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 May 2007
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- .)
EXHIBITS
| Exhibit Number | Page | |||
| 1.0 | Report for the First Quarter 2007 |
FORWARD-LOOKING STATEMENTS
The Report for the First Quarter of 2007 of TOM Online Inc. (the “Company”), constituting Exhibit 1.0 to this Form 6-K, contains statements that may be viewed as “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States 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 in mainland China and in other markets, the continued growth of the telecommunications industry in China and in other markets, 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 and elsewhere, 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 by 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, India and other countries where the Company conducts business operations, including, without limitation, 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 “Item 3 – Key Information – Risk Factors” section of the Company’s latest annual report on Form 20-F (File No.000-50631) as filed with the United States Securities and Exchange Commission.
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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: May 2, 2007 | By: | /s/ Peter Schloss | ||
| Name: | Peter Schloss | |||
| Title: | Chief Legal Officer | |||
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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.
This document, 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 document 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 document misleading; and (iii) all opinions expressed in this document have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.
As at the date of this document, 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. Jay Chang | Ms. Tommei Tong (Vice Chairman) | Mr. Ma Wei Hua | ||
| Mr. Peter Schloss | Ms. Angela Mak | Dr. Lo Ka Shui | ||
| Ms. Elaine Feng | ||||
| Mr. Fan Tai | Alternate Director: | |||
| Mrs. Susan Chow (Alternate to Mr. Frank Sixt) | ||||
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FORWARD-LOOKING STATEMENTS
This document contains statements that may be viewed as “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States 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 in mainland China and in other markets, the continued growth of the telecommunications industry in China and in other markets, 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 and elsewhere, 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 by 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, India and other countries where the Company conducts business operations, including, without limitation, 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 “Item 3 – Key Information – Risk Factors” section of the Company’s annual report on Form 20-F for the year ended December 31, 2005 as filed with the United States Securities and Exchange Commission.
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DEFINITIONS
| “ADSs” | means | American depositary shares issued by Citibank N.A., each representing ownership of 80 ordinary shares of the Company, which are quoted on NASDAQ | ||
| “Associates” | has | the same definition as described under the GEM Listing Rules | ||
| “Beijing Lei Ting” | means | Beijing Lei Ting Wan Jun Network Technology Limited | ||
| “CKH” | means | Cheung Kong (Holdings) Limited | ||
“Company”, “our Company”, “we” and “TOM Online” | means | TOM Online Inc. | ||
| “Cranwood” | means | Cranwood Company Limited | ||
| “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$” | means | Hong Kong dollars, the lawful currency of Hong Kong | ||
| “HK GAAP” | means | the generally accepted accounting principles in Hong Kong | ||
| “HWL” | means | Hutchison Whampoa Limited | ||
| “Indiagames” | means | Indiagames Limited | ||
| “LTWJi” | means | Beijing Lei Ting Wu Ji Network Technology Company Limited | ||
| “PRC” or “China” | means | the People’s Republic of China | ||
“Pre-IPO Share Option Plan” | means | the Pre-IPO Share Option Plan adopted by the Company on February 12, 2004 | ||
| “RMB” | means | Renminbi, the lawful currency of the PRC | ||
| “SFO” | means | the Securities and Futures Ordinance, Chapter 571 of the laws of Hong Kong | ||
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“Share Option Scheme” | means | the share option scheme adopted by the Company on February 12, 2004 | ||
“Stock Exchange” | means | The Stock Exchange of Hong Kong Limited | ||
“TOM Group” | means | TOM Group Limited | ||
“US$” | 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 | ||
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CHAIRMAN’S STATEMENT FOR FIRST QUARTER 2007
I am pleased to announce the results of TOM Online Inc. (the “Company” or “TOM Online”) and its controlled operating entities including subsidiaries and variable interest entities (collectively referred to as the “Group”) for the first quarter ended March 31, 2007.
Financial Highlights
For the first quarter of 2007:
| • | Total revenues were US$35.14 million (“mn”), a decrease of 26.0% from the same period last year but an increase of 4.5% from last quarter. |
| • | Wireless Internet service revenues were US$31.82 mn, representing a 28.4% decrease from the same period last year but a 7.5% increase from the previous quarter. Wireless Internet service revenues made up 90.6% of our total quarterly revenues. |
| • | Online advertising revenues were US$2.66 mn, representing a 1.7% decrease from the same period last year and a 15.8% decrease from the previous quarter. Online advertising revenues made up 7.6% of our total quarterly revenues. |
| • | Net income for 1Q07 was US$0.15 mn compared to net income of US$12.14 mn in 1Q06 and net loss of US$0.51 mn in 4Q06. 1Q07 net income included our share of losses from our TOM Eachnet Joint Venture (“JV”) of US$2.92 mn. |
| • | Fully diluted earnings per American Depository Share (“ADS”) were US$0.3 cents or US$0.003 cents per common share. |
| • | Our balance of cash and cash equivalents and short-term bank deposits was approximately US$144.10 mn at the end of the first quarter of 2007. |
First Quarter 2007 - Financial Performance Review
The Company’s unaudited consolidated revenues for the three months ended March 31, 2007 were US$35.14 mn, a decrease of 26.0% compared to the same period year on year (“YoY”) but an increase of 4.5% quarter on quarter (“QoQ”).
Wireless Internet service revenues were US$31.82 mn, representing a 28.4% decrease from the same period last year but a 7.5% increase from the previous quarter. Wireless Internet service revenues made up 90.6% of total quarterly revenues compared to 88.0% in 4Q06.
Online advertising revenues were US$2.66 mn, representing a 15.8% decrease QoQ and 1.7% decrease YoY. Online advertising revenues made up 7.6% of our total quarterly revenues compared to 9.4% in 4Q06.
Other revenues were US$0.66 mn in 1Q07 compared to US$0.86 mn in 4Q06 and US$0.38 mn in 1Q06. Other revenues made up 1.8% of total revenues in 1Q07. Other revenues consist of revenues from online games, paid email and others.
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Gross profit was US$8.58 mn representing a decrease of 56.4% compared to the same period last year and a 24.6% decline QoQ. Gross margins declined to 24.4% in 1Q07 compared to 33.8% in the 4Q06 and 41.4% in the 1Q06. The sequential decline in gross margins was due to a number of factors including (a) although IVR revenues benefited from significantly increased capacity on China Mobile’s centralized IVR platform, IVR revenue share by China Mobile increased from 15% to 30% (b) WVAS content and distribution costs increased sequentially due to competition for those resources (c) higher gross margin WAP revenues declined in contribution to 20.4% of total wireless Internet service revenues in 1Q07 from 24.7% in 4Q06 and (d) due to the Chinese New Year period, online advertising revenues declined relative to the fixed costs of running our portal, thereby reducing margins in our online advertising business. Total cost of revenues were US$26.56 mn in 1Q07 compared to US$22.24 mn in 4Q06 and US$27.84 mn in 1Q06.
