convert to common stock at any time.

In January 2000, we issued $10 million in aggregate principal amount of
convertible notes bearing interest at 6% annually, which mature in January
2005, to a group of private investors. If we receive gross proceeds of at least
$10 million in another round of financing, then 30% of the outstanding
principal amount of each note will convert into our capital stock with the rest
of the balance paid out by us. If we consummate an initial public offering
prior to January 2005, receive gross proceeds of at least $10 million in
another round of financing, or default under the terms of the notes, then we,
in our sole discretion, can convert the entire outstanding amount of the notes
into our capital stock.

All shares of our preferred stock will convert into common stock on a 1-for-1
basis upon completion of this offering. Shares and warrants held by affiliated
persons and entities have been aggregated. See "Principal Stockholders." In
connection with the above transactions, we entered into agreements with the
investors providing for registration rights with respect to these shares. See
"Description of Capital Stock--Registration Rights." All the preferred stock
holders are parties to an investors' rights agreement dated January 4, 2000.
The agreement provides that each investor who holds at least 500,000 shares of
preferred stock has a right of first offer. Each founder and investor is also
subject to our right of first refusal. Both the right of first offer and right
of first refusal terminate upon the completion of this offering.

ING Group and its affiliates own 16.4% of the Baring Asia Private Equity
Fund, which in turn owns approximately 20% of our existing share capital. That
fund initially acquired 2,512,480 shares of our Series A convertible preferred
stock in November 1998. In January 2000, it acquired an additional 400,000
shares of our Series D convertible preferred stock. The Baring Asia Private
Equity Fund is also an investor in NetStar. We have entered into a strategic
marketing relationship with NetStar. Jean Salata, one of our directors, is a
managing member of the general partner of the Baring Asia Private Equity Fund
and is also the chairman of NetStar. Lloyd Fischer, another of our directors,
is the managing director of ING Barings and is a director of ING Barings Asia
Limited. Mr. Fischer acquired 80,004 shares of Series A convertible preferred
stock in November 1998. In 1999, we granted Mr. Fischer options for an
additional 65,000 shares of our common stock. We have entered into a strategic
marketing relationship with NetStar, in which we have both agreed to partner to
launch IP-based communication services for Taiwan and then greater China.

During the period ended September 30, 1998 and 1999, stockholders and other
parties related to oCen loaned us approximately $230,000 and $50,000,
respectively, in exchange for notes convertible into our equity securities.
These notes are unsecured, bear interest at 5.5% annually, and mature during
various months in the year 2001. In connection with our Series A preferred
stock financing, notes totaling approximately $230,000, plus accrued interest
of $2,790, were converted into 186,234 shares of Series A preferred stock. We
repaid the remaining note for $50,000.

69
<PAGE>

At September 30, 1998 and 1999, we held notes receivable from Chris Au,
Rodger Huang, and Steven San Eng totaling approximately $61,000 and $66,000,
respectively, for the purpose of exercising their stock options. The notes are
unsecured, bear interest at 5.5% per year, and mature on September 29, 2001.

Any future transactions, including loans between our company and our
officers, directors, and principal stockholders and their affiliates, will
require approval of a majority of the board of directors, including a majority
of the independent and disinterested directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.

70
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock and provisions of our
certificate of incorporation and our bylaws are summaries. Complete copies of
these documents have been or will be filed with the SEC as exhibits to our
registration statement. The description of our capital stock reflects changes
to our capital structure that will occur upon the closing of this offering in
accordance with the terms of our certificate of incorporation.

Our authorized capital stock consists of 27,850,000 shares of common stock,
par value $0.001 and 11,700,000 shares of preferred stock, par value $0.001.

Common Stock

As of January 31, 2000, 14,406,116 shares of common stock were outstanding,
assuming conversion of all outstanding shares of convertible preferred stock
into common stock, held of record by 28 stockholders. After the offering,
18,497,885 shares will be outstanding. Upon consummation of this offering, all
shares of our existing convertible preferred stock will convert into common
stock.

In connection with our credit facility, we issued to the lender a warrant to
purchase 80,000 shares of Series A convertible preferred stock at $1.25 per
share, which would be equivalent to 80,000 shares of common stock upon
consummation of this offering. In June 1999, the warrant became fully vested,
exercisable, and unable to be forfeited.

In connection with our equipment lease line, we issued to the lender a
warrant to purchase 5,333 shares of Series D convertible preferred stock at
$7.50 per share, which would be equivalent to 5,333 shares of common stock upon
consummation of this offering.

Holders of common stock are entitled to receive dividends as may from time to
time be declared by the board of directors out of funds legally available.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote and do not have any
cumulative voting rights. Holders of common stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of oCen, holders of common stock are entitled to
share equally and ratably in our assets, if any, remaining after the payment of
all our liabilities and the liquidation preference of any outstanding class or
series of preferred stock. The rights, preferences and privileges of holders of
common stock are subject to the rights of any series of preferred stock that we
may issue in the future, as described below.

Preferred Stock

The board of directors has the authority to issue preferred stock in one or
more series and to fix the number of shares constituting any series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by our stockholders. The issuance of
preferred stock by the board of directors could adversely affect the rights of
holders of common stock.

Registration Rights

Under the terms of an agreement with some of our stockholders, after the
closing of this offering the holders of 8,406,116 shares of common stock will
be entitled to demand the registration of their shares under the Securities Act
of 1933. Upon the request of holders of 50% of such shares, we are required to
register their shares under the Securities Act of 1933 subject to limitations
described in the relevant agreement. We are not required to effect more than
one demand registration for these stockholders. In addition, after the closing
of this offering, these holders will be entitled to piggyback registration
rights with respect to the registration of their shares of common stock. If we
propose to register any shares of common stock either for our account or for
the account of other security holders, the stockholders with piggyback rights
are entitled to receive notice of the registration and are entitled to include
their shares in the registration, subject to some limitations. Further, at any
time after we become eligible to file a registration statement on Form S-3, the
holders of the registrable

71
<PAGE>

securities may require us to file registration statements under the Securities
Act of 1933 on Form S-3 with respect to their shares of our common stock. These
registration rights are subject to conditions and limitations, among which is
the right of the underwriters of an offering to limit the number of shares of
common stock held by stockholders with registration rights to be included in a
registration. We are generally required to bear all of the expenses of these
registrations, including the reasonable fees of a single counsel acting on
behalf of all selling stockholders, but excluding underwriting discounts and
commissions. Registration of any of the shares of our common stock held by
stockholders with registration rights would result in those shares becoming
freely tradable without restriction under the Securities Act of 1933
immediately upon the effectiveness of that registration.

Stockholder Action; Special Meeting of Stockholders

The Delaware certificate of incorporation that will become effective
immediately prior to the effectiveness of this offering states that
stockholders may not take action by written consent, but only at duly called
annual or special meetings of stockholders. The Delaware certificate of
incorporation also provides that special meetings of stockholders may be called
only by a majority of the board of directors.

Advance Notice Requirements For Stockholder Proposals and Director Nominations

The bylaws provide that stockholders must provide timely notice in writing to
bring business before an annual meeting of stockholders or to nominate
candidates for election as directors at an annual meeting of stockholders. To
be timely notice for an annual meeting, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices at least
120 days before the first anniversary of the date our notice of the previous
year's annual meeting of stockholders was provided to stockholders. If the date
of the annual meeting of stockholders has been changed to be more than 30
calendar days before or more than 70 calendar days after that anniversary,
notice by the stockholder, to be timely, must be received at least 90 days but
no earlier than 120 days before the annual meeting of stockholders or 10 days
following the date on which notice of the date of the meeting is made public.
If, at any annual meeting, the number of directors to be elected to the board
of directors is increased and we do not publicly announce all the nominees or
specify the size of the increased board of directors at least 100 days before
the anniversary of the previous year's annual meeting, a stockholder's notice
will be considered timely, but only with respect to nominees for the new
positions created by the increase provided the notice is received no later than
10 days after the nominees are announced to the public. To be a timely notice
for a special meeting at which one or more directors will be elected to the
board of directors, a stockholder's notice must be delivered to us no later
than 10 days after notice of the date of the meeting and the nominees proposed
to be elected are announced to the public. The bylaws also specify requirements
as to the form and content of a stockholder's notice. These provisions may keep
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.

Board of Directors

Our certificate of incorporation provides for a classified board of directors
consisting of three classes of directors, each serving staggered three-year
terms. As a result, a portion of our board of directors will be elected each
year. To implement the classified structure, prior to the closing of the
offering, two of the nominees to the board will be elected to one-year terms,
three will be elected to two-year terms, and three will be elected to three-
year terms. Thereafter, directors will be elected for three-year terms. Ron
Higgins, Chan Ki and Simon Lo have been designated Class I directors whose term
expires at the 2001 annual meeting of stockholders. Steven San Eng and Jean
Salata have been designated Class II directors whose term expires at the 2002
annual meeting of stockholders. Lloyd Fischer and Thomas Bao have been
designated Class III directors whose term expires at the 2003 annual meeting of
stockholders.

Authorized But Unissued Shares

The authorized but unissued shares of common stock and preferred stock are
available for future issuances without stockholder approval. These additional
shares may be used for a variety of corporate purposes,

72
<PAGE>

including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued shares of common stock and preferred stock could make it harder or
discourage an attempt to obtain control of us by a proxy contest, tender offer,
merger, or otherwise.

Change of Control Provisions in Employee Benefit Plans

The 2000 Plan provides that in the event that we merge with or into another
corporation or sell substantially all of our assets, the successor corporation
will assume or substitute each option or stock purchase right. If the
outstanding options or stock purchase rights are not assumed or substituted,
the administrator will provide notice to the optionee that he or she has the
right to exercise the option or stock purchase right as to all of the shares
subject to the option or stock purchase right, including shares which would not
otherwise be exercisable, for a period of fifteen days from the date of the
notice. The option or stock purchase right will terminate upon the expiration
of the fifteen-day period.

Delaware Anti-Takeover Law and Charter Provisions

We are subject to Section 203 of the Delaware General Corporation Law which
generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder.
Section 203 applies unless:

. prior to the date the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding certain shares; or
. on or after the date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and
authorized at a meeting of stockholders by the affirmative vote of at
least 66/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Provisions of our certificate of incorporation and Delaware law may delay,
defer or prevent a change in our control and may adversely affect the voting
and other rights of holders of common stock. In particular, our certificate of
incorporation provides for a classified board of directors and the inability of
stockholders to vote cumulatively for directors.

Limitation on Directors' Liability and Indemnification Matters

Our certificate of incorporation provides that, except to the extent provided
by Delaware law, our directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty while
serving as directors. This provision also does not affect the directors'
responsibilities under Delaware corporate law or any other laws, such as the
federal securities laws or state or federal environmental laws. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to our directors or officers, we have been informed that in the
opinion of the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.

We have obtained liability insurance for our executive officers and directors
and have entered into indemnity agreements to indemnify our in-house legal
advisors in addition to the indemnification provided for in our certificate of
incorporation and bylaws. These agreements, among other things, indemnify them
for expenses, judgments, and fines and amounts paid in settlement that are
actually and reasonably incurred by them in any action, suit, or proceeding
arising out of their legal or professional services on our behalf.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Boston Equiserve.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of our common stock. Sales of
substantial amounts of our common stock in the public market after the
offering, or the perception that sales could occur, could adversely affect the
market price of our common stock and our ability to raise equity capital in the
future on terms favorable to us.

After the offering, 18,497,885 shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the shares sold in the U.S. offering and
all of the shares sold in the international offering, which are being offered
and sold outside the United States pursuant to Regulation S but may be resold
from time to time in the United States, will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 701 under the Securities Act, which rules are summarized
below.

The following table shows approximately when the shares of our common
stock that are not being sold in this offering but which will be outstanding
when this offering is complete will be eligible for sale in the public market:

<TABLE>
<CAPTION>
Eligibility of Restricted Shares
for Sale in the Public Market
--------------------------------
<S> <C>
180 days after the effective date ................................
</TABLE>

Resale of most of the restricted shares that will become available for sale
in the public market starting 180 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.

Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year is entitled to sell, within
any three-month period, a number of shares that is not more than the greater
of:

. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.

Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of current public
information about our company.

Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.

Rule 701. Subject to limitations on the aggregate offering price of a
transaction and other conditions, our employees, directors, consultants or
advisors who purchased shares from us, or to whom we granted options to acquire
our shares, under a stock option plan or other written agreement prior to the
date we become subject to the reporting requirements of the Securities Exchange
Act in reliance on Rule 701, can resell those shares

74
<PAGE>

90 days after the effective date of this offering in reliance on Rule 144, but
without complying with some of the restrictions, including the holding period,
contained in Rule 144.

Lock-Up Agreements. Our officers, directors, and substantially all the
holders of our common stock will sign lock-up agreements under which they will
agree not to transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock, for a period of 180 days after the date of this
prospectus. However, Lehman Brothers may, in its sole discretion, at any time,
and without notice, release all or any portion of the shares subject to these
lock-up agreements. Lehman Brothers currently has no intention of releasing any
shares subject to the lock-up. For a more detailed description of these lock-up
agreements, see "Underwriting."

Registration Rights. Under the terms of an agreement with some of our
stockholders, after the closing of this offering, the holders of 8,406,116
shares of common stock will be entitled to demand the registration of their
shares under the Securities Act of 1933. Upon the request of holders of 50% of
such shares, we are required to register their shares under the Securities Act
of 1933 subject to limitations described in the relevant agreement. We are not
required to effect more than one registration for such holders pursuant to
these demand registration rights. In addition, after the closing of this
offering these holders will be entitled to piggyback registration rights with
respect to the registration of their shares of common stock. If we propose to
register any shares of common stock either for our account or for the account
of other security holders, the holders of shares having piggyback rights are
entitled to receive notice of the registration and are entitled to include
their shares in the registration, subject to some limitations. Furthermore, at
any time after we become eligible to file a registration statement on Form S-3,
the holders of the registrable securities may require us to file registration
statements under the Securities Act of 1933 on Form S-3 with respect to their
shares of our common stock. These registration rights are subject to conditions
and limitations, among which is the right of the underwriters of an offering to
limit the number of shares of common stock held by security holders with
registration rights to be included in such registration. We are generally
required to bear all of the expenses of all these registrations, including the
reasonable fees of a single counsel acting on behalf of all selling
stockholders, except underwriting discounts and selling commissions.
Registration of any of the shares of our common stock held by security holders
with registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration.

Stock Options. Immediately after the closing of this offering, we intend to
file a registration statement under the Securities Act covering shares of
our common stock reserved for issuance under our stock option plans.

As of March 31, 2000, we had 2,098,815 shares of our common stock reserved
for issuance upon exercise of outstanding stock options at a weighted average
exercise price of $4.11 per share and 85,333 warrants outstanding at a weighted
average exercise price of $1.62 per share.

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<PAGE>

MATERIAL UNITED STATES INCOME TAX
CONSEQUENCES FOR NON-U.S. HOLDERS

Overview

The following discussion summarizes material U.S. federal income and estate
tax aspects of the ownership and disposition of common stock applicable to non-
U.S. holders of common stock. In general, a "non-U.S. holder" is a person other
than:

. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
. an estate the income of which is subject to U.S. federal income taxation
regardless of its sources,
. a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or
. a trust that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.

The discussion is based upon the Internal Revenue Code of 1986, as amended,
regulations of the Treasury Department, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change (possibly on a retroactive basis). The discussion does not address
aspects of U.S. federal taxation other than income and estate taxation and only
addresses material aspects of federal income and estate taxation. The
discussion does not consider any specific facts or circumstances that may apply
to a particular non-U.S. holder and does not address all aspects of U.S.
federal income tax law that may be relevant to non-U.S. holders that may be
subject to special treatment under such law, such as insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, certain U.S.
expatriates, controlled foreign corporations, passive foreign investment
companies or foreign personal holding companies.

Persons considering the purchase of common stock should consult their tax
advisors concerning the application of U.S. federal income tax laws, as well as
the laws of any state, local or foreign taxing jurisdiction to their particular
situations.

Dividends

In general, the gross amount of dividends paid to a non-U.S. holder will be
subject to U.S. withholding tax at a 30% rate, or any lower rate prescribed by
an applicable tax treaty, unless the dividends:

. are effectively connected with a trade or business carried on by the non-
U.S. holder within the United States and a Form 4224 is filed with the
withholding agent, or
. if a tax treaty applies, are attributable to a United Sates permanent
establishment of the non-U.S. holder.

If either exception applies, the dividend will be taxed at ordinary U.S.
federal income tax rates. A non-U.S. holder may be required to satisfy certain
certification requirements in order to claim the benefit of an applicable
treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation under the above described rules. In the case of a non-
U.S. holder that is a corporation, effectively connected income may also be
subject to an additional branch profits tax, which is generally imposed on a
foreign corporation at a rate of 30% of the deemed repatriation from the United
States of "effectively connected earnings and profits" or such lower rate as an
applicable tax treaty may provide. To the extent a distribution exceeds our
current or accumulated earnings or profits, it will be treated first as a
return of the holder's tax basis, and then as a gain from the sale of a capital
asset. Any withholding tax on a distribution in excess of our accumulated
earnings or profits is refundable to the non-U.S. holder upon filing an
appropriate claim with the Internal Revenue Service.

Under current law, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) for purposes of the withholding tax

76
<PAGE>

discussed above and, under the current interpretation of United States Treasury
regulations, for purposes of determining the applicability of a tax treaty
rate. For dividends paid after December 31, 2000, a non-U.S. holder of common
stock who wishes to claim the benefit of an applicable treaty rate (and avoid
backup withholding as discussed below), will be required to satisfy applicable
certification and other requirements.

Disposition of Common Stock

Generally, a non-U.S. holder will not be subject to U.S. federal income tax
on any gain recognized upon the disposition of common stock unless:

. the gain is effectively connected with a trade or business carried on by
the non-U.S. holder within the United States, or, alternatively, if a tax
treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. holder, in which case such gain will be
subject to tax at the rates and in the manner applicable to U.S. persons,
and, if the holder is a foreign corporation, the branch profits tax may
also apply,
. the common stock is disposed of by an individual non-U.S. holder, who
holds the common stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are met, in which case such gain will be subject
to a flat 30% tax, which may be offset by United States source capital
losses even though the individual is not considered a resident of the
United States, or
. (A) we are or have been a "U.S. real property holding corporation" within
the meaning of Section 897(c)(2)(A) of the Code at any time within the
shorter of the five-year period preceding such disposition or such non-
U.S. holder's holding period and (B) assuming that the common stock is
"regularly traded on an established securities market" for U.S. federal
income tax purposes, the non-U.S. holder held, directly or indirectly, at
any time during the applicable period from clause (A) above, including on
the date of disposition, more than 5% of the outstanding common stock. We
are not and do not anticipate becoming a "U.S. real property holding
corporation."

Non-U.S. holders should consult applicable treaties, which may exempt from
U.S. taxation gains realized upon the disposition of common stock in certain
cases.

Estate Tax

Common stock owned, or treated as owned, by an individual non-U.S. holder at
the time of death will be includible in the individual's gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax,
unless an applicable treaty provides otherwise.

Information Reporting and Backup Withholding

On October 6, 1997, the Internal Revenue Service issued final regulations
relating to withholding, information reporting and backup withholding that
unify current certification procedures and forms and clarify reliance
standards. The final regulations generally will be effective for payments made
after December 31, 2000.

Except as provided below, this section describes rules applicable to payments
made on or before December 31, 2000. Backup withholding, which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the U.S. information reporting
and backup withholding rules, generally will not apply to (1) dividends paid to
non-U.S. holders that are subject to the 30% withholding discussed above, or
that are not so subject because a tax treaty applies that reduces or eliminates
such 30% withholding, or (2) dividends paid on the common stock to a non-U.S.
holder at an address outside the United States, unless the payor has actual
knowledge that the payee is a U.S. person. We will be required to report
annually to the Internal Revenue Service and to each non-U.S. holder the amount

77
<PAGE>

of dividends paid to, and the tax withheld from, such holder, regardless of
whether any tax was actually withheld or whether withholding was required. The
information may also be made available to the tax authorities in the non-U.S.
holder's country of residence.

In the case of a non-U.S. holder that sells common stock to or through a U.S.
office of a broker, the broker must backup withhold at a rate of 31% and report
the sale to the Internal Revenue Service, unless the holder certifies its non-
U.S. status under penalties of perjury or otherwise establishes an exemption.
In the case of a non-U.S. holder that sells common stock to or through the
foreign office of a U.S. broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the
Internal Revenue Service (but not backup withhold) unless the broker has
documentary evidence in its files that the seller is a non-U.S. holder or
certain other conditions are met, or the holder otherwise establishes an
exemption. A non-U.S. holder will generally not be subject to information
reporting or backup withholding if such non-U.S. holder sells the common stock
to or through a foreign office of a non-U.S. broker.

Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes
the required information to the Internal Revenue Service. In addition, certain
penalties may be imposed by the Internal Revenue Service on a holder who is
required to supply information but does not do so in the proper manner.

The final regulations eliminate the general, current legal presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. The final regulations impose certain certification and
documentation requirements on non-U.S. holders claiming the benefit, under a
tax treaty, of a reduced withholding rate on dividends.

Prospective purchasers of the common stock are urged to consult their own tax
advisors as to the effect, if any, of the final regulations on their purchase,
ownership and disposition of the common stock.

78
<PAGE>

UNDERWRITING

Lehman Brothers Inc., Bear, Stearns & Co. Inc., and ING Barings LLC are
acting as representatives of each of the U.S. underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, which is filed as an exhibit to the registration
statement relating to this prospectus, we have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters, severally and not jointly, has
agreed to purchase from us, the number of shares of common stock shown opposite
its name below:

<TABLE>
<CAPTION>
Number of
U.S. Underwriters Shares
- ----------------- ---------
<S> <C>
Lehman Brothers Inc. .................................................
Bear, Stearns & Co. Inc. .............................................
ING Barings LLC.......................................................
Total.............................................................
</TABLE>

Lehman Brothers Inc., Bear, Stearns International Limited, and ING Barings
Asia Limited, as agent for ING Bank N.V., are acting as international
representatives of each of the international underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, we have agreed to sell to the international underwriters,
and each of the international underwriters, severally and not jointly, has
agreed to purchase from us the number of shares of common stock shown opposite
its name below:

<TABLE>
<CAPTION>
Number of
International Underwriters Shares
- -------------------------- ---------
<S> <C>
Lehman Brothers Inc. ..................................................
Bear, Stearns International Limited....................................
ING Barings Asia Limited, as agent for ING Bank N.V....................
Total..............................................................
</TABLE>

The public offering price of the shares and the underwriting discount in this
offering will be the same as the public offering price of the shares and the
underwriting discount in the international offering. The closing of this
offering is a condition to the closing of the international offering, and the
closing of the international offering is a condition to the closing of this
offering.

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in the offering are subject to
approval of legal matters by counsel as well as to other conditions. It also
states that if any shares are purchased by the underwriters pursuant to the
underwriting agreement, then all of the shares which the underwriters have
agreed to purchase pursuant to the underwriting agreement must be purchased.
The underwriters expect to deliver the shares on or about , 2000.

The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus, and to
specified selected dealers, who may include the underwriters, at the public
offering price less a selling concession not in excess of $ per share. The
underwriters may allow, and the selected dealers may reallow, a concession not
in excess of $ per share on sales to specified brokers and dealers. After
the offering, the representatives may change the offering price and other
selling terms. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority that exceed 5% of the total number of shares of common stock offered
by them.

