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1934 Act Registration No. 000-50631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of November 2004
TOM Online Inc.
(Translation of registrant’s name into English)
8th Floor, Tower W3, Oriental Plaza
No. 1 Dong Chang An Avenue
Beijing, China 100738
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): )
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): )
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes No X
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82- .)
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Exhibit Number | Page | |||
| 1.1 | Quarterly Results Announcement dated November 10, 2004 | 3 | ||
| 1.2 | Press Release dated November 10, 2004 | 23 | ||
FORWARD-LOOKING STATEMENTS
The Press Release and the Quarterly Results Announcement of TOM Online Inc. (the “Company”), constituting Exhibits 1.1 and 1.2 to this Form 6-K, contain statements that may be viewed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are, by their nature, subject to significant risks and uncertainties that may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements that are not historical fact relating to the financial performance and business operations of the Company, the continued growth of the telecommunications industry in China, the development of the regulatory environment, and the Company’s latest product offerings and the Company’s ability to successfully execute its business strategies and plans.
Such forward-looking statements reflect the current views of the Company with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, any changes in our relationships with telecommunication operators in China, the effect of competition on the demand for the price of our services, changes in customer demand and usage preference for our products and services, changes in the regulatory policies of the Ministry of Information Industry and other relevant government authorities, any changes in telecommunications and related technology and applications based on such technology, and changes in political, economic, legal and social conditions in China, including the Chinese government’s policies with respect to economic growth, foreign exchange, foreign investment and entry by foreign companies into China’s telecommunications market. Please also see the “Risk Factors” section of the Company’s registration statement on Form F-1 (File No. 333-112800), as filed with the Securities and Exchange Commission.
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(Stock Code: 8282)
CHARACTERISTICS OF GEM
GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the main board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM. The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.
The Stock Exchange takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
This announcement, for which the directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The directors of the Company, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (i) the information contained in this announcement is accurate and complete in all material respects and not misleading; (ii) there are no other matters the omission of which would make any statement in this announcement misleading; and (iii) all opinions expressed in this announcement have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.
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(Stock Code: 8282)
THIRD QUARTERLY RESULTS FOR 2004
HIGHLIGHTS
For the third quarter of 2004:
| • | Total revenues grew 37% from the same period in 20031 to US$31.40 million |
| • | Continued to diversify the revenue stream with the focus on growing 2.5G products and services and online advertising |
| • | Revenues from 2.5G products and services grew more than 11 times from the same period in 2003 to US$8.13 million and now comprise 29% of our wireless internet product mix |
| • | Online advertising revenues grew194% from the same period in 2003 to US$2.42 millionand now comprises 8% of total revenues |
| • | Completed the acquisition of Treasure Base Investments Limited, the results of which for the period from August 11, 2004 are consolidated in this quarter’s results |
| • | Invested in Sichuan Greatwall Software Group, together with Qualcomm and IDG to enhance our 2.5G products portfolio as well as our R&D capabilities for JAVA and BREW technologies |
| • | Net income was US$7.28 million, representing an increase of 9% from the same period in 2003 |
| • | Cash and marketable securities totaled US$187.19 million at the end of the quarter |
CHAIRMAN’S STATEMENT
I am pleased to announce the results of TOM Online Inc. (the “Company” or “TOM Online”) and its subsidiaries (collectively referred to as the “Group”) for the third quarter ended September 30, 2004.
Financial Highlights
During the third quarter, the Company has maintained profitability against strong competition and despite an unprecedented tightening of regulation by the mobile operators of value added service providers serving the Chinese wireless internet market. Management has successfully navigated this difficult environment and has
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achieved overall sales growth against all of these challenges. For the third quarter of 2004:
| • | Total revenues grew 37% from the same period in 20031 to US$31.40 million |
| • | Continued to diversify the revenue stream with the focus on growing 2.5G products and services and online advertising |
| • | Revenues from 2.5G products and services grew more than 11 times from the same period in 2003 to US$8.13 million and now comprise 29% of our wireless internet product mix |
| • | Online advertising revenues grew194% from the same period in 2003 to US$2.42 million and now comprises 8% of total revenues |
| • | Completed the acquisition of Treasure Base Investments Limited, the results of which for the period from August 11, 2004 are consolidated in this quarter’s results |
| • | Invested in Sichuan Greatwall Software Group, together with Qualcomm and IDG to enhance our 2.5G products portfolio as well as our R&D capabilities for JAVA and BREW technologies |
| • | Net income was US$7.28 million, representing an increase of 9% from the same period in 2003 |
| • | Cash and marketable securities totaled US$187.19 million at the end of the quarter |
Financial Performance Review- Comparison of Third Quarter 2004 with Third Quarter 20031
The Group’s unaudited consolidated revenues for the three months ended September 30, 2004 were US$31.40 million, an increase of 37% over the same period in 2003. These results include revenues from our acquisition of Treasure Base, reported on below, which contributed 6.1% of the Group’s total revenues for the period. Without the acquisition of Treasure Base our revenues grew 29% year on year.
Wireless internet revenues were US$28.26 million, representing an increase of 58% from the same period in 2003.
Online advertising revenues were US$2.42 million, representing a 194% increase from the same period in 2003.
Our gross profit was US$13.53 million in the third quarter of 2004, compared to US$11.12 million for the same period in 2003. This represents an increase of 22%.
Operating expenses for the third quarter of 2004 were US$7.26 million, representing an increase of 61% from
| 1 | Discussion of pro forma data for 2003 versus historical data for 2003 — Our historical financial data reflects the effects of our reorganization from September 26, 2003, and the effects of our acquisition of our IVR business from November 19, 2003. Our pro forma financial data for 2003 was presented in order to give pro forma effect to our reorganization, as if the reorganization occurred on January 1, 2003 and the acquisition of our IVR business occurred on January 1, 2003. As a result, our pro forma financial information for 2003 includes the financial information of the nine companies that are part of the Company following our reorganization, but excludes the six companies that were included in our historical financial information up until September 26, 2003, but are no longer part of the Company following our reorganization. For these reasons, the management of TOM Online believes that for comparison purposes, comparison of our financial information for the three months ended September 30, 2004 with the same period for 2003 are more appropriate and relevant using our pro forma financial data for 2003 instead of our historical financial data and therefore, these are the comparisons set forth herein. Details of the pro forma adjustments and the underlying assumptions and basis of preparation can be found in Appendix III set forth in the Global Offering Prospectus dated March 2, 2004. |
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the same period in 2003. Operating expenses as a percentage of total revenues were 23%, an increase of 3% percentage points by comparison to the same period in 2003. The increase in operating expenses was mainly attributable to amortization of intangible assets arising from the acquisition of Treasure Base as well as an increase of payroll related expenses due to the expansion of headcount in the wireless internet business segment which focused on the development of 2.5G products and services.
EBITDA2 for the third quarter of 2004 was US$9.16 million, representing an increase of 5% from the corresponding period in 2003.
Net income for the third quarter of 2004 was US$7.28 million, representing an increase of 9% from the same period in 2003. Our net income margin narrowed to 23% for the third quarter, compared to 29% for the same period in 2003. The margin decrease reflects an adverse mix, including a higher cost of services, primarily comprised of increased content acquisition costs and portal related costs as we continued to invest in enhancing our branded content and portal offerings.
US GAAP basic earnings per American Depository Share were US$15 cents for the quarter. US GAAP basic earnings per Hong Kong ordinary share were US$0.2 cents for the quarter. Shares used in computing US GAAP basic earnings per American Depository Share were 47,500,000 shares and shares used in computing US GAAP basic earnings per Hong Kong ordinary share were 3,800,000,000.
Our balance of cash and marketable securities was US$187.19 million at the end of the third quarter.
Business Review
Wireless Internet
Wireless internet revenues accounted for 90% of our total revenues in the third quarter of 2004, compared to 78% in the same period in 2003.