Total operating expenses were US$5.84 mn in 1Q07 compared to US$8.30 mn in 4Q06 and US$8.79 mn in 1Q06. The sequential decline in operating expenses was mainly due to reduced sales and marketing activities in 1Q07 compared to 4Q06, a US$0.41mn one-time refund of prior year’s marketing expenses from a mobile operator partner and the reversal of US$0.58 mn previously accrued marketing expenses as it was confirmed that the accrual would not be required to be paid. Sales and marketing expenses in 1Q07 were US$0.56 mn compared to US$2.23 mn in 4Q06.
Operating profit was US$2.74 mn, down 74.8% from the same period last year and a decrease of 10.9% from the previous quarter. Operating margins were 7.8% in 1Q07 compared to 9.2% in 4Q06 and 22.9% in 1Q06.
1Q07 EBITDA (“Earnings before Interest, Taxes, Depreciation and Amortization”) were US$4.74 mn, a decrease of 63.3% YoY and a 13.7% decline QoQ. EBITDA margins were 13.3% for the quarter compared to 15.8% in 4Q06 and 26.6% in 1Q06.
Beginning on February 1, 2007, we recognized our share of losses from the TOM Eachnet JV based on the equity method of accounting. For the two months ended March 31, 2007, our 51% share of losses from the TOM Eachnet JV were US$2.92 mn and has been included in share of loss on equity investment in a joint venture in the unaudited consolidated statements of operations.
Net income was US$0.15 mn compared to net loss of US$0.51 mn in 4Q06 and net income of US$12.14 mn in 1Q06. 1Q07 net income included US$0.38 mn in losses from discontinued operations offset by exchange gain of US$0.59 mn due to the effect of the appreciation of RMB upon the translation of our net non-RMB liabilities at the period end as our functional currency is RMB.
US GAAP basic earnings per ADS were US$0.3 cents for the quarter. US GAAP basic earnings per Hong Kong ordinary share were US$0.003 cents for the quarter. Shares used in computing US GAAP basic earnings per ADS were 53.25 mn and shares used in computing US GAAP basic earnings per Hong Kong ordinary share were 4,259.65 mn.
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US GAAP diluted earnings per ADS were US$0.3 cents for the quarter. US GAAP diluted earnings per Hong Kong ordinary share were US$0.003 cents for the quarter. Shares used in computing US GAAP diluted earnings per ADS were 53.26 mn shares and shares used in computing US GAAP diluted earnings per Hong Kong ordinary share were 4,260.42 mn.
Our balance of cash and cash equivalents and short-term bank deposits was approximately US$144.10 mn at the end of 1Q07.
Business Review
Wireless Internet Services
Total wireless Internet service revenues were US$31.82 mn for 1Q07, an increase of 7.5% QoQ but a decrease of 28.4% YoY. Wireless Internet service revenues accounted for 90.6% of our total revenues in 1Q07 compared to 88.0% in 4Q06.
2G Services – SMS
SMS (“Short Messaging Service”) revenues in 1Q07 were US$8.70 mn, down 7.8% QoQ and a 50.1% decline YoY. SMS revenues made up 27.3% of our total wireless Internet service revenues for the quarter. The primary factors for the continued QoQ decline in our SMS business were ongoing implementation of operator policies and a further reduction in contribution from Infomax’s SMS business due to a QoQ decline in interactive programming opportunities.
2.5G services
MMS (“Multimedia Messaging Service”) revenues for 1Q07 were US$3.20 mn, up 34.3% QoQ but down 21.8% YoY. MMS revenues made up 10.1% of our total wireless Internet service revenues in the quarter. Although our MMS business benefited from marketing activities related to the Chinese New Year period, as discussed in our previous quarterly/annual reports, we continue to believe that MMS is a transitory product category and do not expect MMS to be a key business driver to our overall business in coming years.
WAP (“Wireless Application Protocol”) revenues for 1Q07 were US$6.48 mn, representing a 11.4% decrease QoQ and 17.2% decrease YoY. WAP revenues made up 20.4% of our total wireless Internet service revenues in the quarter. While our WAP portal partnership with China Mobile continues to perform well, our WAP revenues declined in 1Q07 as many of the services we provide on China Mobile’s Monternet portal are currently offered free of charge and WAP revenues from Infomax declined due to a QoQ reduction in interactive programming opportunities.
Voice services
IVR (“Interactive Voice Response”) revenues in 1Q07 were US$9.80 mn, up 23.7% QoQ but down 20.0% YoY. IVR revenues made up 30.8% of our total wireless Internet service revenues in the quarter. As of January 2007, our IVR operations were transitioned to China Mobile’s centralized IVR platform which resulted in a significant increase in capacity for our IVR business allowing us to take better advantage of peak hour end-user demand for our services compared to previous periods.
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CRBT (“Colour Ringback Tones”) revenues in 1Q07 were US$3.35 mn, up 45.6% QoQ and up 36.2% YoY. CRBT revenues made up 10.5% of our total wireless Internet service revenues in the quarter. Our CRBT business continued to increase QoQ due to Chinese New Year related and other event driven promotional activities with mobile operator partners. While CRBT revenues increased YoY due to our expanding relationship with China Mobile’s centralized music platform and continued declines in the average unit price of CRBT, stimulating end-user demand.
Other Wireless Internet Services
Other wireless Internet service revenues were US$0.29 mn, representing a 24.4% increase QoQ. Other wireless Internet service revenues made up 0.9% of our total wireless Internet service revenues and consist primarily of revenues from Java-based mobile game download services.
Historically, we included revenues from our Indiagames subsidiary as part of other wireless Internet service revenues. However, due to the re-classification of Indiagames as “held-for-sale” at the end of 2006, the associated (losses)/income of Indiagames have been separately reported as (losses)/income from discontinued operations below our (losses)/income from continuing operations.
Online Advertising and Portal
Online advertising revenues were US$2.66 mn in 1Q07, representing a decrease of 15.8% QoQ and decrease of 1.7% YoY. Whilst our portal remains an important business area for the Company, we continue to face competitive pressures for share of advertiser budgets allocated towards our target audience, the young and trendy demographic. In 1Q07 this was compounded by a traditional slowdown in the online advertising market due to the Chinese New Year period.
New Business Opportunities
TOM-SKYPE JV and TOM Eachnet JV
At the end of March 2007, we had over 35.5 mn registered TOM-Skype users up from over 31.5 mn at the end of January 2007.
Beginning on February 1, 2007, we recognized our share of losses from the TOM Eachnet JV based on the equity method of accounting. For the two months ended March 31, 2007, our 51% share of losses from the TOM Eachnet JV were US$2.92 mn and has been included in share of loss on equity investment in a joint venture in the unaudited consolidated statements of operations .