79
<PAGE>

The following table summarizes the underwriting discount we will pay and any
other amounts that are deemed to be underwriting compensation by the NASD's
rules of fair practice. The underwriting discount is equal to the public offer
price per share less the amount paid to us per share. The underwriting discount
is equal to % of the public offering price. The other underwriters'
compensation relates to 400,000 shares of our capital stock which we sold to a
private equity fund, 16.4% of which is owned by ING Group and its affiliates,
in January 2000 at a price that is less than the public offering price in this
offering.

<TABLE>
<CAPTION>
Total
-------------------
Without With
Number of Over- Over-
Per Share Shares allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discount to be paid by
us................................... 3,800,000
Other underwriters' compensation...... 400,000
------ ------
Total................................
====== ======
</TABLE>

The following table summarizes the costs and expenses, other than the
underwriting discount, we will pay in connection with the offering. All amounts
are estimates except the registration fee, the NASD filing fee and the Nasdaq
National Market entry fee.

<TABLE>
<S> <C>
Registration fee.................................................... $ 23,760
NASD filing fee..................................................... 9,500
Blue sky legal fees and other expenses.............................. 5,000
Nasdaq National Market entry fee.................................... 5,000
Accounting fees and expenses........................................ 300,000
Other legal fees and expenses....................................... 450,000
Transfer agent and registrar fee.................................... 10,000
Printing and engraving.............................................. 250,000
Miscellaneous....................................................... 20,000
----------
Total.............................................................. $1,073,260
==========
</TABLE>

The underwriters have entered into the agreement among U.S. underwriters and
international underwriters. Under this agreement, the U.S. underwriters and the
international underwriters may sell between each other as many shares as they
may mutually agree. The price of any such shares, unless otherwise determined
by mutual agreement, will be the public offering price then in effect less an
amount equal to the selling concessions which may be allocated to such shares.
To the extent that there are any sales between the U.S. underwriters and the
international underwriters, the number of shares available for sale by the U.S.
underwriters or by the international underwriters may be more or less than the
amount specified on the cover page of this prospectus.

We have granted to the underwriters an option to purchase up to 570,000
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on
the cover page of this prospectus. The option may be exercised at any time
until 30 days after the date of the underwriting agreement. To the extent this
option is exercised, each underwriter will be committed, subject to various
conditions, to purchase a number of additional shares proportionate to its
initial purchase commitment as indicated in the preceding table, and we will be
obligated, under the over-allotment option, to sell the shares to the
underwriters.

We, our officers, directors and some existing stockholders have agreed not to
do any of the following, whether any transaction described below is to be
settled by delivery of common stock or other securities, in cash or otherwise,
in each case without the prior written consent of Lehman Brothers, on behalf of
the underwriters, for a period of 180 days after the date of this prospectus:

80
<PAGE>

stock or securities convertible into or exchangeable for common stock or
substantially similar securities, other than the following:

. sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options pursuant to option plans existing on the date hereof; and
. enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks or
ownership of shares of common stock.

Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiations between oCen and the representatives. Among the factors to be
considered in such negotiations are:

. prevailing market conditions;
. the market values of publicly traded companies that we and the
underwriters believe to be comparable to oCen;
. the current state of oCen's development and its current financial
condition;

. the history of and prospects for oCen and the Asian Internet telephone
services industry; and
. the prospects for future revenues and earnings of oCen.

We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol OCOM.

Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.

Until the distribution of the shares is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and selling
group members to bid for and purchase shares. As an exception to these rules,
the representatives are permitted to engage in transactions that stabilize the
price of the shares. These transactions may consist of bids or purchases for
the purposes of pegging, fixing or maintaining the price of the shares.

The underwriters may create a short position in the shares in connection
with the offering, which means that they may sell more shares than are set
forth on the cover page of this prospectus. We cannot estimate the size of
such a short position. The underwriters will deliver a prospectus to all
purchasers of shares in the short sales and such purchasers are entitled to
the same remedies under the federal securities laws as any other purchasers of
shares covered by the registration statement. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing shares in the open market. The representatives also may elect to
reduce any short position by exercising all or part of the over-allotment
option.

The representatives may impose a penalty bid on certain underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriters' short position or to stabilize
the price of the shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares as part
of the offering.

81
<PAGE>

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the security by
purchasers in an offering.

Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the shares. In addition, neither we nor any of
the underwriters make any representation that the representatives will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.

This prospectus may be used in connection with offers and sales of shares
offered initially outside the United States pursuant to Regulation S insofar as
those shares are reoffered or resold from time to time in the United States in
transactions that require registration under the Securities Act.

Under the agreement among U.S. underwriters and international underwriters,
each international underwriter has agreed that, as part of its distribution:

. it is not purchasing any of the shares for the account of a U.S. person;
and

. it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of the shares or distribute any prospectus
relating to the international offering to any U.S. person.

In addition, under the same agreement, each U.S. underwriter has agreed that,
as part of its distribution:

. it is not purchasing any of the shares for the account of anyone other
than a U.S. person; and

. it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of the shares or distribute any prospectus
relating to the U.S. offering to anyone other than a U.S. person.

These limitations do not apply to stabilization transactions or other
transactions specified in the underwriting agreement and the agreement among
U.S. underwriters and international underwriters, including:

. some purchases and sales between the U.S. underwriters and the
international underwriters;

. some offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion;

. purchases, offers or sales by an international underwriter who is also
acting as a U.S. underwriter or by a U.S. underwriter who is also acting
as an international underwriter; and

. other transactions specifically approved by the representatives.

As used in this section, the term U.S. Person means any resident or national
of the United States or Canada, any corporation, partnership or other entity
created or organized in or under the laws of the United States or Canada, or
any estate or trust, the income of which is subject to U.S. or Canadian federal
income taxation regardless of the source; the term United States includes the
District of Colombia and means the United States of America and its
territories, its possessions and other areas subject to its jurisdiction; and
the term Canada means Canada, its provinces, its territories and other areas
subject to its jurisdiction.

This prospectus is not, and under no circumstances is to be to construed as,
an advertisement or a public offering of the common stock in Canada or any
province or territory thereof. Any offer or sale of common stock in Canada may
only be made pursuant to an exemption from the dealer registration requirement
(where such an exemption is not available, offers shall be made only by a
registered dealer) in the relevant Canadian jurisdiction where any offer is
made.

82
<PAGE>

This prospectus is not, and under no circumstances is to be construed as, an
advertisement or an invitation or offer of the common stock to the public in
Hong Kong and will not result in the common stock becoming available for
subscription or purchase in Hong Kong, whether directly or indirectly, other
than to those who are directed to receive this prospectus.

This prospectus and any amendments, its related application forms,
supplements, advertisements and all other related documents or materials that
may be issued in Hong Kong in connection with this prospectus shall be issued
by a person registered and authorized to do so under the securities laws of
Hong Kong.

No public offering of the common stock or distribution of this document, any
offering materials, advertisement or promotional activities in Taiwan may be
made without the prior approval of the Taiwanese government and compliance with
the requirements under the securities laws and regulations of Taiwan. The
common stock may be offered or sold through private placement transactions to
selected persons in Taiwan on a one-on-one basis. Following the common stock
being publicly traded in the U.S. or Canada, Taiwanese persons may purchase the
common stock through securities brokers or banks.

The common stock may not be offered and sold, directly or indirectly, in
China or to any resident of China.

Purchasers of the common stock offered in this prospectus may be required to
pay stamp taxes and other charges under the laws and practices of the country
of purchase, in addition to the public offering price set forth on the cover of
this prospectus.

We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and liabilities incurred in connection with the directed share
program referred to below, and to contribute, under specified circumstances, to
payments that the underwriters may be required to make in respect thereof.

At our request, Lehman Brothers has reserved up to 190,000 shares of common
stock, or 5% of the common stock offered by this prospectus, assuming no
exercise of the underwriters' over-allotment option, for sale pursuant to a
directed share program to officers, directors and employees, and their family
members, of oCen and its affiliates and friends of oCen's management. All of
the persons purchasing the reserved shares must commit to purchase no later
than the close of business on the day following the date of this prospectus.
The number of shares available for sale to the general public will be reduced
to the extent these persons purchase the reserved shares.

Certain of the underwriters expect to provide financial advisory and
investment banking services to us and our affiliates in the future, for which
they expect to receive customary fees and commissions. ING Group and its
affiliates own 16.4% of a private equity fund that in turn owns approximately
20% of our existing share capital. That fund's most recent investment in our
company occurred in January 2000 when it acquired 400,000 additional shares of
our capital stock. That fund currently owns approximately 86% of the Series A
convertible preferred stock, and under the terms of our voting agreement dated
as of January 4, 2000, the holders of the Series A preferred stock have the
right, to designate a director. Jean Salata, a managing member of the general
partner of that fund, serves as that director. Lloyd Fischer, a director who
owns approximately 1% of our existing share capital, heads the Asian telecom
investment banking team of ING Barings and is a managing director of ING
Barings Asia Limited.

83
<PAGE>

LEGAL MATTERS

The validity of the issuance of the common stock offered in the offering will
be passed upon for us by Brobeck, Phleger & Harrison, LLP, Palo Alto,
California and for the underwriters by Simpson Thacher & Bartlett, New York,
New York. Brobeck, Phleger & Harrison LLP and its affiliates own less than one
percent of our existing share capital.

EXPERTS

The consolidated financial statements of oCen Communications, Inc. as of
September 30, 1998 and 1999 and for the period from October 14, 1997
(Inception) through September 30, 1998 and for the year ended September 30,
1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered in the offering. This
prospectus does not contain all information set forth in the registration
statement and the exhibits and schedules to the registration statement. For
further information about us and the common stock offered in this offering, you
should read the registration statement, exhibits and schedules. Statements
contained in this prospectus about the contents of any contract or other
document are summaries of material terms of those documents. To have a complete
understanding of any document you should read the entire document filed as an
exhibit. You may read and copy the registration statement, including the
exhibits and schedules, at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can obtain copies of these materials from the Public
Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates and from the SEC's Internet website at
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms.

We intend to send to our stockholders annual reports containing audited
financial statements.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with that act, we will file periodic reports, proxy statements and
other information which will be available for inspection and copying at the
SEC's public reference rooms and the SEC's website, which is described above.

84
<PAGE>

OCEN COMMUNICATIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

The following report is in the form that will be signed upon the completion
of the Company's reincorporation in the State of Delaware as described in note
14 of the notes to the consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California

May 8, 2000

- --------------------------------------------------------------------------------

Report of Independent Accountants

To the Board of Directors and Stockholders of
oCen Communications, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the
financial position of oCen Communications, Inc. and its subsidiaries (the
"Company") at September 30, 1998 and 1999, and the results of their
operations and their cash flows for the period from October 14, 1997
(Inception) through September 30, 1998 and for the year ended September 30,
1999, in conformity with accounting principles generally accepted in the
United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, 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, 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.