A maturing market and the introduction of new billing systems by the mobile carriers resulting in a higher than expected churn rate have constrained growth in SMS revenues during the quarter. Nonetheless, SMS revenues totalled US$14.69 million, compared to US$14.04 million for the same period in 2003. This
| 2 | EBITDA refers to earnings before interest, taxation, depreciation and amortization. A summary of reconciliation is presented under the section “Reconciliation from GAAP Income from Operations to EBITDA”. To supplement its consolidated financial statements presented in accordance with the generally accepted accounting principles in the United States (“US GAAP”), TOM Online uses the non-US GAAP measure of EBITDA, which is adjusted from results based on US GAAP. The use of non-US GAAP measures is provided to enhance the reader’s overall understanding of our current financial performance and our future prospects. Specifically, the Company believes that the non-US GAAP results provide useful information to both management and investors by excluding certain items that are not expected to result in future cash payments or may not be indicative of our core operating results. In addition, because the Company has historically reported certain non-US GAAP results to investors, the Company believes the inclusion of non-US GAAP measures provides consistency in our financial reporting. Non-US GAAP measures should be considered in addition to results prepared in accordance with the US GAAP, but should not be considered a substitute for or superior to our US GAAP results. Consistent with the Company’s historical practice, the non-US GAAP measures included in this announcement have been reconciled to the nearest US GAAP measure. |
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represents an increase of 5%. SMS revenues for the quarter comprised 52% of our total wireless internet revenues compared to 78% for the same period in 2003. SMS revenues for this quarter included contributions from Treasure Base, which we acquired during the quarter. While SMS is a maturing market experiencing a gradual decline in terms of absolute growth, it provides recurrent revenues for the Group and is an attractive platform from which we are able to cross-promote, cross-sell and cross-bundle our other wireless internet products and services.
The contribution of 2.5G products and services to our total wireless internet revenues remained significant during the third quarter of 2004 and now comprises 29% of total wireless internet revenues compared to 4% for the same period in 2003. MMS revenues were US$3.41 million representing an increase of 16 fold for the same period in 2003. Revenues from WAP services were US$4.72 million representing an increase of 9 fold for the same period in 2003. We expect 2.5G to continue to present attractive growth opportunities for the Group as the mobile carriers are encouraging usage of these advanced data services and the market is experiencing healthy MMS and WAP handset rollouts and increasing user adoption of 2.5G services. The Group believes that it has further solidified its leading position in 2.5G products and services through execution of its business strategies and consistent focus on operations and product innovation.
IVR revenues were US$5.45 million representing an increase of 69% for the same period in 2003. IVR accounted for 19% of total wireless internet revenues for the period compared to 18% from the same period in 2003. There was a decline in the relative contribution of IVR services during the quarter compared to the second quarter arose as a result of sanctions imposed on the IVR businesses of certain other wireless value added service providers by mobile operators. In such circumstances, prudent operating practice required a reduction in the overall activity in IVR services and the level of co-promotions and co-marketing of IVR services with mobile operators. The situation start to improve and more normalized growth has been resumed in October 2004.
Despite the challenging market and regulatory environment, we continue to take steps to strengthen our position as the leading wireless internet company in China. In July 2004, we entered into strategic partnerships with major international music companies including Sony Music, EMI, BMG and Warner Music to enhance our 2.5G services offerings. Additionally, we obtained exclusive rights to use the songs and repertoire of Greater China pop superstar Jay Chou and we are using his music across our wireless internet platform, especially on our portal, IVR services and for Ring-back tones. We also continued our partnership withSports Weekly to jointly offer cross-platform wireless internet content to Chinese sports fans across China.
Portal and Online Advertising
Online advertising revenues were US$2.42 million representing a 194% increase from the same period in 2003. Online advertising revenues were 8% of our total revenues, compared to 4% for the same period in 2003. During the quarter, traffic to our portal has continued to be strong as a result of its increasing popularity with the growing number of affluent, young and trendy Chinese internet users and the increasing demand from advertisers wanting to target this attractive demographic. Our average contract size grew by more than 25% from the average contract size for the previous quarter and we have added many new clients in industries such as information technology, automobiles and consumer electronics.
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Our portal remains among the most popular portals in China in terms of traffic and daily page views. During the quarter we have continued to enhance the content and offerings of our portal by launching several new channels and entering into a strategic partnership with ESPN STAR Sports to bring the English Football Premier League content to soccer fans in China. In addition to the English Premier League Channel, which we launched in conjunction with ESPN STAR Sports, we also launched the Cover Page Show Channel. This channel further strengthens our cooperation with traditional media in China. To provide more attractive community services to our users we also introduced a Blog product as well as increasing the capacity of our free email service, TOM Mail.
Enterprise Solutions
Enterprise solutions revenues totalled US$0.72 million in the third quarter of 2004 and represented 2% of our total revenues. We continue to de-emphasize the Enterprise Solutions business segment.
Marketing and Promotion
During the third quarter, we carried out several marketing programs to promote our portal. We conducted a 13-city road show to promote our mobile entertainment business, and in partnership withSports Weekly we launched and promoted our Olympics Channel.
Strategic Transactions
Treasure Base
In August, we acquired the entire issued share capital of Treasure Base. Treasure Base is a leading wireless entertainment service provider, holding exclusive rights with major TV channels in China for the provision of wireless entertainment content utilizing TV media. With this strategic acquisition, we have gained an important foothold for the distribution of our wireless products and services to the mass TV audience in China. This acquisition should enable the Group to enlarge its market share in the wireless internet segment and to increase revenues across all wireless product lines as Treasure Base expands its product offerings from its present range of mainly SMS delivered products to 2.5G and IVR products. The Treasure Base acquisition is immediately earnings accretive to the Group and our results from this period include a revenue contribution of US$1.9 million consolidated from August 11, 2004, the effective date of the acquisition. We are making satisfactory progress integrating Treasure Base into our operations. Treasure Base is expected to provide us unique access to more than 60 television channels throughout China, including CCTV 5, the national sports broadcaster. Treasure Base’s agreements with these television broadcasters are also expected to give the Group access to premium content for our wireless platform as well as broadcast media as a new distribution channel.
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Strategic Investment in Great Wall
To ensure that we continue to be innovators and first movers in the product cycle, in August 2004, together with Qualcomm and private equity investor IDG, we invested in Sichuan Great Wall Software Group, a wireless mobile software application developer. We expect to benefit from their expertise and experience in the development of wireless applications using JAVA and BREW technologies to deliver quality content to mobile phones and other wireless devices. Access to this technology and skill-set will not only advance our 2.5G product development efforts but also is expected to assist in attractively positioning the Company for any future introduction of 3G services in the Chinese telecommunications sector.
Business Outlook
On October 25,2004, we soft launched TOM-SKYPE, our instant messaging product, through a cooperation arrangement with Skype Technologies SA. This service will further strengthen the Company’s portal community offerings resulting in enhanced user stickiness and portal traffic.
In late October, we were among the first batch of service providers selected by China Telecom and China Netcom to offer paid SMS content on their Little Smart “Xiao Ling Tong” cellular networks. The Company expects to offer nationwide PHS based SMS products by the end of this year.
The unforeseen events in the third quarter of 2004 have shown that there is an element of volatility in the business environment in which we operate that cannot be predicted with certainty. Compared to this quarter, the Company’s management currently estimates that its total revenues for the fourth quarter of 2004 will grow 5-8% and that its wireless internet revenues for the fourth quarter of 2004 will grow 5-10%. The Company’s management currently estimates that its online advertising revenues will be flat for the fourth quarter of 2004. These estimates only reflect the current and preliminary views of the Company and do not factor in the volatility experienced in the third quarter*.
I would like to thank the Board of Directors and all of the Company’s employees for their hard work, support and dedication.
Frank Sixt
Chairman
Hong Kong, November 10, 2004
| * | This announcement contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties that may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements relating to management’s estimation with respect to the growth rate of the Company’s total revenues, wireless internet revenues and online advertising revenues, the success of the |
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Company’s latest product offerings and the Company’s ability to successfully execute its business strategies and plans. Such forward-looking statements reflect the current views of the Company with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, any changes in our relationships with telecommunication operators in China, the effect of competition on the demand for the price of our services, changes in customer demand and usage preference for our products and services, changes in the regulatory policies of the Ministry of Information Industry and other relevant government authorities, any changes in telecommunications and related technology and applications based on such technology, and changes in political, economic, legal and social conditions in China, including the Chinese government’s policies with respect to economic growth, foreign exchange, foreign investment and entry by foreign companies into China’s telecommunications market. Please also see the “Risk Factors” section of the Company’s registration statement on Form F-1 (File No. 333-112800), as filed with the Securities and Exchange Commission in the United States and the “Risk Factors” section of the Company’s prospectus of March 2, 2004 as filed with the Companies Registry in Hong Kong.