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, April 27, 2007
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CONSOLIDATED BALANCE SHEETS
| Audited | Unaudited | |||||
| Note | December 31, 2006 | March 31, 2007 | ||||
| (in thousands of U.S. dollars) | ||||||
Assets | ||||||
Current Assets: | ||||||
Cash and cash equivalents | 110,993 | 118,236 | ||||
Short-term bank deposits | 25,613 | 25,860 | ||||
Accounts receivable, net | 23,473 | 22,148 | ||||
Restricted cash | 300 | 300 | ||||
Prepayments | 4,754 | 4,138 | ||||
Deposits and other receivables | 2,616 | 3,552 | ||||
Due from related parties | 170 | 613 | ||||
Inventories | 65 | 68 | ||||
Assets held for sale | 4 | 12,192 | 12,118 | |||
Total current assets | 180,176 | 187,033 | ||||
Restricted securities | 97,729 | 98,213 | ||||
Investment under cost method | 1,588 | 1,603 | ||||
Long-term prepayments and deposits | 333 | 336 | ||||
Property and equipment, net | 15,360 | 13,759 | ||||
Deferred tax assets | 673 | 680 | ||||
Goodwill, net | 214,791 | 216,859 | ||||
Intangibles, net | 2,949 | 2,612 | ||||
Total assets | 513,599 | 521,095 | ||||
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CONSOLIDATED BALANCE SHEETS (continued)
| Audited | Unaudited | |||||
| Note | December 31, 2006 | March 31, 2007 | ||||
| (in thousands of U.S. dollars) | ||||||
Liabilities and shareholders’ equity | ||||||
Current liabilities: | ||||||
Accounts payable | 9,365 | 7,602 | ||||
Other payables and accruals | 14,679 | 16,275 | ||||
Income tax payable | 432 | 679 | ||||
Deferred revenues | 328 | 584 | ||||
Consideration payable | 12,037 | 12,153 | ||||
Short-term bank loan | 35,340 | 35,340 | ||||
Due to related parties | 204 | 282 | ||||
Equity investment in a joint venture | 2 | — | 2,670 | |||
Liabilities held for sale | 4 | 1,131 | 1,317 | |||
Total current liabilities | 73,516 | 76,902 | ||||
Non-current liabilities: | ||||||
Secured bank loan | 55,271 | 55,271 | ||||
Liabilities for unrecognized tax benefits | 3 | — | 1,386 | |||
Deferred tax liabilities | 152 | 153 | ||||
Total liabilities | 128,939 | 133,712 | ||||
Minority interests | 878 | 864 | ||||
Minority interests of a subsidiary held for sale | 4 | 2,324 | 2,150 | |||
| 132,141 | 136,726 | |||||
Shareholders’ equity: | ||||||
Share capital (ordinary share, US$0.001282 par value, 10,000,000,000 shares authorized, 4,259,654,528 and 4,259,654,528 shares issued and outstanding as at December 31, 2006 and March 31, 2007 respectively) | 5,461 | 5,461 | ||||
Paid-in capital | 322,459 | 323,068 | ||||
Statutory reserves | 11,535 | 11,535 | ||||
Accumulated other comprehensive income | 10,645 | 14,175 | ||||
Retained earnings | 31,358 | 30,130 | ||||
Total shareholders’ equity | 381,458 | 384,369 | ||||
Total liabilities, minority interests and shareholders’ equity | 513,599 | 521,095 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended March 31, | ||||||||
| Note | 2006 | 2007 | ||||||
| Restated (Note 4) | ||||||||
| (in thousands of U.S. dollars, except for number of shares and per share data) | ||||||||
Revenues: | ||||||||
Wireless Internet services | 44,413 | 31,818 | ||||||
Online advertising | 2,702 | 2,657 | ||||||
Others | 384 | 663 | ||||||
Total revenues | 47,499 | 35,138 | ||||||
Cost of revenues: | ||||||||
Cost of services* | (27,840 | ) | (26,558 | ) | ||||
Total cost of revenues | (27,840 | ) | (26,558 | ) | ||||
Gross profit | 19,659 | 8,580 | ||||||
Operating expenses: | ||||||||
Selling and marketing expenses* | (1,214 | ) | (555 | ) | ||||
General and administrative expenses* | (7,009 | ) | (4,659 | ) | ||||
Product development expenses* | (454 | ) | (260 | ) | ||||
Amortization of intangibles | (113 | ) | (364 | ) | ||||
Total operating expenses | (8,790 | ) | (5,838 | ) | ||||
Operating profit | 10,869 | 2,742 | ||||||
Other income/(loss): | ||||||||
Net interest income | 443 | 399 | ||||||
Exchange gain | 918 | 586 | ||||||
Share of loss on equity investment in a joint venture | 2 | — | (2,923 | ) | ||||
Income from continuing operations before tax | 12,230 | 804 | ||||||
Income tax expenses | 3 | (6 | ) | (302 | ) | |||
Income from continuing operations after tax | 12,224 | 502 | ||||||
Minority interests | 6 | 23 | ||||||
Income from continuing operations | 12,230 | 525 | ||||||
Loss from discontinued operations, net of income tax | 4 | (95 | ) | (380 | ) | |||
Net income attributable to shareholders | 12,135 | 145 | ||||||
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
| Three months ended March 31, | ||||||||
| Note | 2006 | 2007 | ||||||
| Restated (Note 4) | ||||||||
| (in thousands of U.S. dollars, except for number of shares and per share data) | ||||||||
Earnings/(Losses) per ordinary share – basic (cents): | 5 | |||||||
Continuing operations | 0.290 | 0.012 | ||||||
Discontinued operations | — | (0.009 | ) | |||||
Total earnings per ordinary share – basic | 0.290 | 0.003 | ||||||
Earnings/(Losses) per ordinary share – diluted (cents): | 5 | |||||||
Continuing operations | 0.280 | 0.012 | ||||||
Discontinued operations | — | (0.009 | ) | |||||
Total earnings per ordinary share – diluted | 0.280 | 0.003 | ||||||
Earnings/(Losses) per American Depositary Share– basic (cents): | 5 | |||||||
Continuing operations | 23.1 | 1.0 | ||||||
Discontinued operations | (0.2 | ) | (0.7 | ) | ||||
Total earnings per American Depositary Share – basic | 22.9 | 0.3 | ||||||
Earnings/(Losses) per American Depositary Share – diluted (cents): | 5 | |||||||
Continuing operations | 22.8 | 1.0 | ||||||
Discontinued operations | (0.2 | ) | (0.7 | ) | ||||
Total earnings per American Depositary Share – diluted | 22.6 | 0.3 | ||||||
Weighted average number of shares used in computing Earnings/(Losses) Per Share: | ||||||||
Ordinary share – basic | 5 | 4,240,608,912 | 4,259,654,528 | |||||
Ordinary share – diluted | 5 | 4,291,046,914 | 4,260,424,095 | |||||
American Depositary Share – basic | 5 | 53,007,611 | 53,245,682 | |||||