Woodland Hills, California
February 2, 2000, except as to

Note 14 which is as of May 8, 2000

F-2
<PAGE>

OCEN COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(All interim information relating to March 31, 2000 is unaudited)

<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
September 30, September 30, March 31, March 31,
1998 1999 2000 2000
------------- ------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 26,854 $ 4,310,846 $ 12,000,840
Accounts receivable,
less allowance for
doubtful accounts of
$0, $59,485 and
$120,000
respectively.......... 13,711 1,055,090 2,408,596
Prepaids and other
current assets........ 10,000 340,880 1,468,912
--------- ----------- ------------
Total current
assets.............. 50,565 5,706,816 15,878,348
Property and equipment,
net.................... 100,510 3,448,210 7,312,623
Other long-term assets.. 26,511 127,833 525,871
Deferred debt issuance
costs.................. -- 103,218 140,397
--------- ----------- ------------
Total assets......... $ 177,586 $ 9,386,077 $ 23,857,239
========= =========== ============
Liabilities and
Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable....... $ 115,642 $ 1,914,206 $ 3,830,896
Accrued expenses and
other current
liabilities........... 63,677 596,554 1,350,244
Deferred revenues...... 66,814 1,487,619 3,050,698
Capital lease
obligations........... -- 151,332 295,847
Notes payable.......... -- 78,616 2,084,240
--------- ----------- ------------
Total current
liabilities......... 246,133 4,228,327 10,611,925
Capital lease
obligations, net of
current portion........ -- 264,693 470,441
Notes payable, net of
current portion........ -- 200,718 8,157,416
Convertible notes
payable to related
parties................ 230,000 -- --
--------- ----------- ------------
Total liabilities.... 476,133 4,693,738 19,239,782

Commitments and
contingencies (Note 7)
Stockholders' equity
(deficit):
Convertible preferred
stock, $.001 par
value; authorized 0,
9,400,000 and
11,700,000 shares at
September 30, 1998
and 1999, and March
31, 2000,
respectively; issued
and outstanding
6,315,644 and
8,406,116 shares at
September 30, 1999
and March 31, 2000,
respectively;
liquidation
preference of
approximately
$10,325,000 and
$20,953,368 at
September 30, 1999
and March 31, 2000,
respectively.......... -- 6,315 8,406 $ --
Common stock, $ .001
par value; authorized
10,000,000,
26,650,000 and
27,850,000 shares at
September 30, 1998
and 1999, and March
31, 2000,
respectively; issued
and outstanding
6,000,000 shares at
September 30, 1998
and 1999, and
6,061,000 at March
31, 2000, and
14,697,885 shares on
pro forma basis....... 6,000 6,000 6,061 14,698
Additional paid-in
capital............... 774,044 9,917,189 32,050,216 35,049,975
Notes receivable from
stockholders.......... (61,040) (65,709) (67,387) (67,387)
Deferred stock
compensation.......... (295,437) (340,638) (6,732,126) (6,732,126)
Accumulated deficit.... (722,114) (4,830,818) (20,647,713) (20,647,713)
--------- ----------- ------------ -----------
Total stockholders'
equity (deficit).... (298,547) 4,692,339 4,617,457 $ 7,617,447
--------- ----------- ------------ ===========
Total liabilities and
stockholders' equity
(deficit)........... $ 177,586 $ 9,386,077 $ 23,857,239
========= =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

OCEN COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

<TABLE>
<CAPTION>
October 14, 1997
(Inception) For the six months
through For the year ended ended March 31,
September 30, September 30, -------------------------
1998 1999 1999 2000
---------------- ------------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ 98,781 $ 2,327,019 $ 163,254 $ 5,816,807
Operating expenses:
Cost of revenues...... 233,373 3,133,230 504,424 9,673,242
General and
administrative
(excludes stock-based
compensation charges
of $199,123,
$161,814, $49,288 and
$241,807 for the
period from October
14, 1997 (inception)
through September 30,
1998, for the year
ended September 30,
1999 and for the six
months ended March
31, 1999 and 2000,
respectively)........ 305,337 1,730,058 448,575 2,526,814
Sales and marketing
(excludes stock-based
compensation charges
of $0, $93,166,
$49,288 and $193,446
for the period from
October 14, 1997
(Inception) through
September 30, 1998,
for the year ended
September 30, 1999
and for the six
months ended March
31, 1999 and 2000,
respectively)........ 10,850 403,418 59,669 873,789
Product development
(excludes stock-based
compensation charges
of $0, $235,367,
$49,289 and $610,564
for the period from
October 14, 1997
(Inception) through
September 30, 1998,
for the year ended
September 30, 1999
and for the six
months ended March
31, 1999 and 2000,
respectively)........ 42,031 434,691 88,371 1,880,501
Depreciation and
amortization......... 26,970 270,292 46,306 1,121,831
Stock-based
compensation......... 199,123 490,347 147,865 1,045,817
---------- ----------- ----------- ------------
Total operating
expenses........... 817,684 6,462,036 1,295,210 17,121,994
---------- ----------- ----------- ------------
Loss from operations.... (718,903) (4,135,017) (1,131,956) (11,305,187)
Interest income......... -- 43,462 15,379 145,063
Interest expense........ (3,211) (17,149) -- (176,778)
---------- ----------- ----------- ------------
Net loss................ (722,144) (4,108,704) (1,116,577) (11,336,902)
Beneficial conversion
feature................ -- -- -- (4,479,993)
---------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (722,144) $(4,108,704) $(1,116,577) $(15,816,895)
========== =========== =========== ============
Basic and diluted net
loss per share
applicable to common
stockholders........... $ (0.16) $ (0.75) $ (0.21) $ (2.80)
========== =========== =========== ============
Weighted average shares
outstanding used in
per-share calculation
applicable to common
stockholders .......... 4,629,323 5,492,718 5,432,967 5,655,000
========== =========== =========== ============
Pro forma basic and
diluted net loss per
share applicable to
common stockholders
(unaudited)............ $ (0.54) $ (0.85)
=========== ============
Weighted average shares
outstanding used in pro
forma per-share
calculation applicable
to common stockholders
(unaudited)............ 7,582,027 13,282,962
=========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

OCEN COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Convertible Notes Total
Common Stock Preferred Stock Additional Receivable Deferred Stockholders'
------------------ ------------------- Paid-In From Stock Accumulated Equity
Shares Amount Shares Amount Capital Stockholders Compensation Deficit (Deficit)
---------- ------- ---------- ------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 14,
1997
(Inception).... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock... 4,399,920 4,400 -- -- 195,600 -- -- -- 200,000
Issuance of
common stock
for services... 488,880 489 -- -- 23,955 -- -- -- 24,444
Exercise of
stock options.. 1,111,200 1,111 -- -- 59,929 (61,040) -- --
Deferred stock
compensation... -- -- -- -- 494,560 -- (494,560) -- --
Stock-based
compensation... -- -- -- -- -- -- 199,123 -- 199,123
Net loss........ -- -- -- -- -- -- -- (722,114) (722,114)
---------- ------- ---------- ------- ----------- -------- ----------- ------------ ------------
Balance at
September 30,
1998........... 6,000,000 6,000 -- -- 774,044 (61,040) (295,437) (722,114) (298,547)
Accrued interest
receivable..... -- -- -- -- -- (3,357) -- -- (3,357)
Issuance of
Series A
Preferred...... -- -- 1,600,023 1,600 1,215,123 -- -- -- 1,216,723
Issuance of
Series A
warrant........ -- -- -- -- 783,277 -- -- -- 783,277
Issuance of
Series B
Preferred...... -- -- 3,403,141 3,403 6,496,597 -- -- -- 6,500,000
Exercise of
Series A
warrant........ -- -- 1,312,480 1,312 -- (1,312) -- -- --
Issuance of
Series A
warrant........ -- -- -- -- 112,600 -- -- -- 112,600
Deferred stock
compensation... -- -- -- -- 535,548 -- (535,548) -- --
Stock-based
compensation... -- -- -- -- -- -- 490,347 -- 490,347
Net loss........ -- -- -- -- -- -- -- (4,108,704) (4,108,704)
---------- ------- ---------- ------- ----------- -------- ----------- ------------ ------------
Balance at
September 30,
1999........... 6,000,000 6,000 6,315,644 6,315 9,917,189 (65,709) (340,638) (4,830,818) 4,692,339
Accrued interest
receivable
(unaudited).... -- -- -- -- -- (1,678) -- -- (1,678)
Exercise of
options........ 61,000 61 -- -- 13,289 -- -- -- 13,350
Issuance of
Series C
Preferred
(unaudited).... -- -- 1,023,807 1,024 2,145,976 -- -- -- 2,147,000
Issuance of
Series D
Preferred
(unaudited).... -- -- 1,066,665 1,067 7,998,921 -- -- -- 7,999,988
Beneficial
conversion
feature on
issuance of
Series D
Preferred
(unaudited).... -- -- -- -- 4,479,993 -- -- (4,479,993) --
Issuance of
Series D
warrants
(unaudited).... -- -- -- -- 57,543 -- -- -- 57,543
Deferred stock
compensation
(unaudited).... -- -- -- -- 7,437,305 -- (7,437,305) -- --
Stock-based
compensation
(unaudited).... -- -- -- -- -- -- 1,045,817 -- 1,045,817
Net loss........ -- -- -- -- -- -- -- (11,336,902) (11,336,902)
---------- ------- ---------- ------- ----------- -------- ----------- ------------ ------------
Balance at March
31, 2000
(unaudited).... 6,061,000 6,061 8,406,116 8,406 32,050,216 (67,387) (6,732,126) (20,647,713) 4,617,457
Conversion of
convertible
preferred stock
(unaudited).... 8,406,116 8,406 (8,406,116) (8,406) -- -- -- --
Conversion of
convertible
notes
(unaudited).... 230,769 231 -- -- 2,999,759 -- -- -- 2,999,990
---------- ------- ---------- ------- ----------- -------- ----------- ------------ ------------
Balance at March
31, 2000, pro-
forma
(unaudited).... 14,697,885 $14,698 -- $ -- $35,049,975 $(67,387) $(6,732,126) $(20,647,713) $ 7,617,447
========== ======= ========== ======= =========== ======== =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

OCEN COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
October 14,1997
(Inception) For the For the six months ended
through year ended March 31,
September 30, September 30, -------------------------
1998 1999 1999 2000
--------------- ------------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (722,114) $ (4,108,704) $(1,116,577) $(11,336,902)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 26,970 270,292 46,306 1,121,831
Bad debt provision... -- 59,485 -- 60,515
Accrued interest on
converted related
party notes......... -- 2,790 2,790 --
Accrued interest
income on
shareholder notes... -- (3,357) -- (1,678)
Interest amortized on
debt issuance
costs............... -- 9,383 -- 20,364
Stock-based
compensation........ 199,123 490,347 147,865 1,045,817
Stock issued for
services............ 24,444 -- -- --
Changes in operating
assets and
liabilities:
Accounts
receivable........ (13,711) (1,100,864) (88,331) (1,414,021)
Prepaids and other
assets............ (36,511) (432,203) (59,444) (1,526,070)
Accounts payable... 115,642 1,798,564 (21,683) 1,916,690
Accrued expense and
other current
liabilities....... 63,677 532,877 159,141 753,690
Deferred revenues.. 66,814 1,420,805 107,634 1,563,079
---------- ------------ ----------- ------------
Net cash used in
operating
activities........ (275,666) (1,060,585) (822,299) (7,796,685)
Cash flows used in
investing activities:
Purchase of property
and equipment......... (127,480) (3,118,492) (273,862) (4,512,940)
---------- ------------ ----------- ------------
Net cash used in
investing
activities........ (127,480) (3,118,492) (273,862) (4,512,940)
Cash flows from
financing activities:
Payments under capital
lease obligations..... -- (83,475) -- (123,041)
Payments under notes
payable............... -- (37,605) -- (37,678)
Proceeds from notes
payable............... -- 316,939 -- 10,000,000
Proceeds from issuance
of common stock....... 200,000 -- -- --
Proceeds from options
exercised............. -- -- -- 13,350
Proceeds from issuance
of preferred stock.... -- 7,483,933 935,223 10,146,988
Proceeds from issuance
of preferred
warrant............... -- 783,277 783,277 --
Proceeds from
convertible notes
payable issued to
related parties,
net................... 230,000 -- -- --
---------- ------------ ----------- ------------
Net cash provided
by financing
activities........ 430,000 8,463,069 1,718,500 19,999,619
---------- ------------ ----------- ------------
Increase (decrease) in
cash and cash
equivalents............ 26,854 4,283,992 622,339 7,689,994
Cash and cash
equivalents, beginning
of period.............. -- 26,854 26,854 4,310,846
---------- ------------ ----------- ------------
Cash and cash
equivalents, end of
period................. $ 26,854 $ 4,310,846 $ 649,193 $ 12,000,840
========== ============ =========== ============
Supplemental cash flow
information:
Cash paid during the
period for:
Income taxes......... $ 800 $ 1,641 -- --
Interest............. $ 3,211 $ 25,564 $ 2,230 $ 48,248
Noncash investing and
financing activities:
Purchases of
equipment financed
under capital
leases.............. -- $ 499,500 -- $ 473,304
========== ============ =========== ============
Notes receivable
issued for exercise
of stock options and
warrant............. $ 61,040 $ 1,312 -- --
========== ============ =========== ============
Notes receivable
issued for purchase
of preferred stock.. -- -- $ 48,710 --
========== ============ =========== ============
Conversion of related
party notes to
preferred stock..... -- $ 230,000 $ 230,000 --
========== ============ =========== ============
Deferred financing
costs related to
issuance of
warrant............. -- $ 112,600 -- 57,543
========== ============ =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

1. Business and Organization:

oCen Communications, Inc. (the "Company") was incorporated in California in
October 1997 under the name Pacific Telekey Network, Inc., and subsequently
changed its name to oCen Communications, Inc. in October 1999. The Company
provides Internet Protocol ("IP") communication services over a managed IP
network.