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CONSOLIDATED BALANCE SHEETS
| Audited December 31, 2003 | Unaudited September 30, 2004 | |||||||
| Notes | (in thousands of U.S. dollars) | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 22,636 | 70,196 | ||||||
Accounts receivables, net | 14,689 | 26,230 | ||||||
Deferred cost | 15,000 | — | ||||||
Consideration prepayment | 6 | — | 18,077 | |||||
Prepayments | 1,405 | 5,085 | ||||||
Deposits and other receivables | 935 | 2,977 | ||||||
Due from related parties | 124 | 176 | ||||||
Intangibles, net | — | 355 | ||||||
Inventories | 29 | 246 | ||||||
Total current assets | 54,818 | 123,342 | ||||||
Long-term investments | — | 118,488 | ||||||
Long-term prepayment & deposit | 565 | 240 | ||||||
Property and equipment, net | 7,094 | 11,000 | ||||||
Deferred tax assets | 274 | 329 | ||||||
Goodwill, net | 214 | 214 | ||||||
Long-term intangibles, net | 4,411 | 2,676 | ||||||
Total assets | 67,376 | 256,289 | ||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | 3,241 | 3,861 | ||||||
Other payables and accruals | 22,195 | 10,656 | ||||||
Taxation payable | 401 | 518 | ||||||
Deferred revenue | 414 | 243 | ||||||
Consideration payable | 6 | 6,580 | 12,778 | |||||
Total current liabilities | 32,831 | 28,056 | ||||||
Due to related parties | 19,983 | 20,105 | ||||||
Total liabilities | 52,814 | 48,161 | ||||||
Minority interests | 152 | 418 | ||||||
| 52,966 | 48,579 | |||||||
Shareholders’ equity: | ||||||||
Share capital | 3,590 | 4,872 | ||||||
Paid-in capital | 75,551 | 242,061 | ||||||
Accumulated other comprehensive loss | (55 | ) | (255 | ) | ||||
Accumulated deficit | (64,676 | ) | (38,968 | ) | ||||
Total shareholders’ equity | 14,410 | 207,710 | ||||||
Total liabilities and shareholders’ equity | 67,376 | 256,289 | ||||||
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| 2003 Historical | 2004 Actual | 2003 Historical | 2004 Actual | |||||||||||
| Notes | (in thousands of U.S. dollars) | |||||||||||||
Revenues: | ||||||||||||||
Wireless internet services | 14,637 | 28,262 | 38,279 | 80,932 | ||||||||||
Advertising | 2,279 | 2,417 | 5,246 | 5,551 | ||||||||||
Commercial enterprise solutions | 4,132 | 719 | 10,738 | 1,684 | ||||||||||
Internet access | 64 | — | 1,504 | 68 | ||||||||||
Total revenues | 21,112 | 31,398 | 55,767 | 88,235 | ||||||||||
Cost of revenues: | ||||||||||||||
Cost of goods sold | (3,689 | ) | (446 | ) | (8,947 | ) | (510 | ) | ||||||
Cost of services | (8,622 | ) | (17,420 | ) | (24,403 | ) | (45,088 | ) | ||||||
Total cost of revenues | (12,311 | ) | (17,866 | ) | (33,350 | ) | (45,598 | ) | ||||||
Gross profit | 8,801 | 13,532 | 22,417 | 42,637 | ||||||||||
Operating expenses: | ||||||||||||||
Selling and marketing expenses | (671 | ) | (1,863 | ) | (1,688 | ) | (5,379 | ) | ||||||
General and administrative expenses | (2,537 | ) | (3,428 | ) | (7,309 | ) | (8,280 | ) | ||||||
Product development expenses | (184 | ) | (219 | ) | (516 | ) | (632 | ) | ||||||
Amortization of intangibles | — | (1,746 | ) | — | (4,376 | ) | ||||||||
Total operating expenses | (3,392 | ) | (7,256 | ) | (9,513 | ) | (18,667 | ) | ||||||
Income from operations | 5,409 | 6,276 | 12,904 | 23,970 | ||||||||||
Other (expenses)/income: | ||||||||||||||
Net interest (expenses)/ income | (91 | ) | 1,044 | (315 | ) | 1,956 | ||||||||
Income before tax | 5,318 | 7,320 | 12,589 | 25,926 | ||||||||||
Income tax credit | 2 | 166 | 55 | 154 | 48 | |||||||||
Income after tax | 5,484 | 7,375 | 12,743 | 25,974 | ||||||||||
Minority interests | (12 | ) | (92 | ) | (74 | ) | (266 | ) | ||||||
Net income attributable to shareholders | 5,472 | 7,283 | 12,669 | 25,708 | ||||||||||
Earnings per HK ordinary share - basic (cents): | 3 | 0.2 | 0.2 | 0.5 | 0.7 | |||||||||
Earnings per ADS - basic (cents): | n/a | 15 | n/a | 58 | ||||||||||
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, | ||||||
| 2003 | 2004 | |||||
| (in thousands of U.S dollars) | ||||||
Cash flow from operating activities | ||||||
Net income | 12,669 | 25,708 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Amortization of intangibles | — | 4,376 | ||||
Amortization of equity investments’ premium | — | 190 | ||||
Allowance for doubtful accounts | 1,319 | 450 | ||||
Depreciation | 2,215 | 3,044 | ||||
Deferred income tax | (172 | ) | (55 | ) | ||
Interest on advances from TOM Group and its subsidiaries | 331 | — | ||||
Corporate expenses recharged by TOM Group | 763 | — | ||||
Loss on disposal of property and equipment | 1 | — | ||||
Minority interests | 74 | 266 | ||||
Change in assets and liabilities, net of effects from acquisitions: | ||||||
Accounts receivable | (6,459 | ) | (10,603 | ) | ||
Prepayments | (87 | ) | (3,861 | ) | ||
Deposits and other receivables | (258 | ) | (216 | ) | ||
Due from related parties | (194 | ) | (52 | ) | ||
Inventories | 1,495 | (217 | ) | |||
Long-term prepayment and deposits | (120 | ) | 63 | |||
Accounts payable | 470 | (2 | ) | |||
Other payables and accruals | 3,010 | 983 | ||||
Income tax payable | — | (3 | ) | |||
Deferred revenue | (1,637 | ) | (253 | ) | ||
Due to related parties | 11 | (10 | ) | |||
Net cash provided by operating activities | 13,431 | 19,808 | ||||
Cash flow from investing activities | ||||||
Payments for purchase of property and equipment | (4,147 | ) | (6,773 | ) | ||
Payments for the purchase of intangible assets | — | (1,663 | ) | |||
Payments for investment in bonds | — | (118,883 | ) | |||
Payments for long term investment | — | (1,495 | ) | |||
Cash disposed at reorganization | (1,689 | ) | — | |||
Net cash used in acquisition of subsidiaries | — | (12,196 | ) | |||
Net cash used in investing activities | (5,836 | ) | (141,010 | ) | ||
Cash flow from financing activities: | ||||||
Advances to related parties | (1,027 | ) | — | |||
Issue of ordinary shares, net of expenses | — | 168,762 | ||||
Net cash (used in)/provided by financing activities | (1,027 | ) | 168,762 | |||
Net increase in cash and cash equivalents | 6,568 | 47,560 | ||||
Cash and cash equivalents, beginning of period | 6,752 | 22,636 | ||||
Cash and cash equivalents, end of period | 13,320 | 70,196 | ||||
Supplemental disclosures of cash flow information | ||||||
Cash (paid)/received during the period for: | ||||||
Cash paid for income tax | (16 | ) | (3 | ) | ||
Interest received | 16 | 2,526 | ||||
Non-cash activities: | ||||||
Property and equipment transferred from TOM Group | — | 7 | ||||
Contribution from shareholders | 1,094 | — | ||||
Outstanding payments for listing expenses | 12,000 | 970 | ||||
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of preparation and accounting policies |
The accompanying unaudited financial statements have been prepared in accordance with US GAAP. A reconciliation summary of the principal differences between the US GAAP and HK GAAP is also presented under note 7.