American Depositary Share – diluted | 5 | 53,638,086 | 53,255,301 | |||||
* Included share-based compensation expense under SFAS 123R | ||||||||
Cost of services | 24 | 19 | ||||||
Selling and marketing expenses | 1 | 1 | ||||||
General and administrative expenses | 745 | 411 | ||||||
Product development expenses | 8 | 7 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Number of shares | Share capital | Paid-in capital | Statutory reserves | Accumulated other comprehensive (losses)/income | Retained earnings | Total equity | |||||||||||
| (in thousands of U.S. dollars except for number of shares) | |||||||||||||||||
Balance as of January 1, 2006 | 4,224,532,105 | 5,416 | 312,643 | 11,396 | (3,187 | ) | 2,842 | 329,110 | |||||||||
Issuance of shares on exercise of employee share options | 22,599,611 | 29 | 4,317 | — | — | — | 4,346 | ||||||||||
Share-based compensation | — | — | 778 | — | — | — | 778 | ||||||||||
Unrealized loss on securities | — | — | — | — | (907 | ) | — | (907 | ) | ||||||||
Currency translation adjustments | — | — | — | — | 6,187 | — | 6,187 | ||||||||||
Net income for the period | — | — | — | — | — | 12,135 | 12,135 | ||||||||||
Balance as of March 31, 2006 | 4,247,131,716 | 5,445 | 317,738 | 11,396 | 2,093 | 14,977 | 351,649 | ||||||||||
Balance as of January 1, 2007 | 4,259,654,528 | 5,461 | 322,459 | 11,535 | 10,645 | 31,358 | 381,458 | ||||||||||
Effect of adoption of FIN 48 (note 3) | — | — | — | — | — | (1,373 | ) | (1,373 | ) | ||||||||
Balance as of January 1, 2007, as restated | 4,259,654,528 | 5,461 | 322,459 | 11,535 | 10,645 | 29,985 | 380,085 | ||||||||||
Share-based compensation | — | — | 609 | — | — | — | 609 | ||||||||||
Unrealized gain on securities | — | — | — | — | 580 | — | 580 | ||||||||||
Currency translation adjustments | — | — | — | — | 2,950 | — | 2,950 | ||||||||||
Net income for the period | — | — | — | — | — | 145 | 145 | ||||||||||
Balance as of March 31, 2007 | 4,259,654,528 | 5,461 | 323,068 | 11,535 | 14,175 | 30,130 | 384,369 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended March 31, | ||||||
| 2006 | 2007 | |||||
| (in thousands of U.S. dollars) | ||||||
Cash flow from operating activities: | ||||||
Net income | 12,135 | 145 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Amortization of intangibles | 181 | 364 | ||||
Amortization of premium on debt securities | 94 | 97 | ||||
Allowance for doubtful accounts | 159 | 155 | ||||
Depreciation | 2,092 | 2,286 | ||||
Deferred income tax | — | 16 | ||||
Minority interests | (21 | ) | (250 | ) | ||
Exchange gain, net | (918 | ) | (550 | ) | ||
Loss on disposal of property and equipment | 2 | — | ||||
Share-based compensation expense | 778 | 438 | ||||
Share of loss on equity investment in a joint venture | — | 2,923 | ||||
Change in assets and liabilities, net of effects from acquisitions: | ||||||
Accounts receivable | (1,480 | ) | 1,940 | |||
Prepayments | 456 | 470 | ||||
Deposits and other receivables | (493 | ) | (766 | ) | ||
Due from related parties | (4 | ) | (443 | ) | ||
Inventories | (9 | ) | (3 | ) | ||
Accounts payable | 172 | (30 | ) | |||
Other payables and accruals | 1,196 | 1,479 | ||||
Income tax payable | (246 | ) | 133 | |||
Deferred revenues | 12 | 252 | ||||
Due to related parties | 199 | 79 | ||||
Net cash provided by operating activities | 14,305 | 8,735 | ||||
Cash flow from investing activities: | ||||||
Payments for purchase of property and equipment | (1,740 | ) | (2,298 | ) | ||
Cash paid for short-term bank deposits | (736 | ) | — | |||
Cash received from short-term bank deposits | — | 602 | ||||
Net cash used in acquisitions of subsidiaries | (17,952 | ) | — | |||
Contribution of services to joint venture | — | (87 | ) | |||
Net cash used in investing activities | (20,428 | ) | (1,783 | ) | ||
Cash flow from financing activities: | ||||||
Issuance of ordinary shares including from the exercise of shares options, net of issuing expenses | 4,346 | — | ||||
Partial repayment of bank loan | (347 | ) | — | |||
Net cash provided by financing activities | 3,999 | — | ||||
Net (decrease)/increase in cash and cash equivalents | (2,124 | ) | 6,952 | |||
Cash and cash equivalents, beginning of period | 99,869 | 111,366 | ||||
Foreign currency translation | 544 | 795 | ||||
Cash and cash equivalents, end of period | 98,289 | 119,113 | ||||
Representing: | ||||||
Cash and cash equivalents in discontinued operations, end of the period (Note 4) | 1,096 | 877 | ||||
Cash and cash equivalents in continuing operations, end of the period | 97,193 | 118,236 | ||||
Supplemental disclosures of cash flow information | ||||||
Cash (paid)/received during the period: | ||||||
Cash paid for income taxes | (186 | ) | (110 | ) | ||
Interest received from bank deposit and debt securities | 1,049 | 1,045 | ||||
Interest paid for loans due to parent company and bank loans | (285 | ) | (1,290 | ) | ||
Non-cash activities: | ||||||
Contribution of services to joint venture | — | (171 | ) | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of preparation and accounting policies |
TOM Online Inc. (the “Company” or “TOM Online”) and its controlled operating entities including the subsidiaries and the variable interest entities are collectively referred to as the “Group”.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The comparative consolidated statements of operations for the three months ended March 31, 2006 have been restated as the Company had committed to a plan to sell substantially all its equity interest in Indiagames in December 2006. Please refer to Note 4.
The accounting policies and methods of computation used in the preparation of these unaudited condensed consolidated financial statements are consistent with those used in the annual report for the year ended December 31, 2006, except for the adoption of Financial Accounting Standard Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” from January 1, 2007, which is disclosed in Note 3 below.