In December 1998, the Company established a wholly owned subsidiary, Well
Signal Development Limited ("Well Signal"), to provide IP communication
services in Hong Kong. The subsidiary's name has been legally changed to oCen
Communications HK Ltd., effective October 1999.

In September 1999, the Company established a wholly owned subsidiary, oCen
Communications Taiwan, Ltd. ("oCen Taiwan"), to provide IP communication
services in Taiwan.

The accompanying consolidated financial statements have been prepared on the
basis that the Company will continue as a going concern. Since inception, the
Company has incurred significant operating losses and has generated negative
cash flows from operations; and, from time to time, has had negative working
capital. The Company has funded operations primarily through the sale of equity
securities and debt borrowings. Management believes that the proceeds received
through the sale of equity or debt securities, borrowings from existing credit
facilities and revenue generated from operations will be adequate to support
the Company's operations for the next twelve months.

2. Summary of Significant Accounting Policies:

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of oCen
Communications, Inc. and its aforementioned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Each of the Company's subsidiaries has a September 30 year end.

Use of Estimates

In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable are carried at cost, which approximates their fair value because of the
short-term maturity of these instruments and the relatively stable interest
rate environment.

F-7
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method based upon the estimated useful lives of the assets or lease terms, if
shorter, which are generally between 3 and 7 years. Useful lives are evaluated
regularly by management in order to determine recoverability in light of
current technological conditions. Maintenance and repairs are charged to
expense as incurred. Upon the sale or retirement of property and equipment, the
accounts are relieved of the cost and the related accumulated depreciation,
with any resulting gain or loss included in the Consolidated Statement of
Operations.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted cash flows attributable to such assets to their
carrying value. If the carrying value of the assets exceeds the forecasted
undiscounted cash flows, then the assets are written down to their fair value.
Fair value is determined based on discounted cash flows or appraised values,
depending upon the nature of the assets. To date, there have been no such
impairments.

Revenue Recognition

The Company's revenues are principally derived from the sale of calling cards
to distributors, marketed through traditional and online channels. The
distributors resell the calling cards to third parties who in turn sell the
calling cards to end users. Revenues are recognized as minutes (or fractions
thereof) are delivered to end users provided that no significant Company
obligations remain and collection of the related receivable from the
distributor is probable. The Company also generates revenue from the sale of
wholesale minutes to carriers which are recognized as minutes of usage are
delivered, assuming no significant Company obligations remain and collection of
the related receivable from the carrier is probable.

Customer payments received in advance for prepaid services and services to be
supplied under contractual agreements are deferred and recognized as services
are provided. Abandoned or unused time on calling cards is recognized as
revenue at the time the cards expire according to the varying sales terms,
which generally provide for expiration ranging from 6 months to 1 year after
activation.

Cost of Revenues

Cost of revenues primarily consist of access, transmission and termination
costs, and are expensed as incurred.

General and Administrative

General and administrative expenses include salaries, employee benefits and
expenses for executive, finance, and human resources personnel. In addition,
general and administrative expenses include fees for professional services and
occupancy costs. These costs are expensed as incurred.

Sales and Marketing

Sales and marketing expenses consist primarily of expenses relating to
salaries, payroll taxes, benefits, commissions for sales and marketing
personnel and advertising costs. These costs are expensed as incurred. For the
period from October 14, 1997 (Inception) to September 30, 1998, for the year
ended September 30, 1999 and for the six months ended March 31, 1999 and 2000,
advertising expenses amounted to approximately $540, $50,725, $13,639 and
$333,350, respectively.

F-8
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

Product Development

Product development costs consist primarily of salaries and related expenses
for engineers and information technology personnel, software developers,
consulting fees, lab costs and market research. These costs are expensed as
incurred.

Income Taxes

The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

Net Loss Per Share

Net loss per share is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding. Shares associated with
stock options, warrants and convertible instruments are not included to the
extent they are antidilutive.

Unaudited Pro Forma Net Loss Per Share

Unaudited pro forma net loss per share for the year ended September 30, 1999
and for the six months ended March 31, 2000, is computed by dividing the net
loss for the period by the weighted average number of shares of common stock
outstanding, including the pro forma effects of the automatic conversion of the
Company's convertible preferred stock into shares of the Company's common stock
effective at the time of the Company's initial public offering as if such
conversion occurred on October 1, 1998 and 1999, respectively, or at the date
of original issuance, if later.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective
vesting period based on the difference, on the date of grant, between the fair
value of the Company's common stock and the grant price. The Company accounts
for stock issued to non-employees in accordance with the provisions of SFAS No.
123 and Emerging Issues Task Force ("EITF") 96-18.

Comprehensive Income

The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" in the fiscal year ended September 30, 1999. Comprehensive income
generally represents all changes in stockholders' equity (deficit) during the
period except those resulting from investments by, or distributions to,
stockholders. For the years ended September 30, 1998 and 1999, there were no
such significant changes in stockholders' equity (deficit) other than net loss
amounts.

F-9
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

Foreign Currency Translation

During fiscal year 1999, the Company established two foreign subsidiaries.
Translation of foreign currencies are accounted for using the US Dollar as the
functional currency of the Company's foreign subsidiaries, however, books of
record are maintained in the local currencies. Foreign currency translations
occur during remeasurement of the books of record into the functional currency.
To date, the Company's customer contracts have been denominated in U.S.
dollars, and the operating assets and liabilities of the Company's foreign
subsidiaries have been minimal. As a result, there have been no significant
foreign currency translation adjustments required to be reflected in
stockholders' equity (deficit).

Unaudited Interim Financial Information

The interim consolidated financial statements of the Company for the three
months ended December 31, 1998 and 1999, included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company at March 31, 2000 and the results of its operations and
its cash flows for the six months ended March 31, 1999 and 2000.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The SOP is effective for fiscal periods
commencing after December 15, 1998. Management does not believe that the
implementation of SOP 98-1 will have a material effect on the consolidated
financial statements.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the third quarter of fiscal 1998 did not
have a significant impact on the Company's financial position, results of
operations or cash flows.

3. Concentration of Credit Risk, Significant Customers and Geographic
Information:

Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with major
financial institutions; at times, such balances with any one financial
institution may exceed FDIC insurance limits. The Company's accounts receivable
are derived from revenue earned from customers primarily located in the United
States. Although a majority of the Company's customers prepay for services, if
necessary, the Company extends differing levels of credit to customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses based upon the expected collectibility of accounts
receivable. To date, such losses have been within management's expectations.

F-10
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

Revenues from significant customers were as follows:

<TABLE>
<CAPTION>
October 14, 1997 For the For the
(Inception) Through year ended six months ended
September 30, 1998 September 30, 1999 March 31, 2000
---------------------- ------------------- -------------------
% of % of % of
Amount Revenues Amount Revenues Amount Revenues
----------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Abest International..... $ 37,224 38% $1,019,043 44% -- --
Global 2000............. 21,175 21 -- -- -- --
Goldman Network......... -- -- 264,374 11 $ 859,667 15%
STE Communications...... -- -- 319,495 14 1,628,574 28
Star Communications..... -- -- -- -- 1,356,616 23
</TABLE>

At September 30, 1999, the Company had receivable balances from Abest
International and Abest Communications, Inc. ("Abest") and STE Communications
approximating 62% and 12% of total accounts receivable, respectively. At March
31, 2000, the Company had receivable balances from Abest, STE Communications
and Star Communications approximating 33%, 24% and 10% of total accounts
receivable, respectively.

As of March 31, 2000, one of the Company's largest customers, Abest, owed the
Company $785,762, all of which was past due. The Company believes that non-
payment is a result of a lack of liquidity at Abest. In January 2000, Abest
sold substantially all of its assets to Tianrong Internet Products and Services
an over-the-counter publicly traded company, in exchange for restricted common
stock of Tianrong. However, Tianrong did not assume any of Abest's liabilities.
Although the Company is currently negotiating with Abest to collect amounts due
the Company, the Company cannot assess the ultimate collectibility of this
balance and as such has deferred all revenue relating to the outstanding
uncollected receivable balance from Abest at December 31, 1999 as a result of
the uncertainty surrounding the collection of such amount and will recognize
revenue upon the collection of the receivable balance from Abest. Deferred
revenue related to the uncollected Abest receivable at March 31, 2000
represented approximately 26% of total deferred revenue. The Company intends to
vigorously continue its collection efforts.

The Company operates in one industry segment providing IP communications
services. The Company's business operations are principally based in the United
States and there were no foreign operations during the period October 14, 1997
(Inception) though September 30, 1998. For the year ended September 30, 1999,
all of the Company's revenues were generated within the United States. For the
six months ended March 31, 2000, the Company generated approximately 96% and 4%
of its revenues in the United States and Hong Kong, respectively.

Long-lived assets, excluding accumulated depreciation and amortization, by
geographical location at September 30, 1999 and March 31, 2000 are as follows:

F-11
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

4. Credit Facilities and Convertible Notes Payable:

Credit Facilities

In April 1999, the Company executed a $1,000,000 lease line credit facility
(the "Facility") with a lender to refinance certain equipment purchases. The
Facility is segregated into two $500,000 tranches, one immediately available to
the Company and the second subject to certain conditions as set forth in the
Facility. In connection with the Facility, the Company issued a warrant to the
lender to purchase 80,000 shares of its Series A preferred stock at an exercise
price of $1.25 (See Note 12). In June 1999, the Company borrowed under the
first tranche by refinancing equipment purchases of approximately $480,000 and
$19,000 under two separate lease agreements (See Note 7). These leases bear
interest at a rate of approximately 11% per annum, which amounted to interest
expense of approximately $11,000 for the year ended September 30, 1999. As of
September 30, 1999, the Company had not borrowed under the second tranche of
the Facility, and on December 31, 1999, the unused portion of the Facility
expired.

In June 1999, the Company executed a Senior Loan and Security Agreement (the
"Agreement") with a lender under which the Company could refinance up to
$1,000,000 of qualified equipment purchases through December 31, 1999, or April
30, 2000 if extended. The purchase period was not extended and expired on
December 31, 1999. In June 1999, the Company borrowed under the credit facility
and executed two individual notes in favor of the lender for approximately
$169,000 and $148,000. The notes bear interest at approximately 17% per annum,
mature in June 2002, are collateralized by the purchased equipment and are
payable in 36 monthly installments. Upon maturity of each note, the Company has
the option to either extend the note for an additional 12 months or make one
final lump sum payment. As of September 30, 1999, the aggregate outstanding
principal balance of these notes amounted to approximately $279,000, of which
approximately $79,000 is current.

In November 1999, the Company executed a $1,000,000 equipment lease line (the
"Line") with a lender. The term of the Line is 36 months with payments due on
the first day of each month. The rate is 3.20% of the applicable equipment cost
per month. As of March 31, 2000, the Company had no borrowings against the
Line.

In February 2000, the Company agreed to a $1,000,000 equipment lease line
(the "Equipment Line") with a lender. The Equipment Line may be utilized by the
Company through June of 2000 and bears interest at the yield on 36-month U.S.
Treasury Notes, as quoted by the bank, plus 300 basis points. In connection
with the execution of the Equipment Line, the Company granted warrants to the
lender to purchase 5,333 shares of the Company's Series D Preferred at an
exercise price of $7.50 per share (see Note 12). As of March 31, 2000, the
Company had no borrowings under the Equipment Line.