The accounting policies and methods of computation are consistent with those used in the Company’s Global Offering Prospectus dated March 2, 2004.
| 2. | Taxation |
Under the current laws of the Cayman Islands, the Company is not subject to income taxes.
Pursuant to the PRC Income Tax Laws, the Group is generally subject to enterprise income tax (“EIT”) at a statutory rate of 33% and companies located within special economic zones are entitled to a 15% preferential rate. Certain companies were also granted a full exemption from EIT for the first three years of operation including the year of incorporation and a 50% reduction for the following three years.
Hong Kong profits tax has not been provided as the Group has no estimated assessable profit in Hong Kong for the nine months ended September 30, 2004 (2003: Nil).
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| 3. | Earnings per share |
The calculation of the basic earnings per Hong Kong ordinary share for the three months and nine months ended September 30, 2004 is based on the respective unaudited consolidated net income attributable to shareholders of US$7.28 million and US$25.71 million (2003: unaudited consolidated net income attributable to shareholders of US$5.47 million and US$12.67 million) and the weighted average number of 3,800,000,000 and 3,544,525,547 (2003: 2,800,000,000 and 2,800,000,000) ordinary shares outstanding during the periods. The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for all periods presented. For the purpose of calculating the earnings per share, the 96,200,000 contingent shares issued to Cranwood which are held in escrow as consideration for the acquisition of Puccini Group are not included in the calculation of the weighted average number of shares during the periods. The contingent shares are not included since the number of shares contingently issuable depends on future earnings of the Puccini Group.
| 4. | Dividend |
The directors do not recommend the payment of a dividend for the nine months ended September 30, 2004 (2003: Nil).
| 5. | Movement on reserves |
| Number of Shares | Share Capital | Paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total shareholders’ equity | |||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||
Balance as of January 1, 2003 | 2,800,000,000 | 3,590 | 93,184 | (55 | ) | (106,183 | ) | (9,464 | ) | |||||||
Contribution from shareholders | — | — | 1,094 | — | — | 1,094 | ||||||||||
Net income for the period | — | — | — | — | 12,669 | 12,669 | ||||||||||
Reorganization adjustment | — | — | (18,790 | ) | — | 21,935 | 3,145 | |||||||||
Balance as of September 30, 2003 | 2,800,000,000 | 3,590 | 75,488 | (55 | ) | (71,579 | ) | 7,444 | ||||||||
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| Number of Shares | Share Capital | Paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total shareholders’ equity | |||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||
Balance as of January 1, 2004 | 2,800,000,000 | 3,590 | 75,551 | (55 | ) | (64,676 | ) | 14,410 | ||||||||
Issuance of shares pursuant to Initial Public Offering | 1,000,000,000 | 1,282 | 192,528 | — | — | 193,810 | ||||||||||
Share issuing expenses | — | — | (26,018 | ) | — | — | (26,018 | ) | ||||||||
Unrealized loss on securities | — | — | — | (200 | ) | — | (200 | ) | ||||||||
Net income for the period | — | — | — | — | 25,708 | 25,708 | ||||||||||
Balance as of September 30, 2004 | 3,800,000,000 | 4,872 | 242,061 | (255 | ) | (38,968 | ) | 207,710 | ||||||||
| 6. | Acquisition of Treasure Base |
Effective August 11, 2004, the Group acquired 100% beneficial interest of LingXun through acquisition of the entire issued share capital of Treasure Base. According to the sale and purchase agreement, the earn-out consideration for the acquisition should be based on the audited consolidated net income of Treasure Base Group for the years ending 31 December 2004 and 2005, and is subject to a maximum of RMB550,000,000 (approximately US$66,400,000). As of September 30, 2004, US$18,077,000 has been prepaid as part of the consideration.
The acquisition has been accounted for as a purchase of business combination and the results of the operations from the acquisition date have been included In the Group’s consolidated financial statements. The excess of the fair value of the identifiable tangible and intangible assets acquired of US$6,598,000 over the initial purchase price of US$400,000, which mainly represents professional costs, was recognized as a consideration payable of US$6,198,000 at the date of acquisition.
Pursuant to SFAS 141, the earn-out considerations are considered contingent considerations, which will not become certain until the audited consolidated net income of Treasure Base Group for the years ending December 31, 2004 and 2005 are available, respectively. Accordingly, the contingent considerations have not been reflected in the consolidated financial statements of the Group.
Under HK GAAP, as there is no active market for the intangibles acquired at the time of acquisition and the recognition of the intangibles would have given rise to negative goodwill, all such intangibles would not be recognized as separate intangible assets but would be recorded as a part of negative goodwill. This has been presented as a deduction from the Group’s assets as disclosed in note 7.
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| 7. | Summary of principal differences between US GAAP and HK GAAP |
| Three months ended September 30, | Nine months ended September 30, | |||||||||
| 2003 | 2004 | 2003 | 2004 | |||||||
| (in thousands of U.S. dollars) | ||||||||||
Net income attributable to shareholders under US GAAP | 5,472 | 7,283 | 12,669 | 25,708 | ||||||
Reconciliation adjustments, net of tax: | ||||||||||
Allocations of expenses from TOM Group | 220 | — | 763 | — | ||||||
Imputed interest charge | 99 | — | 331 | — | ||||||
Amortization of goodwill | — | (2 | ) | — | (8 | ) | ||||
Reversal of amortization of intangibles | — | 1,615 | — | 4,135 | ||||||
Net income attributable to shareholders under HK GAAP | 5,791 | 8,896 | 13,763 | 29,835 | ||||||
| December 31, 2003 | September 30, 2004 | |||||
| (in thousands of U.S. dollars) | ||||||
Total assets under US GAAP | 67,376 | 256,289 | ||||
Reconciliation adjustments, net of tax: | ||||||
Amortization of goodwill | — | (8 | ) | |||
Adjustment of intangibles, net | (4,411 | ) | (986 | ) | ||
Recognition of negative goodwill arising from the acquisition of the Puccini Group | (1,540 | ) | (1,540 | ) | ||
Recognition of negative goodwill arising from the acquisition of the Treasure Base Group | — | (5,488 | ) | |||
Total assets under HK GAAP | 61,425 | 248,267 | ||||
| December 31, 2003 | September 30, 2004 | |||||
| (in thousands of U.S. dollars) | ||||||
Net assets under US GAAP | 14,410 | 207,710 | ||||
Reconciliation adjustments, net of tax: | ||||||
Amortization of goodwill | — | (8 | ) | |||
Reversal of amortization of intangibles | 629 | 4,764 | ||||
Net assets under HK GAAP | 15,039 | 212,466 | ||||
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ADDITIONAL FINANCIAL INFORMATION
The following set forth the comparison between the pro forma financial data for three months and nine months ended September 30, 2003 and the financial data of the same period of 2004 and the reconciliation from Income from Operations to EBITDA.
Our historical financial data reflects the effects of our reorganization from September 26, 2003, the effects of our acquisition of our IVR business from November 19, 2003. Our pro forma financial data for 2003 was presented in order to give pro forma effect to our reorganization, as if the reorganization occurred on January 1, 2003 and the acquisition of our IVR business occurred on January 1, 2003. As a result, our pro forma financial information for 2003 includes the financial information of the nine companies that are part of the Company following our reorganization, but excludes the six companies that were included in our historical financial information up until September 26, 2003, but are no longer part of the Company following our reorganization.