Results for the three months ended March 31, 2007 are not necessarily indicative of the results expected for the full fiscal year or for any future period.
| 2. | TOM Eachnet |
Pursuant to a joint venture deed signed between the Company and eBay International AG (“eBay”) on December 20, 2006, a joint venture, TOM Eachnet, has been formed on February 1, 2007 to carry on the business of owning and operating a mobile and Internet-based marketplace in China. TOM Eachnet is jointly controlled and owned by the Company and eBay with each owing 51% and 49% interest respectively.
eBay provided an initial funding of US$40,000,000 cash to TOM Eachnet and the Company will provide a shareholder’s loan in the amount of US$20,000,000, bearing interest at 1.3% over London Inter-Bank Offered Rate, to TOM Eachnet when the remaining cash balance of TOM Eachnet is only enough to finance no more than six months of its operation. If the funding from eBay and the shareholder’s loan from the Company have been fully utilized, additional funding in the form of shareholders’ loans of not exceeding US$10,000,000 will be provided by the Company and eBay in equal proportions if additional funding is required by TOM Eachnet and as mutually agreed by eBay and the Company. In addition, eBay injected its subsidiary engaging in the business of operating an online auction and marketplace site in China to TOM Eachnet while the Company contributes its expertise in the Internet and mobile industries in China and its leadership and management services to TOM Eachnet.
The Company accounts for this joint venture using the equity method of accounting since February 1, 2007. As of March 31, 2007, the Company had a negative investment in TOM Eachnet of US$2,670,000, representing its investment cost of US$258,000, being contribution of services to TOM Eachnet by the Company, less the Company’s share of TOM Eachnet’s losses for the two months ended March 31, 2007 of US$2,923,000 and currency translation adjustment of US$5,000. As the Company has a commitment to fund TOM Eachnet as disclosed above, such amount is classified as current liability in the consolidated balance sheet.
| 3. | 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. In addition,
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on March 16, 2007, the National People’s Congress approved the Enterprise Income Tax Law (“new EIT Law”) that will be effective from January 1, 2008. The new EIT Law establishes a new unified EIT rate of 25% for all various enterprises. As at the date of these unaudited consolidated financial statements are approved, detailed measures of the new EIT Law have yet to be issued, specific provisions concerning the applicable income tax rates, computation of taxable income, as well as specific preferential tax treatments and their related transitional provisions for the periods from 2008 and onwards have not been clarified. The Company will evaluate the impact to its operating results and financial positions of future periods as more detailed measures and other related regulations are announced.
No Hong Kong profits tax has been provided as the Group has no estimated assessable profits in Hong Kong for the three months ended March 31, 2007 (2006: Nil).
Taxes on income assessable in India have been calculated at the rates of tax prevailing in that country in which the Group operates its subsidiary, Indiagames, based on existing legislation, interpretations and practices in respect thereof.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued the final FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48” or the “Interpretation”), which became effective for the Company on January 1, 2007. The Interpretation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The adoption of FIN 48 resulted in a transition adjustment reducing beginning retained earnings and increasing liabilities for unrecognized tax benefits (including interest and penalties) by the same amount of US$1,373,000.
The FIN 48 provision of US$1,373,000 was provided for in respect of uncertain tax benefits associated with the technical and consulting services fees charged from our wholly foreign owned subsidiaries to our domestic variable interest entities (“VIE”). For details of our VIEs which we consolidated, please refer to note 4 of our 2006 annual report.
| 4. | Discontinued operations |
In December 2006, the Company committed to a plan which was approved by the Company’s Board of Directors on December 29, 2006 to sell substantially all its equity interests in Indiagames in order to focus on the China market and initiated actions to locate a buyer. As a result, the assets and liabilities of Indiagames were classified as held for sale and presented separately in the asset and liability sections, respectively, of the audited consolidated balance sheet as at December 31, 2006 and the unaudited consolidated balance sheet as at March 31, 2007. The results of its operation were also separately presented on the face of the unaudited consolidated statements of operations under “Discontinued Operations” for the three months ended March 31, 2006 and 2007. On March 5, 2007, the Company signed a binding term sheet with a potential buyer of the disposal of Indiagames and the definitive agreement was still under preparation as at March 31, 2007.
The major classes of assets and liabilities classified as held for sale were as follows:
| Audited | Unaudited | |||
| December 31, 2006 | March 31, 2007 | |||
| (in thousands of U.S. dollars) | ||||
Cash and cash equivalents | 373 | 877 | ||
Short-term bank deposits | 2,592 | 2,059 | ||
Account receivable, net | 2,067 | 1,571 | ||
Other current assets | 1,856 | 2,049 | ||
Goodwill, net | 4,754 | 4,967 | ||
Other non-current assets | 550 | 595 | ||
Assets held for sale | 12,192 | 12,118 | ||
Accounts payable | 104 | 214 | ||
Other payable and accruals | 1,027 | 1,103 | ||
Liabilities held for sale | 1,131 | 1,317 | ||
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Minority shareholders’ interest in Indiagames amounting to US$2,324,000 and US$2,150,000 were reported separately in the Group’s audited/unaudited consolidated balance sheets as at December 31, 2006 and March 31, 2007 respectively.
The unaudited results and cash flow information for Indiagames during the three months ended March 31, 2006 and 2007 were as follows:
| Three months ended March 31, | ||||||
| 2006 | 2007 | |||||
| (in thousands of U.S .dollars) | ||||||
Revenues | 1,080 | 550 | ||||
Operating expenses | (1,301 | ) | (1,201 | ) | ||
Operating loss | (221 | ) | (651 | ) | ||
Other income | 45 | — | ||||
Loss before tax | (176 | ) | (651 | ) | ||
Income tax credit | 66 | 44 | ||||
Loss after tax | (110 | ) | (607 | ) | ||
Minority interest | 15 | 227 | ||||
Loss from discontinued operations | (95 | ) | (380 | ) | ||
| Three months ended March 31, | ||||||
| 2006 | 2007 | |||||
| (in thousands of U.S .dollars) | ||||||
Net cash provided by operating activities | 708 | 38 | ||||
Net cash (used)/provided in investing activities | (765 | ) | 555 | |||
Net cash provided in financing activities | — | — | ||||
Net (decrease)/increase in cash and cash equivalents | (57 | ) | 593 | |||
Cash and cash equivalents, beginning of period | 1,135 | 373 | ||||
Foreign currency translation | 18 | (89 | ) | |||
Cash and cash equivalents, end of period | 1,096 | 877 | ||||
| 5. | Earnings/(Losses) per share |
| a) | Basic earnings/(losses) per share |
The calculation of basic earnings/(losses) per share for the three months ended March 31, 2007, is based on:
| • | the unaudited consolidated income from continuing operations, loss from discontinued operations and net income attributable to shareholders of US$525,000, US$380,000 and US$145,000 respectively (2006: US$12,230,000 of unaudited consolidated income from continuing operations, US$95,000 of loss from discontinued operations, and US$12,135,000 of net income attributable to shareholders, respectively); and |
| • | the weighted average number of 4,259,654,528 (2006: 4,240,608,912) ordinary shares outstanding during the period and 53,245,682 (2006: 53,007,611) American Depositary Shares (“ADS”) outstanding during the period. |
| b) | Diluted earnings/(losses) per share |
The calculation of diluted earnings/(losses) per share for the three months ended March 31, 2007, is based on:
| • | the same data in Note 5(a); |
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| • | the weighted average number of 4,260,424,095 (2006: 4,291,046,914) ordinary shares, after adjusting for the effects of all dilutive potential shares during the period and 53,255,301 (2006: 53,638,086) ADS outstanding during the period. |
For the three months ended March 31, 2007, the weighted average number of 181,145,569 stock options outstanding were excluded from the computation of diluted losses per share primarily because the exercise prices of the options were greater than the average market price of the ordinary shares making such options anti dilutive.