Convertible Notes Payable

In January 2000, the Company issued convertible notes (the "Notes") in
exchange for $10,000,000. As defined in the agreement, the Notes are
convertible into equity securities of the Company upon the occurrence of
certain events, bear interest at 6% per annum and mature in January 2005, if
not converted. Thirty percent of the outstanding principal shall automatically
convert into equity securities of the Company upon the closing of the sale of
equity securities in which the Company receives gross proceeds of at least
$10,000,000 ("Qualified Financing"). The conversion rate shall be $17.00 per
equity security, or if the Qualified Financing is an IPO, the lesser of $17.00
or the IPO price per share. The Company has determined that the portion of the
Notes that are subject to automatic conversion, or $3,000,000, upon the closing
of a Qualified Financing do not have an associated beneficial conversion
feature ("BCF") since the Notes are convertible at a price that appears to be
in excess of the estimated deemed fair value of the common stock at the date of
issuance.

F-12
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

5. Property and Equipment:

Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------- March 31,
1998 1999 2000
-------- ---------- ----------
<S> <C> <C> <C>
Computer and network communications equipment,
including assets under capital leases of
$499,500 and $972,804 at September 30, 1999
and March 31, 2000, respectively.............. $118,028 $3,317,556 $8,075,988
Furniture and fixtures......................... 7,449 44,014 111,351
Leasehold improvements......................... 2,003 383,902 546,550
-------- ---------- ----------
127,480 3,745,472 8,733,889
Less: Accumulated depreciation and
amortization, including amounts related to
assets under capital leases of $41,625 and
$149,525 for the year ended September 30, 1999
and for the six months ended March 31, 2000,
respectively.................................. 26,970 297,262 1,421,266
-------- ---------- ----------
Total........................................ $100,510 $3,448,210 $7,312,623
======== ========== ==========
</TABLE>

6. Related-Party Transactions:

During the period from October 14, 1997 (Inception) through September 30,
1998 and for the year ended September 30, 1999, stockholders and other related
parties of the Company loaned the Company $230,000 and $50,000, respectively,
in exchange for notes convertible into equity securities of the Company, as
defined in the note agreements. The notes are unsecured, bear interest at 5.5%
and mature during various months in the year 2001. During the year ended
September 30, 1999, in connection with the Series A preferred stock financing,
notes totaling approximately $230,000, plus accrued interest of $2,790, were
converted into 186,234 shares of Series A preferred stock. The remaining note
for $50,000 was repaid by the Company. At September 30, 1998 and 1999, the
Company had outstanding related party notes of approximately $230,000 and $0,
respectively.

At September 30, 1998 and 1999, the Company held notes receivable from
employees, directors and major stockholders totaling $61,040 and $65,709,
respectively, for the purchase of common stock. The notes are unsecured, bear
interest at 5.5% per annum and mature on September 29, 2001. The notes are
classified as a component of stockholders' equity (deficit).

F-13
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

7. Commitments and Contingencies:

Leases

The Company leases its facilities and certain computer equipment under non-
cancelable leases for varying periods through 2004, excluding various options
to renew. The following are the future minimum commitments under these leases
at September 30, 1999:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
2000..................................................... $190,512 $152,299
2001..................................................... 190,512 132,613
2002..................................................... 95,869 112,816
2003..................................................... -- 101,202
2004..................................................... -- 25,301
-------- --------
Minimum lease payments................................... 476,893 $524,231
========
Less: Amount representing interest....................... (60,868)
--------
Present value of minimum lease payments.................. 416,025
Less: Current portion.................................... 151,332
--------
Long-term portion........................................ $264,693
========
</TABLE>

Rent expense pertaining to operating leases for the period from October 14,
1997 (Inception) through September 30, 1998, for the year ended September 30,
1999 and for the six months ended March 31, 1999 and 2000 was $36,676, $89,226,
$34,937 and $199,801, respectively.

In November 1999, the Company relocated its corporate headquarters from West
Covina, California to Irwindale, California. In connection with this move, the
Company executed a facility lease agreement whereby the Company will make
monthly payments ranging from approximately $23,000 to $27,000 through December
2004.

Service Agreements

The Company has entered into various termination, access, Internet
connectivity and facility management service agreements with various
telecommunication-related companies extending through 2002, excluding various
renewal options.

At March 31, 2000, commitments under those service agreements requiring
future minimum payments were as follows for the following fiscal years:

Litigation

From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising in the normal course of
business. To date, the resolution of these matters has not had a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

F-14
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

8. Asset Purchase Agreements:

In August and September 1999, the Company purchased certain equipment and
other fixed assets from Giant Joint International Limited, located in Hong
Kong, and from Nations Tech Co., located in Taiwan, respectively, for a total
cash consideration of approximately $215,000. The total consideration was
allocated to the individual assets based on their estimated fair values at the
dates of purchase.

9. Income Taxes:

As a result of net operating losses, the Company has not recorded a provision
for income taxes. Significant components of the Company's deferred taxes
consisted of the following at September 30, 1998 and 1999:

<TABLE>
<CAPTION>
September 30,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 181,241 $ 1,166,048
Bad debt expense...................................... -- 23,794
Depreciation and amortization......................... 910 (166,846)
Deferred revenues..................................... 26,725 568,322
Stock-based compensation.............................. 67,702 275,788
Other................................................. 272 29,306
--------- -----------
Total deferred tax assets............................... 276,850 1,896,412
--------- -----------
Valuation allowance..................................... (276,850) (1,896,412)
--------- -----------
Net deferred tax assets................................. $ -- $ --
========= ===========
</TABLE>

Due to uncertainty surrounding the realization of the benefits in future tax
returns, the Company placed a full valuation allowance against its deferred tax
assets as of September 30, 1998 and 1999.

As of September 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $2,915,120 each. The federal net operating
loss carryforwards will begin to expire in 2018, and the state net operating
loss carryforwards will begin to expire in 2003. The Company's ability to
utilize net operating loss carryforwards may be limited in the event that a
change in ownership, as defined in the Internal Revenue Code, occurs in the
future.

F-15
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

10. Capitalization:

Stock Splits

In August 1998 and April 1999, the Company authorized and effected a 10,000-
for-1 and a 3-for-1 stock split, respectively. The share information in the
accompanying consolidated financial statements for periods prior to the stock
splits have been retroactively restated to reflect the effects of these stock
splits.

Convertible Preferred Stock

Convertible preferred stock ("Preferred Stock") at March 31, 2000 consisted
of the following:

<TABLE>
<CAPTION>
Shares
Shares Issued and Liquidation Value per
Series Authorized Outstanding Amount Share
------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
A 3,750,000 2,912,503 $ 3,876,255 $1.25
B 5,650,000 3,403,141 6,753,381 1.91
C 1,200,000 1,023,807 2,203,745 2.10
D 1,100,000 1,066,665 8,119,987 7.50
---------- --------- -----------
Total 11,700,000 8,406,116 $20,953,368
========== ========= ===========
</TABLE>

The holders of Preferred Stock have various rights and preferences as
follows:

Dividends

Each share of Series A, Series B, Series C and Series D Preferred Stock
provides for discretionary, noncummulative dividends of $0.075, $0.115, $0.126
and $0.45 per share, per annum, respectively.

Conversion

Each share of Preferred Stock is convertible into shares of common stock at
the option of the holder at any time after the date of issuance of such shares.
Each share of Series A , Series B, Series C and Series D Preferred Stock will
automatically convert to common stock upon the consummation of the Company's
initial public offering ("IPO") of common stock if the Company receives gross
proceeds of at least $10,000,000 and the offering price per share is at least
$9.37, or upon approval by 67% of the holders of each class of Preferred Stock.

In connection with the issuance of the Series D Preferred Stock in January
2000, the Company incurred an estimated non-cash charge to equity relating to
the BCF on the Series D Preferred Stock. The BCF charge was calculated using
the deemed fair value of common stock on the date of issuance, subtracting the
conversion price and then multiplying the resulting amount by the number of
shares of common stock into which the shares of Series D Preferred Stock are
convertible (1,066,665 shares). The Company recorded a BCF charge of
$4,479,993. This non-cash equity charge adversely impacted the Company's net
loss per share applicable to common stockholders for the six months ended March
31, 2000.

Voting

Each share of Series A, Series B, Series C and Series D Preferred Stock is
entitled to the number of votes equal to the number of shares of common stock
that could be converted on the date of vote.

F-16
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

Redemption

The Preferred Stock is not redeemable.

Liquidation

Upon liquidation (as defined), the holders of Series A, B, C and D Preferred
Stock would receive $1.25, $1.91, $2.10 and $7.50 per share, respectively, plus
an amount equal to 6% of the Preferred Stock issuance price per annum accruing
from the date of original issuance until payment. If at the time of liquidation
the assets and funds to be distributed are insufficient to permit the above
disbursement, then the entire available assets and funds shall be distributed
ratably among the preferred stockholders in proportion to the full amounts to
which they would otherwise be entitled.

Shares Issued for Services

In connection with an agreement with a third party, the Company issued
488,880 shares of common stock for services provided in fiscal year 1998. At
the date of issuance, the shares were valued at the deemed fair value for
accounting purposes, resulting in a charge of $24,444, which is included in
general and administrative expense in the accompanying Consolidated Statement
of Operations for the period from October 14, 1997 (Inception) through
September 30, 1998.

11. Stock Options:

In September of 1998, the Company adopted the 1998 Stock Option/Stock
Issuance Plan (the "Plan") which is divided into two separate equity programs,
the Option Grant Program and the Stock Issuance Program.

The Option Grant Program provides for the issuance of nonqualified and
incentive stock options to employees, non-employee members of the board and
consultants. The exercise price per share is not to be less than 85% of the
fair market value per share of the Company's common stock on the date of grant
for nonqualified stock options. Incentive stock options may not be granted at
less than 100% of the fair market value of the Company's common stock on the
date of grant (110% if granted to an employee who owns 10% or more of the
common stock). Options generally begin vesting six months after the vesting
start date, generally the employees date of hire, and generally vest ratably
over a four-year period and expire ten years from the date of grant. In
addition, certain employees have options that vest immediately. In the event
the holder of the option ceases to be employed by the Company, all unvested
options are forfeited, all vested options may be exercised within a period of
up to 3 months after termination and any options exercised for unvested shares
of common stock are subject to repurchase by the Company at the original
exercise price. The Company had 416,250 and 338,343 unvested shares of common
stock issued and outstanding under the plan at September 30, 1999 and March 31,
2000, respectively, which were subject to repurchase by the Company at the
related exercise prices. Under the terms of the Plan, as amended in January
1999, options to purchase 2,611,200 shares of common stock were reserved. As of
September 30, 1999, options to purchase 806,230 shares of common stock were
available for future grant.

The Stock Issuance Program provides for shares of common stock to be issued
directly through either the immediate purchase of shares or as a bonus for
services rendered. The purchase price per share is not to be less than 85% of
the fair market value per share of the Company's common stock on the date of
grant. The purchase price if granted to an employee who owns 10% or more of the
common stock must be granted at no

F-17
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

less than 110% of the fair market value of the Company's common stock on the
date of grant. Vesting of common stock issued is discretionary. In the event
the holder ceases to be employed by the Company, all unvested common stock
shall be forfeited and any cash paid related to the unvested shares will be
repaid by the Company.