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(A)Unaudited Consolidated Statements of Operations
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
2003 Pro forma | 2004 Actual | 2003 Pro forma | 2004 Actual | |||||||||
| (in thousands of U.S. dollars) | ||||||||||||
Revenues: | ||||||||||||
Wireless internet service | 17,929 | 28,262 | 43,604 | 80,932 | ||||||||
Advertising | 823 | 2,417 | 1,410 | 5,551 | ||||||||
Commercial enterprise solutions | 4,130 | 719 | 10,672 | 1,684 | ||||||||
Internet access | 64 | — | 1,504 | 68 | ||||||||
Total revenues | 22,946 | 31,398 | 57,190 | 88,235 | ||||||||
Cost of revenues: | ||||||||||||
Cost of goods sold | (3,689 | ) | (446 | ) | (8,947 | ) | (510 | ) | ||||
Cost of services | (8,140 | ) | (17,420 | ) | (22,246 | ) | (45,088 | ) | ||||
Total cost of revenues | (11,829 | ) | (17,866 | ) | (31,193 | ) | (45,598 | ) | ||||
Gross profit | 11,117 | 13,532 | 25,997 | 42,637 | ||||||||
Operating expenses: | ||||||||||||
Selling and marketing expenses | (719 | ) | (1,863 | ) | (1,893 | ) | (5,379 | ) | ||||
General and administrative expenses | (2,337 | ) | (3,428 | ) | (6,889 | ) | (8,280 | ) | ||||
Product development expenses | (184 | ) | (219 | ) | (516 | ) | (632 | ) | ||||
Amortization of intangibles | (1,260 | ) | (1,746 | ) | (3,780 | ) | (4,376 | ) | ||||
Total operating expenses | (4,500 | ) | (7,256 | ) | (13,078 | ) | (18,667 | ) | ||||
Income from operations | 6,617 | 6,276 | 12,919 | 23,970 | ||||||||
Other (expenses)/income: | ||||||||||||
Net interest (expenses)/ income | (72 | ) | 1,044 | (259 | ) | 1,956 | ||||||
Income before tax | 6,545 | 7,320 | 12,660 | 25,926 | ||||||||
Income tax credits/(expenses) | 172 | 55 | (207 | ) | 48 | |||||||
Income after tax | 6,717 | 7,375 | 12,453 | 25,974 | ||||||||
Minority interests | (12 | ) | (92 | ) | (74 | ) | (266 | ) | ||||
Net income attributable to shareholders | 6,705 | 7,283 | 12,379 | 25,708 | ||||||||
Earnings per HK ordinary share - basic (cents): | 0.2 | 0.2 | 0.3 | 0.7 | ||||||||
Earnings per ADS - basic (cents): | n/a | 15 | n/a | 58 | ||||||||
EBITDA | 8,709 | 9,161 | 18,850 | 31,390 | ||||||||
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(B)Reconciliation from GAAP Income from Operations to EBITDA
| Three months ended September 30 | Nine months ended September 30, | |||||||
| 2003 Pro forma | 2004 Actual | 2003 Pro forma | 2004 Actual | |||||
| (in thousands of U.S. dollars) | ||||||||
Income from operations | 6,617 | 6,276 | 12,919 | 23,970 | ||||
Depreciation | 832 | 1,139 | 2,151 | 3,044 | ||||
Amortization of intangibles | 1,260 | 1,746 | 3,780 | 4,376 | ||||
EBITDA | 8,709 | 9,161 | 18,850 | 31,390 | ||||
PURCHASE, SALE OR REDEMPTION OF SECURITIES
During the nine months ended September 30, 2004, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed shares.
DEFINITIONS
| “2.5G” | means | the state of wireless technology and capability usually associated with General Packet Radio Services, or GPRS, which is between the second and third generation of wireless technology. GPRS offers data speeds at 28 Kbps or higher | ||
| “China Netcom” | means | China Network Communications Group Corporation and/or certain of its subsidiaries which have business relationships with our Group | ||
| “China Telecom” | means | China Telecom Corporation Limited and/or certain of its subsidiaries which have business relationships with our Group | ||
“Company”, “our Company”, “we” and “TOM Online” | means | TOM Online Inc. | ||
| “Director(s)” | means | the director(s) of the Company | ||
| “GEM” | means | the Growth Enterprise Market of the Stock Exchange | ||
| “GEM Listing Rules” | means | the Rules Governing the Listing of Securities on the GEM | ||
| “Group” | means | the Company and its subsidiaries | ||
| “HK$” | means | Hong Kong dollars, the lawful currency of Hong Kong | ||
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| “HK GAAP” | means | the generally accepted accounting principles in Hong Kong | ||
| “IVR” | means | interactive voice response, a software application that accepts a combination of voice telephone input and touch-tone keypad selection and provides appropriate responses in the form of voice, fax, callback, e-mail, etc. IVR is usually part of a larger application that includes database access | ||
| “LingXun” | means | Beijing LingXun Interactive Science Technology and Development Company Limited | ||
| “LTWJi” | means | Beijing Leitingwuji Network Technology Company Limited | ||
| “MMS” | means | multimedia messaging services, a technology that allows users to receive and transmit multimedia message such as text, audio and video messages using their mobile phones | ||
| “PRC” or “China” | means | the People’s Republic of China | ||
| “PRC GAAP” | means | the generally accepted accounting principles in the PRC | ||
| “Puccini Group” | means | Puccini International Limited and its subsidiaries, including LTWJi | ||
| “RMB” | means | Renminbi, the lawful currency of the PRC | ||
| “SFAS” | means | Statement of Financial Accounting Standards under US GAAP | ||
| “SMS” | means | short messaging services, a technology that allows users to receive and sometimes transmit short text messages using their mobile phones | ||
| “Stock Exchange” | means | The Stock Exchange of Hong Kong Limited | ||
| “TOM Group” | means | TOM Group Limited | ||
| “Treasure Base” | means | Treasure Base Investments Limited | ||
| “Treasure Base Group” | means | Treasure Base and its subsidiaries, including LingXun | ||
| “US$” | means | United States dollars, the lawful currency of the United States of America | ||
| “US GAAP” | means | the generally accepted accounting principles in the United States of America | ||
| “WAP” | means | wireless application protocol, a global standard for developing applications over wireless communications networks | ||
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As at the date thereof, the directors of the Company are:
| Executive Directors: | Non-executive Directors: | Independent non-executive Directors: | ||
| Mr. Wang Lei Lei | Mr. Frank Sixt (Chairman) | Mr. Gordon Kwong | ||
| Mr. Xu Zhiming | Mr. Sing Wang (Vice Chairman) | Mr. Ma Wei Hua | ||
| Mr. Peter Schloss | Ms. Tommei Tong | Dr. Lo Ka Shui | ||
| Ms. Elaine Feng | ||||
| Mr. Fan Tai | Alternate Director: | |||
| Mr. Wu Yun | Mrs. Susan Chow (Alternate to Mr. Frank Sixt) |
This announcement will remain on the GEM website at www.hkgem.com on the “Latest Company Announcements” page for at least 7 days from the date of its posting and on the website of the Company atwww.tom.com.
| * | for identification purpose |
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TOM Online Reports Third Quarter 2004 Financial Results
(Hong Kong, November 10, 2004) — TOM Online Inc., (Nasdaq: TOMO; Hong Kong GEM stock code: 8282) (“TOM Online” or the “Company”), a leading mobile internet company in China, announced today its financial results for the third quarter ended September 30, 2004.
Financial Highlightsa:
| • | Total revenues grew 37% to US$31.4 million for the third quarter from the same period in 2003 |
| • | Continued to diversify revenue stream with a focus on growing 2.5G services and online advertising |
| • | Revenues from 2.5G products and services grew by more than 11 times to US$8.1 million for the third quarter from the same period in 2003 and now comprise 29% of the Company’s wireless internet business |
| • | Online advertising revenues grew 194% to US$2.4 million year-on-year and now comprises 8% of total revenues |
| • | Completed the acquisition of Treasure Base Investment Limited and consolidated the financial results of Treasure Base for the period from August 11, 2004 in the quarter |
| • | Invested in Sichuan Great Wall Software Group with Qualcom and IDG to enhance the Company’s 2.5G product portfolio as well as its R&D capabilities on JAVA and BREW technologies |
| • | Net income for the quarter was US$7.3 million, up 9% from the same quarter in 2003 |
| • | Cash and marketable securities totaled US$187.19 million at the end of the quarter |
“I am very pleased that we have gone through a tough quarter with record high revenue achieved. A crucial part of the success was due to the growing popularity of our 2.5G products which firmly demonstrated our first-mover advantage in that particular sector,” said Wang Lei Lei, Chief Executive Officer and Executive Director of TOM Online. “The remarkable growth in online advertising revenues also showed that TOM Online is on the path to monetize its internet assets, which have a large following of young and trendy consumers in the country.”