| 6. | Dividends |
There were no dividends declared, made or paid by the Group for the three months ended March 31, 2007 (2006: Nil).
| 7. | Proposed conditional possible privatisation of TOM Online |
On March 9, 2007, the respective directors of the Company and TOM Group Limited (“TOM”) jointly announced that on March 3, 2007, a letter was sent by TOM to inform the Company that TOM was considering making a proposal to take the Company private by way of a scheme of arrangement (“Proposal”) under Section 86 of the Cayman Islands Companies Law. On March 9, 2007, TOM requested the board of directors of TOM Online to put forward the Proposal to TOM Online’s shareholders. On April 25, 2007, TOM announced that the Proposal and the transactions contemplated thereunder were approved at its extraordinary general meeting held on April 25, 2007. If the Proposal is made, a scheme document (the “Scheme Document”) in relation to the Proposal and the related offers to optionholders will be sent by the Company and TOM to, among others, shareholders and optionholders of the Company. As stated in the joint announcement of the Company and TOM dated March 30, 2007, the time limit for the despatch of the Scheme Document has been extended to May 7, 2007. A joint announcement will be made by the Company and TOM in relation to the despatch of the Scheme Document. For further details of the Proposal, please see the joint announcement of the Company and TOM dated March 9, 2007, the announcement of the Company dated March 28, 2007, the joint announcement of the Company and TOM dated March 30, 2007 and the announcement of TOM dated April 11, 2007, which were posted on the website of the Growth Enterprise Market of the Stock Exchange of Hong Kong on March 12, 2007, March 28, 2007, April 2, 2007 and April 13, 2007, respectively, and filed with the U.S. Securities and Exchange Commission under Form 6K on March 12, 2007, March 29, 2007, March 30, 2007 and April 12, 2007, respectively.
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SUPPLEMENTARY UNAUDITED INFORMATION PROVIDED BY MANAGEMENT
| 1. | Unaudited summary of principal differences between US GAAP and HK GAAP |
The unaudited condensed consolidated financial statements of the Group are prepared in accordance with US GAAP, which differ in certain significant aspects from accounting principles generally accepted in Hong Kong (“HK GAAP”). A summary of significant differences between US GAAP and HK GAAP affecting the total assets and net assets of the Group as of December 31, 2006 and March 31, 2007, and the net income attributable to shareholders and the basic earnings per share of the Group for each of the three month period ended March 31, 2006 and 2007 is presented below.
| Three months ended March 31, | ||||
| 2006 | 2007 | |||
| (in thousands of U.S. dollars) | ||||
Net income attributable to shareholders under US GAAP | 12,135 | 145 | ||
Reconciliation adjustments, net of tax: | ||||
Share-based compensation* | 34 | — | ||
Net income attributable to shareholders under HK GAAP | 12,169 | 145 | ||
Earnings per ordinary share - basic (cents) under US GAAP | 0.290 | 0.003 | ||
Earnings per ordinary share - basic (cents) under HK GAAP | 0.290 | 0.003 | ||
| * | Since January 1, 2005, the Group has adopted the Hong Kong Financial Reporting Standard 2 “Share-based Payment” (“HKFRS 2”), which requires an entity to recognize share-based payment transactions in its financial statements for share options that were granted after November 7, 2002 and had not yet vested at the effective date of HKFRS 2. The GAAP difference for the first quarter of 2006 reflects the cost of options granted before November 7, 2002 recognized under US GAAP but not recognized under HK GAAP. |
| December 31, 2006 | March 31, 2007 | |||
| (in thousands of U.S. dollars) | ||||
Total assets under US GAAP | 513,599 | 521,095 | ||
Reconciliation adjustments, net of tax: | ||||
Reversal of amortization of intangibles which were recognized as goodwill under HK GAAP# | 5,336 | 5,416 | ||
Total assets under HK GAAP | 518,935 | 526,511 | ||
| December 31, 2006 | March 31, 2007 | |||
| (in thousands of U.S. dollars) | ||||
Net assets under US GAAP | 381,458 | 384,369 | ||
Reconciliation adjustments, net of tax: | ||||
Reversal of amortization of intangibles which were recognized as goodwill under HK GAAP# | 5,336 | 5,416 | ||
Reversal of liabilities for unrecognized tax benefits## | — | 1,386 | ||
Net assets under HK GAAP | 386,794 | 391,171 | ||
| # | As at March 31, 2007, the reversal of amortization of intangibles which were recognized as goodwill under HK GAAP amounting to US$5,416,000 included a currency translation adjustment of US$80,000 arising in the three months ended March 31, 2007. |
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| ## | Since January 1, 2007, the Company has adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48” or the “Interpretation”). The Interpretation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Under HK GAAP, there is no such specific guidance for recognition and measurement of tax uncertainties. |
| 2. | Non-GAAP financial measure |
To supplement the financial measures prepared in accordance with US GAAP, the Company uses Non-GAAP financial measure of EBITDA (“Earnings before Interest, Taxes, Depreciation and Amortization”) which is adjusted from results based on US GAAP in analyzing its financial results. The use of Non-GAAP measure is provided to enhance the reader’s overall understanding of the Company’s current financial performance and its prospects for the future. Specifically, the Company believes the Non-GAAP results provide useful information to both management and investors by excluding certain items that are not expected to result in future cash payments.
In calculating the EBITDA, depreciation and amortization expenses have been excluded from the Total Operating Profit. Although the Company has historically reported US GAAP results to investors, the Company believes the inclusion of Non-GAAP financial measure provides further information in its financial reporting. The Non-GAAP financial measure may be different from Non-GAAP financial measure used by other companies, and should be considered in addition to results prepared in accordance with US GAAP, but should not be considered a substitute for or superior to US GAAP measures.