A summary of the status of the Company's stock options, as of September 30,
1998 and 1999, and December 31, 1999, and the changes during the respective
periods then ended, is presented below:

<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Price per
Shares Share
---------- ---------
<S> <C> <C>
Outstanding at October 14, 1997 (Inception)............... -- --
Granted................................................. 1,111,200 $0.03
Exercised............................................... (1,111,200) 0.03
Canceled................................................ -- --
---------- -----
Outstanding at September 30, 1998......................... -- --
Granted................................................. 994,490 0.19
Exercised............................................... -- --
Canceled................................................ (300,720) 0.19
---------- -----
Outstanding at September 30, 1999......................... 693,770 0.19
Granted................................................. 1,661,115 5.14
Exercised............................................... (61,000) 0.22
Canceled................................................ (195,070) 0.19
---------- -----
Outstanding and excercisable at March 31, 2000............ 2,098,815 $4.11
========== =====
</TABLE>

Options granted for the period from October 14, 1997 (Inception) through
September 30, 1998, for the year ended September 30, 1999 and for the six
months ended March 31, 2000 resulted in total deferred compensation of $
494,560, $ 535,548 and $7,437,305 respectively, and were recorded as deferred
compensation in stockholder's equity. This deferred compensation represented
the difference between the deemed fair value of the Company's common stock for
accounting purposes and the exercise price of these options at the date of
grant. The deferred stock compensation is recognized as stock-based
compensation in the Consolidated Statements of Operations over the related
vesting periods of the options.

For the period from October 14, 1997 (Inception) through September 30, 1998,
for the year ended September 30, 1999 and for the six months ended March 31,
1999 and 2000, stock-based compensation included in the Consolidated Statements
of Operations amounted to $199,123, $490,347, $147,865 and $1,045,817,
respectively.

Additional information with respect to the outstanding options as of
September 30, 1999 is as follows:

<TABLE>
<CAPTION>
Options Exercised Subject
Options Outstanding and Exercisable to Repurchase
------------------------------------------- --------------------------
Weighted Average
Exercise Number of Remaining Weighted Average Number of Weighted Average
Price Shares Contractual Life Exercise Price Shares Repurchase Price
-------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.17 268,000 9.27 $0.17 285,000 $0.03
$0.20 425,770 9.77 $0.20 131,250 $0.17
------- -------
693,770 416,250
======= =======
</TABLE>

F-18
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

The Company calculated the minimum fair value of each option granted to an
employee, officer and/or director of the Company on the date of the grant using
the minimum value option pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions:

<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Risk-free interest rates......................................... 5.5% 5.8%
Expected lives (in years)........................................ 4 4
Dividend yield................................................... 0 0
Expected volatility.............................................. 0% 0%
</TABLE>

Had compensation costs been determined based upon the methodology prescribed
under SFAS No. 123, the Company's net loss and basic and diluted net loss per
share applicable to common stockholders would have approximated the following
pro forma amounts:

<TABLE>
<CAPTION>
As Reported Pro Forma
----------- -----------
<S> <C> <C>
For the period from October 14, 1997 (Inception)
through September 30, 1998:
Net loss applicable to common stockholders...... $ (722,114) $ (724,368)
=========== ===========
Basic and diluted net loss per share applicable
to common stockholders......................... $ (0.16) $ (0.16)
=========== ===========
For the year ended September 30, 1999:
Net loss applicable to common stockholders...... $(4,108,704) $(4,123,052)
=========== ===========
Basic and diluted net loss per share applicable
to common stockholders......................... $ (0.75) $ (0.75)
=========== ===========
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts, and additional awards in future years are
anticipated.

During 1999, the Company utilized the Black-Scholes pricing model, assuming a
risk-free interest rate of approximately 5.8%, an expected life of 10 years, a
0% dividend yield and forfeiture rate, and an expected volatility rate of
approximately 80%, to calculate the fair values of stock options granted to
consultants. The stock options are valued at the grant date, and each
subsequent reporting period until the options are fully vested, exercisable and
noncancelable. Through March 31, 2000, the Company has recorded approximately
$1.5 million in deferred stock compensation relating to stock options granted
to consultants. As of March 31, 2000, consultants held 140,600 of the total
2,098,815 stock options outstanding.

12. Warrants:

In connection with the issuance of the Series A Preferred Stock as described
in Note 10, the Company agreed to issue a warrant to purchase shares of Series
A Preferred Stock at $0.001 (par value) per share to an investor if certain
revenue milestones were not met by the Company. At the date the warrant was
offered, there was uncertainty as to whether the Company could achieve such
milestones. Therefore, the Company allocated the proceeds received from the
investor of $1,500,000 to the related Series A Preferred Stock shares and the
warrant based on their relative fair values, which were determined to be
$1,500,000 and $1,639,288, respectively. The amount of the proceeds allocated
to the Series A Preferred Stock shares and warrants was $716,723 and $783,277,
respectively. The warrant became fully vested, immediately exercisable and
nonforfeitable on July 30, 1999 when the Company did not meet the specified
milestones. The warrant was exercised in August 1999, and the Company issued
1,312,480 shares of Series A Preferred Stock.

In connection with the execution of the Facility as described in Note 4, the
Company issued a warrant to purchase 80,000 shares of Series A Preferred Stock
at $1.25 per share to the lender. In June 1999, the warrant became fully
vested, exercisable and nonforfeitable as set forth in the Facility. The
warrant expires in June 2006. The fair value of the warrant was determined to
be approximately $113,000 which will be amortized over the life

F-19
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

of the equipment leases, or 36 months, as additional interest expense. As of
September 30, 1999, the Company had recognized related interest expense of
approximately $9,000 and the warrant had not been exercised.

In connection with the execution of the Equipment Line as described in Note
4, the Company issued a warrant to purchase 5,333 shares of Series D Preferred
Stock at $7.50 per share to the Lender. In February 2000, the warrant became
fully vested, excercisable and nonforfeitable as set forth in the Equipment
Line. The warrant expires in February 2007. The fair value of the warrant was
determined to be approximately $58,000 which will be amortized over the
expected lives of the equipment leases, or 36 months, as additional interest
expense. As of March 31, 2000, the Company had recognized related interest
expenses of approximately $2,000 and the warrant had not been exercised.

13. Net Loss Per Share:

The following table sets forth the computation of basic, diluted and pro
forma net loss per share:

<TABLE>
<CAPTION>
For the year For the six months ended
October 14, 1997 ended March 31,
(Inception) through September 30, -------------------------
September 30, 1998 1999 1999 2000
------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Historical presentation
Numerator:
Net loss applicable to
common stockholders.... $(722,114) $ (4,108,704) $(1,116,577) $(15,816,895)
========= ============ =========== ============
Denominator:
Weighted average
common shares
outstanding.......... 4,629,323 6,000,000 6,000,000 6,014,047
Adjustment for common
shares issued subject
to repurchase........ -- (507,282) (567,033) (359,047)
--------- ------------ ----------- ------------
Denominator for basic
and diluted
calculations........... 4,629,323 5,492,718 5,432,967 5,655,000
========= ============ =========== ============
Basic and diluted net
loss per share
applicable to common
stockholders........... $ (0.16) $ (0.75) $ (0.21) $ (2.80)
========= ============ =========== ============
Pro forma presentation
Numerator:
Net loss applicable to
common stockholders.. $(4,108,704) $(15,816,895)
Beneficial conversion
feature.............. -- 4,479,993
------------ ------------
Net loss................ $(4,108,704) $(11,336,902)
============ ============
Denominator:
Shares used above....... 5,492,718 5,655,000
Weighted average
effect of convertible
securities
(unaudited):
Series A convertible
preferred stock...... 1,632,449 2,912,503
Series B convertible
preferred stock...... 456,860 3,403,141
Series C convertible
preferred stock...... -- 720,040
Series D convertible
preferred stock...... -- 515,355
Convertible notes..... -- 76,923
------------ ------------
Denominator for pro
forma calculation
(unaudited)............ 7,582,027 13,282,962
============ ============
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.54) $ (0.85)
============ ============
</TABLE>

F-20
<PAGE>

OCEN COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All interim information relating to the periods ended March 31, 1999 and 2000
is unaudited)

As the effect of their inclusion is antidilutive, diluted net loss per share
for the period from October 14, 1997 (Inception) through September 30, 1998 and
for the year ended September 30, 1999, does not include the effect of options
to purchase 0 and 693,770 of common stock, respectively, 0 and 80,000 preferred
stock warrants, respectively, approximately 184,000 and 0 shares of preferred
stock issuable upon the conversion of related party notes payable,
respectively, and 0 and 6,315,644 shares of convertible preferred stock,
respectively.

14. Subsequent Events (unaudited):

Stock Option Plan

The Company's Year 2000 Stock Option Plan, which was authorized by the Board
in March 2000, will become effective upon the consummation of the IPO. In
addition, the Board authorized an additional 1,000,000 stock options to be
available for future grants.

Initial Public Offering and Unaudited Pro Forma Stockholders' Equity

In March 2000, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company to sell shares of the Company's common stock in an IPO. Unaudited pro
forma stockholders' equity reflects the conversion of each share of convertible
preferred stock into shares of common stock upon the completion of the IPO and
the conversion of the portion of the convertible notes payable that will
automatically convert into 230,769 shares common stock.

Reincorporation

In March 2000, the Board of Directors approved the reincorporation of the
Company in the state of Delaware, and the increase in the number of authorized
shares, which will be effected prior to the closing of the IPO. The
accompanying consolidated financial statements have been presented to reflect
these events.

F-21
<PAGE>

3,800,000 Shares

[LOGO]

Common Stock

------------

PROSPECTUS
, 2000

------------

Lehman Brothers

Bear, Stearns & Co. Inc.

ING Barings
<PAGE>

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, payable by the Registrant in connection with the offer
and sale of the common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee, and the Nasdaq National Market entry
fee.

<TABLE>
<S> <C>
Registration fee................................................. $ 23,760
NASD filing fee.................................................. 9,500
Blue Sky fees and expenses (including legal fees)................ 5,000
Nasdaq National Market entry fee................................. 5,000
Accounting fees and expenses..................................... 300,000
Other legal fees and expenses.................................... 450,000
Transfer agent and registrar fee................................. 10,000
Printing and engraving........................................... 250,000
Miscellaneous.................................................... 20,000
----------
Total.......................................................... $1,073,260
==========
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). As permitted by the Delaware General Corporation Law, the Registrant's
amended and restated certificate of incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (iii) the Registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, and (iv) the
rights conferred in the bylaws are not exclusive. At present, there is no
pending litigation or proceeding involving a director, officer or employee of
the Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification. Reference is also made to Section of the Underwriting
Agreement, which provides for the indemnification of officers, directors and
controlling persons of the Registrant against certain liabilities. The
indemnification provisions in the Registrant's amended and restated certificate
of incorporation and in its bylaws may be sufficiently broad to permit
indemnification of the Registrant's directors and executive officers for
liabilities arising under the Securities Act. Reference is made to the
following documents filed as exhibits to this registration statement regarding
relevant indemnification provisions described above and elsewhere herein:

<TABLE>
<CAPTION>
Document Exhibit Number
-------- --------------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Form of Amended and Restated Certificate of Incorporation of
Registrant................................................. 3.3
Form of Bylaws of Registrant................................ 3.4
</TABLE>

II-1
<PAGE>

The Company has entered into indemnification agreements with each of the
Company's directors, a form of which is attached as an exhibit hereto and is
incorporated herein by reference.

The Registrant may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of stockholders or directors or
otherwise.

Item 15. Recent Sales of Unregistered Securities

From our inception, we have funded losses and capital expenditures from cash
provided from financing activities. These activities included the private
placement of the following:

. Common Stock. Common stock sold to our founders for an aggregate amount
of approximately $200,000 in October 1997; the cumulative exercise of
options to purchase 61,000 shares for an aggregate exercise price of
approximately $13,000.

. Convertible Notes. Convertible notes with an aggregate principal amount
of approximately $280,000 sold to a group of private investors during
fiscal years 1998 and 1999.

. Series A. Convertible preferred stock sold to Baring Private Equity
Partners, under the BAPEF Investments IV fund, and private investors for
an aggregate amount of approximately $2 million in November 1998.

. Series B. Convertible preferred stock sold to Excel-Foundation, a wholly
owned subsidiary of New World Cyberbase, and Anderson Information
Technology, for an aggregate amount of approximately $6.5 million in
September 1999.