Business Results
The Company’s unaudited consolidated revenues for the three months ended September 30, 2004 were US$31.4 million, an increase of 37% over the same period in 2003. These results included revenues from the acquisition of Treasure Base, which contributed 6.1% of TOM Online’s total revenues for the period. Without the acquisition of Treasure Base, the Company’s revenues would have grown 29% year on year.
Gross profit rose 22% to US$13.53 million in the quarter compared to US$11.12 million for the same period in 2003.
Operating expenses for the third quarter of 2004 were US$7.26 million, representing an increase of
| a | comparisons are based on Q3 pro forma figures in 2003 |
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61% from the same period in 2003. Operating expenses as a percentage of total revenues were 23%, an increase of three percentage points from the same period in 2003. The increase in operating expenses was mainly attributable to amortization of intangible assets arising from the acquisition of Treasure Base as well as an increase of payroll related expenses due to the expansion of headcount in the wireless internet business segment, particularly on the development of 2.5G services.
Net income for the third quarter of 2004 was US$7.3 million, representing an increase of 9% from the same period in 2003. Net income margin narrowed to 23% for the third quarter, compared to 29% for the same period in 2003. The decrease in margins was in part due to a higher cost of services such as content acquisitions and portal-related business as the Company continued to invest in enhancing its branded content and portal offerings.
Wireless internet revenues were US$28.26 million, representing an increase of 58% from the same period in 2003. A maturing market and the introduction of new billing systems by mobile carriers constrained growth in SMS revenues during the quarter. Still, SMS revenues were higher at US$14.69 million for the quarter compared with US$14.04 million for the same period in 2003.
SMS revenues, including those contributed by Treasure Base, comprised 52% of TOM Online’s total wireless internet revenues in the quarter. Though the SMS market is maturing, it provides recurrent revenues for the Company and remains an attractive platform on which the Company can cross-promote, cross-sell and cross-bundle its other wireless internet products and services.
The contribution of 2.5G products and services to TOM Online’s total wireless internet revenues remained strong in the third quarter. It made up 29% of total wireless internet revenues in the quarter compared to 4% for the same period in 2003. MMS revenues were US$3.41 million, representing a 16-fold increase from the same period in 2003. Revenues from WAP were US$4.72 million, representing a 9-fold increase from the same period in 2003. The Company expects its 2.5G business to continue to present attractive growth opportunities as mobile carriers keep encouraging their usage; the healthy rollout of MMS and WAP handsets and increasing adoption of related services by users also would support growth in the market. The Company has further solidified its leading position in the sector through investments in premium content, particularly in the area of music through alliances with well-known labels.
Revenues from IVR were US$5.45 million, representing an increase of 69% for the same period in 2003. IVR accounted for 19% of total wireless internet revenues for the period compared to 18% for the same period in 2003. There was a decline in revenue contribution from IVR services during the quarter compared to the second quarter as a result of sanctions imposed on other IVR service providers by mobile operators. In such circumstances, prudent operating practice required a reduction in the overall activity in IVR services and on the level of co-promotion and co-marketing of IVR services with mobile operators. The situation has started to improve and more normalized growth was seen in October.
Online advertising revenues jumped 194% to US$2.42 million from the same period in 2003. Online advertising revenues accounted for 8% of TOM Online’s total revenues in the quarter, compared to
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4% for the same period in 2003. During the quarter, traffic to the Company’s portal remained strong as its user base grew. The Company’s average contract size rose by more than 25% from the previous quarter as demand from advertisers wanting to target the Company’s young and affluent demographic also increased.
“We are very pleased that in this difficult environment, the fundamentals of our business remain strong. With recurrent contributions from SMS, increasing contributions from our 2.5G products as well as an attractive revenue mix, we are well positioned to leverage our wireless internet platform and popular portal and enjoy attractive returns going forward in the fourth quarter of 2004,” said Peter Schloss, Chief Financial Officer of TOM Online.
Strategic Transactions
Treasure Base
In August the Company acquired the entire issued share capital of Treasure Base. Treasure Base is a leading wireless entertainment service provider holding exclusive rights with major TV channels in China for the provision of wireless entertainment content utilizing the TV media. With this strategic acquisition, TOM Online has significantly increased its reach in the distribution of its wireless services to the mass TV audience in China. The acquisition should enable the Company to enlarge its share in the wireless internet market and boost revenues from across its wireless product range as Treasure Base expands its product offerings from mainly SMS products to include 2.5G and IVR products. The Treasure Base acquisition is immediately earnings accretive to the Company. TOM Online’s third quarter results included a revenue contribution of US$1.9 million from Treasure Base since the effective date of the acquisition on August 11. The company is making satisfactory progress in the integration of Treasure Base into its operations. Treasure Base is expected to provide the company with unique access to more than 60 television channels, including the national sports broadcaster CCTV5, across China. Through this acquisition, TOM Online will not only gain a strong TV media promotion and distribution channel for its wireless internet products, but also produce strong synergies with Treasure Base through product bundling and integration, content sharing, and cross-platform promotions.
Strategic investment in Sichuan Great Wall
To ensure the Company continues to be an innovator and a first mover in the wireless product cycle, TOM Online made a joint investment in August with Qualcomm and private equity investor IDG in Sichuan Great Wall Software Group, a wireless mobile software application developer. The Company expects to benefit from Great Wall’s expertise and experience in the development of wireless applications based on Java and BREW technologies to deliver quality content to mobile phones and other wireless devices. Access to this technology and skill-set will not only enhance TOM Online’s 2.5G development capabilities in 2.5G products but also will stand the Company in good stead for the introduction of 3G services in China in the future.
“The acquisition of Treasure Base and the strategic investment in Sichuan Great Wall demonstrated TOM Online is fully committed to the wireless internet market. By investing in those businesses, we have laid down the foundation for future growth” said CEO Wang Lei Lei.
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Business Outlook
On October 25, 2004, the Company soft launched TOM-Skype, an instant messaging product, through a cooperation arrangement with Skype Technologies S.A. The service will further strengthen the company’s portal community offerings resulting in enhanced user stickiness and portal traffic.
“By serving our young and trendy users better and increasing their loyalty in the process, the alliance with Skype is likely to help TOM Online monetize its wireless and online assets,” said Elaine Feng, Executive Vice President and Executive Director of TOM Online.
In later October, TOM Online was among the first batch of service providers selected by China Telecom and China Netcom to offer paid SMS content on their Little Smart [Xiao Ling Tong] cellular networks. The Company expects to offer nationwide PHS based SMS products by the end of this year.
The unforeseen events in the third quarter of 2004 have shown that there is an element of volatility in the business environment in which we operate that cannot be predicted with certainty. Compared to this quarter, the Company’s management currently estimates that its total revenues for the fourth quarter of 2004 will grow 5-8% and that its wireless internet revenues for the fourth quarter of 2004 will grow 5-10%. The Company’s management currently estimates that its online advertising revenues will be flat for the fourth quarter of 2004. These estimates only reflect the current and preliminary views of the Company and do not factor in the volatility experienced in the third quarter*.
Conference Call
Following the announcement, TOM Online’s management team will host a conference call at 10:00 AM EST (23:00 Hong Kong, Perth Time), November 10, 2004 to present an overview of the company’s financial performance and business operations.
The dial-in number for the call is +10800-8520823 (China North), +10800-1520823 (China South), +852-22584002 (Hong Kong), +0800-0967428 (United Kingdom), +877-542-7993 (the United States). The passcode is TOM ONLINE.