The Non-GAAP financial measure has been reconciled to the nearest US GAAP measure as follows:
| Three months ended March 31, | ||||||
| 2006 | 2007 | |||||
| (in thousands of U.S. dollars) | ||||||
Operating profit/(loss): | ||||||
Continuing operations | 10,869 | 2,742 | ||||
Discontinued operations | (221 | ) | (651 | ) | ||
Total operating profit | 10,648 | 2,091 | ||||
Add back: Depreciation | 2,092 | 2,286 | ||||
Amortization of intangibles and others | 181 | 364 | ||||
EBITDA | 12,921 | 4,741 | ||||
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DISCLOSURE OF INTERESTS
Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures
As at March 31, 2007, the interests or short positions of the Directors in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Code of Conduct regarding Securities Transactions by Directors adopted by the Company (“Code of Conduct”), to be notified to the Company and the Stock Exchange, were as follows:
A. The Company
| (a) | Long positions in the shares of the Company |
| Number of shares of the Company | Approximate percentage of shareholding | ||||||||||||||
Name of Directors | Capacity | Personal Interests | Family Interests | Corporate Interests | Other Interests | Total | |||||||||
| Lo Ka Shui | Founder of a discretionary trust | — | — | — | 4,700,000 | 4,700,000 | 0.110 | % | |||||||
| Angela Mak | Beneficial owner | 2,508 | — | — | — | 2,508 | Below 0.001 | % | |||||||
| Elaine Feng | Beneficial owner | 786,000 | — | — | — | 786,000 | 0.018 | % | |||||||
| (b) | Rights to acquire shares of the Company |
Pursuant to the Pre-IPO Share Option Plan and/or Share Option Scheme, certain Directors were granted share options to subscribe for the shares of the Company, details of which as at March 31, 2007 were as follows:
Name of Directors | Date of grant | Number of share options March 31, 2007 | Option period | Subscription price per share of the Company | ||||
| HK$ | ||||||||
Wang Lei Lei | 16/2/2004 | 139,264,000 | 16/2/2004-15/2/2014 | 1.50 | ||||
Jay Chang | 11/5/2005 | 18,000,000 | 11/5/2005-10/5/2015 | 1.204 | ||||
Peter Schloss | 16/2/2004 | 10,000,000 | 16/2/2004-15/2/2014 | 1.50 | ||||
Elaine Feng | 16/2/2004 | 3,972,000 | 16/2/2004-15/2/2014 | 1.50 | ||||
Fan Tai | 16/2/2004 | 7,346,000 | 16/2/2004-15/2/2014 | 1.50 |
Save as disclosed above, during the three months ended March 31, 2007, none of the Directors or their Associates was granted options to subscribe for shares of the Company, nor had exercised such rights.
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| B. | Associated corporations (within the meaning of the SFO) |
| (a) | Long positions in the shares of TOM Group |
| Number of shares of TOM Group | |||||||||||||||
Name of Directors | Capacity | Personal Interests | Family Interests | Corporate Interests | Other Interests | Total | Approximate percentage of shareholding | ||||||||
Wang Lei Lei | Beneficial owner | 300,000 | — | — | — | 300,000 | 0.01 | % | |||||||
Angela Mak | Beneficial owner | 44,000 | — | — | — | 44,000 | Below 0.01 | % | |||||||
| (b) | Rights to acquire shares of TOM Group |
Pursuant to the pre-IPO share option plan and/or the share option scheme of TOM Group, certain Directors were granted share options to subscribe for the shares of TOM Group, details of which as at March 31, 2007 were as follows:
Name of Directors | Date of grant | Number of share options outstanding as at March 31, 2007 | Option period | Subscription price per share of TOM Group | ||||
| HK$ | ||||||||
Wang Lei Lei | 11/2/2000 | 9,080,000 | 11/2/2000-10/2/2010 | 1.78 | ||||
| 9/10/2003 | 6,850,000 | 9/10/2003-8/10/2013 | 2.505 | |||||
Tommei Tong | 9/10/2003 | 15,000,000 | 9/10/2003-8/10/2013 | 2.505 | ||||
Angela Mak | 11/2/2000 | 3,026,000 | 11/2/2000-10/2/2010 | 1.78 | ||||
| 9/10/2003 | 6,000,000 | 9/10/2003-8/10/2013 | 2.505 | |||||
| (c) | Short positions in associated corporations |
Mr. Wang Lei Lei has, as of June 12, 2001 (as supplemented on September 26, 2003), granted an option to a wholly-owned subsidiary of the Company in respect of his 20% (RMB20,000,000) equity interest in Beijing Lei Ting whereby such wholly-owned subsidiary of the Company has the right at any time within a period of 10 years commencing from September 26, 2003 (which may be extended for another 10 years at the option of such wholly-owned subsidiary of the Company) to acquire all of Mr. Wang Lei Lei’s equity interest in Beijing Lei Ting at an exercise price of RMB20,000,000.
Mr. Fan Tai has also, as of December 13, 2004, granted an option to a wholly-owned subsidiary of the Company in respect of his 20% (RMB2,000,000) equity interest in LTWJi whereby such wholly-owned subsidiary of the Company has the right at any time within a period of 10 years commencing from December 13, 2004 (which may be extended for another 10 years at the option of such wholly-owned subsidiary of the Company) to acquire all of Mr. Fan Tai’s equity interest in LTWJi at an exercise price of RMB2,000,000.
Save as disclosed above, none of the Directors or their Associates had, as at March 31, 2007, any interests or short positions in any shares, underlying shares or debentures of, the Company or any of its associated
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corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Code of Conduct, to be notified to the Company and the Stock Exchange.
Outstanding Share Options
As at March 31, 2007, options to subscribe for an aggregate of 199,048,929 shares of the Company which were granted to certain continuous contract employees of the Group (including the Directors as disclosed above) and ex-employees of the Group pursuant to the Pre-IPO Share Option Plan and Share Option Scheme were outstanding, details of which were as follows:
Date of grant | No. of share options | No. of employees | Subscription price per share of the Company | Option period* (commencing from date of grant and terminating ten years thereafter) | ||||
| HK$ | ||||||||
16/2/2004 | 181,048,929 | 263 | 1.50 | 16/2/2004-15/2/2014 | ||||
11/5/2005 | 18,000,000 | 1 | 1.204 | 11/5/2005-10/5/2015 | ||||
| * | Those options that have been vested may be exercised within the option period, unless they have been cancelled. Generally, the options are vested in different tranches subject to conditions set out in the offer letters. |
Interests and Short Positions of Shareholders
As at March 31, 2007, the persons or corporations (not being a Director or chief executive of the Company) who have interests or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO or have otherwise notified to the Company were as follows:
Name | Capacity | No. of shares of the Company held | Approximate shareholding | ||||
Li Ka-shing | Founder of discretionary trusts & interest of controlled corporations | 2,814,290,244(L) (Note 2) | 66.069 | % | |||
Li Ka-Shing Unity Trustee Corporation Limited(as trustee of The Li Ka-Shing Unity Discretionary Trust) | Trustee & beneficiary of a trust | 2,814,290,244(L) (Note 2) | 66.069 | % | |||
Li Ka-Shing Unity Trustcorp Limited(as trustee of another discretionary trust) | Trustee & beneficiary of a trust | 2,814,290,244(L) (Note 2) | 66.069 | % | |||
Li Ka-Shing Unity Trustee Company Limited(as trustee of The Li Ka-Shing Unity Trust) | Trustee | 2,814,290,244(L) (Note 2) | 66.069 | % | |||
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Cheung Kong (Holdings) Limited | Interest of controlled corporations | 2,814,290,244 (L) (Notes 1 and 2) | 66.069 | % | |||
Chau Hoi Shuen | Interest of controlled corporations | 425,888,453(L) (Note 3) | 9.998 | % | |||
Cranwood Company Limited | Beneficial owner & interest of controlled corporations | 212,958,118(L) (Note 3) | 4.999 | % | |||
TOM Group Limited | Beneficial owner | 2,800,000,000(L) | 65.733 | % | |||
(L) denotes long position
Notes:
| (1) | Easterhouse Limited is a wholly-owned subsidiary of Hutchison International Limited, which in turn is a wholly-owned subsidiary of Hutchison Whampoa Limited. Certain subsidiaries of Cheung Kong (Holdings) Limited in turn together hold one-third or more of the issued capital of Hutchison Whampoa Limited. |
Romefield Limited is a wholly-owned subsidiary of Sunnylink Enterprises Limited, which in turn is a wholly-owned subsidiary of Cheung Kong Holdings (China) Limited. Cheung Kong Holdings (China) Limited is a wholly-owned subsidiary of Cheung Kong Investment Company Limited, which in turn is a wholly-owned subsidiary of Cheung Kong (Holdings) Limited.