. Series D. Convertible preferred stock sold to existing stockholders for
an aggregate amount of approximately $8 million in January 2000.

. Convertible Notes. Convertible notes with an aggregate principal amount
of $10 million sold to a group of private investors in January 2000.

The number of shares of common stock and convertible preferred stock below
reflects a 10,000 for one stock split in August 1998 and a 3-for-1 stock split
in April 1999.

In October 1997, we issued an aggregate of 4,888,800 shares of common stock
for an aggregate purchase price of approximately $200,000 to our founders. We
also issued convertible notes with an aggregate principal amount of
approximately $280,000 during fiscal years 1998 and 1999. These notes bear
interest at the rate of 5.5% annually and expire in July 2001. In the event of
a qualified financing of at least $1 million in gross proceeds, the noteholders
have the option to convert these notes into equity securities at the same price
as the securities issued in the qualified financing. Approximately $230,000 of
the notes outstanding were converted into 186,234 shares of Series A preferred
stock in November 1998.

In November 1998, we issued 1,600,023 shares of Series A convertible
preferred stock for $2 million, which included the conversion of some
promissory notes in November 1998. In connection with this offering, we issued
a warrant to purchase shares of Series A preferred stock if we did not meet
certain revenue milestones. The warrant became fully vested, immediately
exercisable and unable to be forfeited on July 31, 1999, when we did not meet
these milestones. The warrant was exercised in August 1999, and we issued
1,312,480 shares of Series A preferred stock.

II-2
<PAGE>

stock upon consummation of this offering. In June 1999, the warrant became
fully vested, exercisable, and unable to be forfeited.

In September 1999, we issued 3,403,141 shares of Series B convertible
preferred stock for $6.5 million to a subsidiary of New World Cyberbase and to
Anderson Information Technology.

In November 1999, we issued 1,023,807 shares of Series C convertible
preferred stock for $2.2 million to Lotus Asset Management, a group of private
investors, and existing stockholders.

In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock to existing stockholders for approximately $8 million.

In January 2000, we issued $10 million in aggregate principal amount of
convertible notes bearing interest at 6% annually to a group of private
investors. If we receive gross proceeds of at least $10 million in another
round of financing, then 30% of the outstanding principal amount of each note
will convert into our capital stock of the Company with the rest of the balance
paid out by us. If we consummate an initial public offering prior to January
2005, receive gross proceeds of at least $10 million in another round of
financing, or default under the terms of the notes, then we, in our sole
discretion, can convert the entire outstanding amounts of the notes into our
capital stock.

In connection with our equipment lease line, in January 2000 we issued to the
lender a warrant to purchase 5,333 shares of Series D convertible preferred
stock at $7.50 per share, which would be equivalent to 5,333 shares of common
stock upon consummation of this offering.

Item 16. Exhibits and Financial Statement Schedules

A.Exhibits

<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
**3.1 Amended and Restated Certificate of Incorporation
**3.2 Amended and Restated Bylaws
**4.1 See Article II of Exhibit 3.1 and Article I of Exhibit 3.2
*5.1 Opinion of Brobeck, Phleger & Harrison, LLP
**10.1 1998 Stock Option/Stock Issuance Plan
**10.2 Form of Stock Option Agreement
**10.3 Form of Stock Issuance Agreement
*10.4 Carrier Services Agreement between Registrant and New World Telephone,
dated as of January 3, 2000
*10.5 Office Building Lease between Registrant and Capital & Counties USA,
Inc., dated as of
January, 11, 1999
*10.6 Office Building Lease between Registrant and West Covina Lakes
Associates, dated as of
October 1, 1997
*10.7 Tenancy Agreement between Registrant and Sun Hung Kai Real Estate
Agency on behalf of Kai Carouse Company Limited, dated as of September
1, 1999
*10.8 Office Building Lease between Registrant and Washington Mutual Bank,
FA, dated as of
October 10, 1999
System License Agreement between Registrant and Synapsis, dated as of
*10.9 September 9, 1999
**10.10 2000 Stock Incentive Plan
**10.11 2000 Employee Stock Purchase Plan
*10.12 Form of Indemnification Agreement
**10.13 Amended and Restated Investor Rights Agreement, dated as of January 4,
2000
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
*10.14 Lease Agreements between Registrant and Chen, Tse-Lin, dated as of
December 14, 1998
+10.15 Memorandum of Understanding between Registrant and NetStar
International Holding Limited, dated as of March 15, 2000
10.16 Indemnification Agreement between Registrant and Chris Au, dated as of
January 11, 2000
**21.1 List of Subsidiaries
*23.1 Consent of Pricewaterhouse Coopers LLP
*23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
*27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.

** Filed previously.

+ Confidential treatment requested as to portions of this exhibit.

B.Financial Statement Schedules

Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities 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 of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, 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 Securities 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,
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-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Irwindale, State of California, on May 9, 2000.

OCEN COMMUNICATIONS, INC.

By: /s/ Alex Liu
__________________________________

Alex Liu
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alex Liu and Steven San Eng and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him in his name, place and stead, in any
and all capacity, in connection with this Registration Statement, including to
sign and file in the name and on behalf of the undersigned as director or
officer of the Registrant (i) any and all amendments or supplements (including
any and all stickers and post-effective amendments) to this Registration
Statement, with all exhibits thereto, and other documents in connection
therewith, and (ii) any and all additional registration statements, and any and
all amendments thereto, relating to the same offering of securities as those
that are covered by this Registration Statement that are filed pursuant to Rule
462(b) promulgated under the Securities Act of 1933, with the Securities and
Exchange Commission and any applicable securities exchange or securities self-
regulatory body, granting unto said attorney-in-fact and agents, and each of
them full power and authority to do and perform each and every act and things
requisite or necessary to be done in and about the premises, 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 any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons on May 9,
2000 in the capacities indicated:

Signatures Title Date
<S> <C> <C>
/s/ Ron Higgins Chairman of the May 9, 2000
- ------------------------------------- Board
Ron Higgins

/s/ Alex Liu Chief Executive May 9, 2000
- ------------------------------------- Officer (Principal
Alex Liu Executive Officer)

/s/ Steven San Eng Vice-Chairman and May 9, 2000
- ------------------------------------- Executive VP of
Steven San Eng Corporate
Development

/s/ Mark Keithley Chief Financial May 9, 2000
- ------------------------------------- Officer (Principal
Mark Keithley Financial and
Accounting Officer)

/s/ Thomas Bao Board Member, May 9, 2000
- ------------------------------------- President, and VP
Thomas Bao of Greater China

/s/ Lloyd Fischer Board Member May 9, 2000
- -------------------------------------
Lloyd Fischer

/s/ Chan Ki Board Member May 9, 2000
- -------------------------------------
Chan Ki
</TABLE>

II-5
<PAGE>

Signatures Title Date
<S> <C> <C>
/s/ Simon Lo Board Member May 9, 2000
- -------------------------------------
Simon Lo

/s/ Jean Salata Board Member May 9, 2000
- -------------------------------------
Jean Salata
</TABLE>

II-6
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot sell these securities until we deliver this prospectus to you in final +
+form. This prospectus is not an offer to sell these securities, and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE]

Subject to Completion, dated , 2000

PROSPECTUS

3,800,000 Shares

[LOGO OF oCEN COMMUNICATIONS]

oCen Communications, Inc.

Common Stock

- --------------------------------------------------------------------------------

This is our initial public offering of shares of common stock. We are initially
offering shares outside the United States and Canada and
shares in the United States and Canada.

No public market currently exists for our shares. We anticipate that the
initial public offering price per share will be between $12 and $14. We expect
that the shares will trade on the Nasdaq National Market under the symbol
"OCOM."

Investing in the shares involves risks. Risk Factors begin on page 5.

We have granted the underwriters a 30-day option to purchase up to an
additional 570,000 shares of our common stock to cover over-allotments.

Lehman Brothers expects to deliver the shares on or about , 2000.

- --------------------------------------------------------------------------------

Lehman Brothers

Bear, Stearns International Limited

ING Barings

, 2000
<PAGE>

[ALTERNATE PAGE]

UNDERWRITING

Lehman Brothers Inc., Bear, Stearns International Limited, and ING Barings
Asia Limited, as agent for ING Bank N.V., are acting as international
representatives of each of the international underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, we have agreed to sell to the international underwriters,
and each of the international underwriters, severally and not jointly, has
agreed to purchase from us, the number of shares of common stock shown opposite
its name below:

<TABLE>
<CAPTION>
International Underwriters Number of Shares
- -------------------------- ----------------
<S> <C>
Lehman Brothers Inc.............................................
Bear, Stearns International Limited.............................
ING Barings Asia Limited, as agent for ING Bank N.V.............
Total.........................................................
</TABLE>

<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
- ----------------- ----------------
<S> <C>
Lehman Brothers Inc...........................................
Bear, Stearns & Co. Inc.......................................
ING Barings LLC...............................................
Total.......................................................
</TABLE>

The public offering price of the shares and the underwriting discount in this
offering will be the same as the public offering price of the shares and the
underwriting discount in the U.S. offering. The closing of this offering is a
condition to the closing of the U.S. offering, and the closing of the U.S.
offering is a condition to the closing of this offering.

79
<PAGE>

[ALTERNATE PAGE]

The following table summarizes the underwriting discount we will pay and any
other amounts that are deemed to be underwriting compensation by the NASD's
rules of fair practice. The underwriting discount is equal to the public
offering price per share less the amount paid to us per share. The underwriting
discount is equal to % of the public offering price. The other underwriters'
compensation relates to 400,000 shares of our capital stock which we sold to a
private equity fund, 16.4% of which is owned by ING Group and its affiliates,
in January 2000 at a price that is less than the public offering price in this
offering.

The underwriters have entered into the agreement among U.S. underwriters and
international underwriters. Under this agreement, the U.S. underwriters and the
international underwriters may sell between each other as many shares as they
may mutually agree. The price of any such shares, unless otherwise determined
by mutual agreement, shall be the public offering price then in effect less an
amount equal to the selling concessions which may be allocated to such shares.
To the extent that there are any sales between the U.S. underwriters and the
international underwriters, the number of shares available for sale by the U.S.
underwriters or by the international underwriters may be more or less than the
amount specified on the cover page of this prospectus.

We have granted to the underwriters an option to purchase up to 570,000
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on
the cover page of this prospectus. The option may be exercised at any time
until 30 days after the date of the underwriting agreement. To the extent this
option is exercised, each underwriter will be committed, subject to various
conditions, to purchase a number of additional shares proportionate to its
initial purchase commitment as indicated in the preceding table and we will be
obligated, under the over-allotment option, to sell the shares to the
underwriters.

. offer, sell, pledge or otherwise dispose of, or enter into any
transaction which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of
common stock or securities convertible into or exchangeable for common
stock or substantially similar securities, other than the following:

80
<PAGE>

[ALTERNATE PAGE]

. the common stock sold under this prospectus,
. the common stock to be issued concurrently with the closing of this
offering upon the mandatory conversion of our outstanding preferred
stock, and
. shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or pursuant to currently
outstanding options, warrants or rights.
. sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options pursuant to option plans existing on the date hereof; and
. enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks or
ownership of shares of common stock.

. the history of and prospects for oCen and the Asian Internet telephone
services industry; and
. the prospects for future revenues and earnings of oCen.

We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol OCOM.

The underwriters may create a short position in the shares in connection with
the offering, which means that they may sell more shares than are set forth on
the cover page of this prospectus. We cannot estimate the size of such a short
position. The underwriters will deliver a prospectus to all purchasers of
shares in the short sales and such purchasers are entitled to the same remedies
under the federal securities laws as any other purchasers of shares covered by
the registration statement. If the underwriters create a short position, then
the representatives may reduce that short position by purchasing shares in the
open market. The representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option.

81
<PAGE>

[ALTERNATE PAGE]

Offers and sales of shares being sold outside the United States have not been
registered under the Securities Act in reliance on Regulation S under the
Securities Act.