The conference call will also be broadcasted live. Please visit http://ir.tom.com.
- ENDS -
About TOM Online Inc.
TOM Online Inc. (Nasdaq: TOMO, Hong Kong GEM stock code: 8282) is a leading mobile Internet company in China providing value-added multimedia products and services. A premier online brand in China targeting the young and trendy demographic, the company’s primary business activities include wireless value-added services, online advertising and commercial enterprise solutions. The company offers an array of services
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such as SMS, MMS, WAP, wireless interactive voice response services, content channels, search and classified information, free and fee-based advanced email and online games. As of June 30, 2004, TOM Online is the only portal in China that enjoyed a top three ranking in every wireless value added service segment.
TOM Online is a subsidiary of TOM Group Limited (“TOM Group”), one of the leading Chinese language media groups in the Greater China region. TOM Group’s diverse operations span five media sectors: the Internet (through TOM Online Inc.), outdoor (through TOM Outdoor Media Group), publishing, sports and TV & entertainment.
*Forward-Looking Statements
This announcement contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties that may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements relating to management’s estimation with respect to the growth rate of the Company’s total revenues, wireless internet revenues and online advertising revenues, the success of the Company’s latest product offerings and the Company’s ability to successfully execute its business strategies and plans. Such forward-looking statements reflect the current views of the Company with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, any changes in our relationships with telecommunication operators in China, the effect of competition on the demand for the price of our services, changes in customer demand and usage preference for our products and services, changes in the regulatory policies of the Ministry of Information Industry and other relevant government authorities, any changes in telecommunications and related technology and applications based on such technology, and changes in political, economic, legal and social conditions in China, including the Chinese government’s policies with respect to economic growth, foreign exchange, foreign investment and entry by foreign companies into China’s telecommunications market. Please also see the “Risk Factors” section of the Company’s registration statement on Form F-1 (File No. 333-112800), as filed with the Securities and Exchange Commission in the United States and the “Risk Factors” section of the Company’s prospectus of March 2, 2004 filed with the Company’s Registry in Hong Kong.
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CONSOLIDATED BALANCE SHEETS
| Audited December 31, 2003 | Unaudited September 30, 2004 | |||||
| (in thousands of U.S. dollars) | ||||||
| Assets | ||||||
| Current assets: | ||||||
Cash and cash equivalents | 22,636 | 70,196 | ||||
Accounts receivables, net | 14,689 | 26,230 | ||||
Deferred cost | 15,000 | — | ||||
Consideration prepayment | — | 18,077 | ||||
Prepayments | 1,405 | 5,085 | ||||
Deposits and other receivables | 935 | 2,977 | ||||
Due from related parties | 124 | 176 | ||||
Intangibles, net | — | 355 | ||||
Inventories | 29 | 246 | ||||
Total current assets | 54,818 | 123,342 | ||||
Long-term investments | — | 118,488 | ||||
Long-term prepayment & deposit | 565 | 240 | ||||
Property and equipment, net | 7,094 | 11,000 | ||||
Deferred tax assets | 274 | 329 | ||||
Goodwill, net | 214 | 214 | ||||
Long-term intangibles, net | 4,411 | 2,676 | ||||
| Total assets | 67,376 | 256,289 | ||||
| Liabilities and shareholders’ equity | ||||||
| Current liabilities: | ||||||
Accounts payable | 3,241 | 3,861 | ||||
Other payables and accruals | 22,195 | 10,656 | ||||
Taxation payable | 401 | 518 | ||||
Deferred revenue | 414 | 243 | ||||
Consideration payable | 6,580 | 12,778 | ||||
Total current liabilities | 32,831 | 28,056 | ||||
Due to related parties | 19,983 | 20,105 | ||||
| Total liabilities | 52,814 | 48,161 | ||||
Minority interests | 152 | 418 | ||||
| 52,966 | 48,579 | |||||
| Shareholders’ equity: | ||||||
Share capital | 3,590 | 4,872 | ||||
Paid-in capital | 75,551 | 242,061 | ||||
Accumulated other comprehensive loss | (55 | ) | (255 | ) | ||
Accumulated deficit | (64,676 | ) | (38,968 | ) | ||
Total shareholders’ equity | 14,410 | 207,710 | ||||
| Total liabilities and shareholders’ equity | 67,376 | 256,289 | ||||
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2003 Historical | 2004 Actual | 2003 Historical | 2004 Actual | |||||||||
| (in thousands of U.S. dollars) | ||||||||||||
Revenues: | ||||||||||||
Wireless internet services | 14,637 | 28,262 | 38,279 | 80,932 | ||||||||
Advertising | 2,279 | 2,417 | 5,246 | 5,551 | ||||||||
Commercial enterprise solutions | 4,132 | 719 | 10,738 | 1,684 | ||||||||
Internet access | 64 | — | 1,504 | 68 | ||||||||
Total revenues | 21,112 | 31,398 | 55,767 | 88,235 | ||||||||
Cost of revenues: | ||||||||||||
Cost of goods sold | (3,689 | ) | (446 | ) | (8,947 | ) | (510 | ) | ||||
Cost of services | (8,622 | ) | (17,420 | ) | (24,403 | ) | (45,088 | ) | ||||
Total cost of revenues | (12,311 | ) | (17,866 | ) | (33,350 | ) | (45,598 | ) | ||||
Gross profit | 8,801 | 13,532 | 22,417 | 42,637 | ||||||||
Operating expenses: | ||||||||||||
Selling and marketing expenses | (671 | ) | (1,863 | ) | (1,688 | ) | (5,379 | ) | ||||
General and administrative expenses | (2,537 | ) | (3,428 | ) | (7,309 | ) | (8,280 | ) | ||||
Product development expenses | (184 | ) | (219 | ) | (516 | ) | (632 | ) | ||||
Amortization of intangibles | — | (1,746 | ) | — | (4,376 | ) | ||||||
Total operating expenses | (3,392 | ) | (7,256 | ) | (9,513 | ) | (18,667 | ) | ||||
Income from operations | 5,409 | 6,276 | 12,904 | 23,970 | ||||||||
Other (expenses)/income: | ||||||||||||
Net interest (expenses)/ income | (91 | ) | 1,044 | (315 | ) | 1,956 | ||||||
Income before tax | 5,318 | 7,320 | 12,589 | 25,926 | ||||||||
Income tax credit | 166 | 55 | 154 | 48 | ||||||||
Income after tax | 5,484 | 7,375 | 12,743 | 25,974 | ||||||||
Minority interests | (12 | ) | (92 | ) | (74 | ) | (266 | ) | ||||
Net income attributable to shareholders | 5,472 | 7,283 | 12,669 | 25,708 | ||||||||
Earnings per HK ordinary share - basic (cents): | 0.2 | 0.2 | 0.5 | 0.7 | ||||||||
Earnings per ADS - basic (cents): | n/a | 15 | n/a | 58 | ||||||||
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, | ||||||
| 2003 | 2004 | |||||
| (in thousands of U.S dollars) | ||||||
Cash flow from operating activities | ||||||
Net income | 12,669 | 25,708 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Amortization of intangibles | — | 4,376 | ||||
Amortization of equity investments’ premium | — | 190 | ||||
Allowance for doubtful accounts | 1,319 | 450 | ||||
Depreciation | 2,215 | 3,044 | ||||
Deferred income tax | (172 | ) | (55 | ) | ||
Interest on advances from TOM Group and its subsidiaries | 331 | — | ||||
Corporate expenses recharged by TOM Group | 763 | — | ||||
Loss on disposal of property and equipment | 1 | — | ||||
Minority interests | 74 | 266 | ||||
Change in assets and liabilities, net of effects from acquisitions: | ||||||
Accounts receivable | (6,459 | ) | (10,603 | ) | ||
Prepayments | (87 | ) | (3,861 | ) | ||
Deposits and other receivables | (258 | ) | (216 | ) | ||
Due from related parties | (194 | ) | (52 | ) | ||
Inventories | 1,495 | (217 | ) | |||
Long-term prepayment and deposits | (120 | ) | 63 | |||
Accounts payable | 470 | (2 | ) | |||
Other payables and accruals | 3,010 | 983 | ||||
Income tax payable | — | (3 | ) | |||
Deferred revenue | (1,637 | ) | (253 | ) | ||
Due to related parties | 11 | (10 | ) | |||
Net cash provided by operating activities | 13,431 | 19,808 | ||||
Cash flow from investing activities | ||||||
Payments for purchase of property and equipment | (4,147 | ) | (6,773 | ) | ||
Payments for the purchase of intangible assets | — | (1,663 | ) | |||
Payments for investment in bonds | — | (118,883 | ) | |||
Payments for long term investment | — | (1,495 | ) | |||
Cash disposed at reorganization | (1,689 | ) | — | |||
Net cash used in acquisition of subsidiaries | — | (12,196 | ) | |||
Net cash used in investing activities | (5,836 | ) | (141,010 | ) | ||
Cash flow from financing activities: | ||||||
Advances to related parties | (1,027 | ) | — | |||
Issue of ordinary shares, net of expenses | — | 168,762 | ||||
Net cash (used in)/provided by financing activities | (1,027 | ) | 168,762 | |||
Net increase in cash and cash equivalents | 6,568 | 47,560 | ||||
Cash and cash equivalents, beginning of period | 6,752 | 22,636 | ||||
Cash and cash equivalents, end of period | 13,320 | 70,196 | ||||
Supplemental disclosures of cash flow information | ||||||
Cash (paid)/received during the period for: | ||||||
Cash paid for income tax | (16 | ) | (3 | ) | ||
Interest received | 16 | 2,526 | ||||
Non-cash activities: | ||||||
Property and equipment transferred from TOM Group | — | 7 | ||||
Contribution from shareholders | 1,094 | — | ||||
Outstanding payments for listing expenses | 12,000 | 970 | ||||
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Summary of principal differences between US GAAP and HK GAAP
| Three months ended September 30, | Nine months ended September 30, | |||||||||
| 2003 | 2004 | 2003 | 2004 | |||||||
| (in thousands of U.S. dollars) | ||||||||||
Net income attributable to shareholders under US GAAP | 5,472 | 7,283 | 12,669 | 25,708 | ||||||
Reconciliation adjustments, net of tax: | ||||||||||
Allocations of expenses from TOM Group | 220 | 763 | ||||||||
Imputed interest charge | 99 | 331 | ||||||||
Amortization of goodwill | — | (2 | ) | — | (8 | ) | ||||
Reversal of amortization of intangibles | — | 1,615 | — | 4,135 | ||||||
Net income attributable to shareholders under HK GAAP | 5,791 | 8,896 | 13,763 | 29,835 | ||||||
| December 31, 2003 | September 30, 2004 | |||||
| (in thousands of U.S. dollars) | ||||||
Total assets under US GAAP | 67,376 | 256,289 | ||||
Reconciliation adjustments, net of tax: | ||||||
Amortization of goodwill | — | (8 | ) | |||
Adjustment of intangibles, net | (4,411 | ) | (986 | ) | ||
Recognition of negative goodwill arising from the acquisition of the Puccini Group | (1,540 | ) | (1,540 | ) | ||
Recognition of negative goodwill arising from the acquisition of the Treasure Base Group | — | (5,488 | ) | |||
Total assets under HK GAAP | 61,425 | 248,267 | ||||
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| December 31, 2003 | September 30, 2004 | ||||
| (in thousands of U.S. dollars) | |||||
Net assets under US GAAP | 14,410 | 207,710 | |||
Reconciliation adjustments, net of tax: | |||||
Amortization of goodwill | — | (8 | ) | ||
Reversal of amortization of intangibles | 629 | 4,764 | |||
Net assets under HK GAAP | 15,039 | 212,466 | |||
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ADDITIONAL FINANCIAL INFORMATION
The following set forth the comparison between the pro forma financial data for three months and nine months ended September 30, 2003 and the financial data of the same period of 2004 and the reconciliation from Income from Operations to EBITDA.
Our historical financial data reflects the effects of our reorganization from September 26, 2003, the effects of our acquisition of our IVR business from November 19, 2003. Our pro forma financial data for 2003 was presented in order to give pro forma effect to our reorganization, as if the reorganization occurred on January 1, 2003 and the acquisition of our IVR business occurred on January 1, 2003. As a result, our pro forma financial information for 2003 includes the financial information of the nine companies that are part of the Company following our reorganization, but excludes the six companies that were included in our historical financial information up until September 26, 2003, but are no longer part of the Company following our reorganization.
(A) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2003 | 2004 | 2003 | 2004 | |||||||||
| Pro forma | Actual | Pro forma | Actual | |||||||||
| (in thousands of U.S. dollars) | ||||||||||||
Revenues: | ||||||||||||
Wireless internet service | 17,929 | 28,262 | 43,604 | 80,932 | ||||||||
Advertising | 823 | 2,417 | 1,410 | 5,551 | ||||||||
Commercial enterprise solutions | 4,130 | 719 | 10,672 | 1,684 | ||||||||
Internet access | 64 | — | 1,504 | 68 | ||||||||
Total revenues | 22,946 | 31,398 | 57,190 | 88,235 | ||||||||
Cost of revenues: | ||||||||||||
Cost of goods sold | (3,689 | ) | (446 | ) | (8,947 | ) | (510 | ) | ||||
Cost of services | (8,140 | ) | (17,420 | ) | (22,246 | ) | (45,088 | ) | ||||
Total cost of revenues | (11,829 | ) | (17,866 | ) | (31,193 | ) | (45,598 | ) | ||||
Gross profit | 11,117 | 13,532 | 25,997 | 42,637 | ||||||||
Operating expenses: | ||||||||||||
Selling and marketing expenses | (719 | ) | (1,863 | ) | (1,893 | ) | (5,379 | ) | ||||
General and administrative expenses | (2,337 | ) | (3,428 | ) | (6,889 | ) | (8,280 | ) | ||||
Product development expenses | (184 | ) | (219 | ) | (516 | ) | (632 | ) | ||||
Amortization of intangibles | (1,260 | ) | (1,746 | ) | (3,780 | ) | (4,376 | ) | ||||
Total operating expenses | (4,500 | ) | (7,256 | ) | (13,078 | ) | (18,667 | ) | ||||
Income from operations | 6,617 | 6,276 | 12,919 | 23,970 | ||||||||
Other (expenses)/income: | ||||||||||||
Net interest (expenses)/ income | (72 | ) | 1,044 | (259 | ) | 1,956 | ||||||
Income before tax | 6,545 | 7,320 | 12,660 | 25,926 | ||||||||
Income tax credits/(expenses) | 172 | 55 | (207 | ) | 48 | |||||||
Income after tax | 6,717 | 7,375 | 12,453 | 25,974 | ||||||||
Minority interests | (12 | ) | (92 | ) | (74 | ) | (266 | ) | ||||
Net income attributable to shareholders | 6,705 | 7,283 | 12,379 | 25,708 | ||||||||
Earnings per HK ordinary share - basic (cents): | 0.2 | 0.2 | 0.3 | 0.7 | ||||||||
Earnings per ADS - basic (cents): | n/a | 15 | n/a | 58 | ||||||||
EBITDA | 8,709 | 9,161 | 18,850 | 31,390 | ||||||||
(B) Reconciliation from GAAP income from operations to EBITDA
| Three months ended September 30 | Nine months ended September 30, | |||||||
| 2003 | 2004 | 2003 | 2004 | |||||
| Pro forma | Actual | Pro forma | Actual | |||||
| (in thousands of U.S. dollars) | ||||||||
Income from operations | 6,617 | 6,276 | 12,919 | 23,970 | ||||
Depreciation | 832 | 1,139 | 2,151 | 3,044 | ||||
Amortization of intangibles | 1,260 | 1,746 | 3,780 | 4,376 | ||||
EBITDA | 8,709 | 9,161 | 18,850 | 31,390 | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TOM ONLINE INC. | ||||
| Date: November 10, 2004 | By: | /s/ Peter Schloss | ||
| Name: | Peter Schloss | |||
| Title: | Chief Financial Officer | |||
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