Easterhouse Limited and Romefield Limited together hold more than one-third of the issued share capital of TOM Group Limited, and therefore Cheung Kong (Holdings) Limited is entitled to exercise or control the exercise of more than one-third of the voting power at the general meetings of TOM Group Limited. By virtue of the SFO, Cheung Kong (Holdings) Limited is deemed to be interested in the 9,526,833 shares of the Company, 4,763,411 shares of the Company and 2,800,000,000 shares of the Company held by Easterhouse Limited, Romefield Limited and TOM Group Limited respectively.
| (2) | Li Ka-Shing Unity Holdings Limited, of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr. Li Tzar Kai, Richard is interested in one-third of the entire issued share capital, owns the entire issued share capital of Li Ka-Shing Unity Trustee Company Limited. Li Ka-Shing Unity Trustee Company Limited as trustee of The Li Ka-Shing Unity Trust, together with certain companies which Li Ka-Shing Unity Trustee Company Limited as trustee of The Li Ka-Shing Unity Trust is entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, hold more than one-third of the issued share capital of Cheung Kong (Holdings) Limited. |
In addition, Li Ka-Shing Unity Holdings Limited also owns the entire issued share capital of Li Ka-Shing Unity Trustee Corporation Limited (“TDT1”) as trustee of The Li Ka-Shing Unity Discretionary Trust (“DT1”) and Li Ka-Shing Unity Trustcorp Limited (“TDT2”) as trustee of another discretionary trust (“DT2”). Each of TDT1 and TDT2 hold units in The Li Ka-Shing Unity Trust.
By virtue of the SFO, Mr. Li Ka-shing, being the settlor and may being regarded as a founder of each of DT1 and DT2 for the purpose of the SFO, Li Ka-Shing Unity Trustee Corporation Limited, Li Ka-Shing Unity Trustcorp Limited, Li Ka-Shing Unity Trustee Company Limited and Cheung Kong (Holdings) Limited are all deemed to be interested in the 9,526,833 shares of the Company, 4,763,411 shares of the Company and 2,800,000,000 shares of the Company held by Easterhouse Limited, Romefield Limited and TOM Group Limited respectively.
| (3) | Schumann International Limited and Handel International Limited are companies controlled by Cranwood Company Limited. Devine Gem Management Limited is a company controlled by Ms. Chau Hoi Shuen. Ms. Chau Hoi Shuen is entitled to exercise more than one-third of the voting power at the general meetings of Cranwood Company Limited. |
By virtue of the SFO, Cranwood Company Limited is deemed to be interested in 5,800,000 shares of the Company and 3,174,117 shares of the Company held by Schumann International Limited and Handel International Limited respectively in addition to 203,984,001 shares of the Company held by itself.
By virtue of the SFO, Ms. Chau Hoi Shuen is deemed to be interested in 203,984,001 shares of the Company, 5,800,000 shares of the Company, 3,174,117 shares of the Company and 212,930,335 shares of the Company held by Cranwood Company Limited, Schumann International Limited, Handel International Limited and Devine Gem Management Limited respectively.
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Save as disclosed above, as at March 31, 2007, the Directors are not aware of any other person or corporation having an interest or short position in the shares and underlying shares of the Company representing 5% or more of the issued share capital of the Company.
Competing Interests
| (a) | Directors |
Mr. Frank Sixt and Mrs. Susan Chow, the Chairman of the Company and the alternate Director to Mr. Frank Sixt respectively, are executive directors of HWL, Cheung Kong Infrastructure Holdings Limited (“CKI”) and directors of certain of their respective Associates (collectively referred to as “HWL Group” and “CKI Group” respectively). In addition, Mr. Frank Sixt is a non-executive director of CKH and Hutchison Telecommunications International Limited (“HTIL”) and director of certain of their Associates (collectively referred to as “CKH Group” and “HTIL Group” respectively). Mrs. Susan Chow is an alternate director of HTIL and director of certain of its Associates. HWL Group is engaged in e-commerce and general information portals. Both the CKH Group and the CKI Group are engaged in information technology, e-commerce and new technology. HTIL Group is engaged in providing mobile and fixed-line telecommunications services, including multimedia services and mobile and fixed-line Internet services and Intranet services. The Directors believe that there is a risk that such businesses may compete with those of the Group.
Mr. Gordon Kwong, an independent non-executive Director, owns approximately 2.2% interest in ChinaHR.com Corp, which is a company in the PRC that engages in online job search. He is also an independent non-executive director of Quam Limited (“Quam”) and New World Mobile Holdings Limited (“New World”) (resigned on January 31, 2007). Quam is an internet company that mainly deals with financial services and New World is a mobile phone operator provides mobile internet technology and related services in Hong Kong and China. The Directors believe that there is a risk that such businesses may compete with those of the Group.
Dr. Lo Ka Shui, an independent non-executive Director, is the chairman and managing director and, is interested or deemed to be interested in approximately 44.91% of the issued share capital of Great Eagle Holdings Limited (“Great Eagle”), the shares in which are listed on the Main Board of the Stock Exchange. An associated company of Great Eagle is engaged in, among other things, online job search business in the PRC. He is also an independent non-executive director of China Mobile Limited (“China Mobile”), the shares in which are listed on the Main Board of the Stock Exchange. China Mobile is engaged in telecommunications business in the PRC. The Directors believe that there is a risk that such businesses may compete with those of the Group.
| (b) | Management shareholders |
TOM Group, an initial management shareholder of the Company, and its subsidiaries are engaged in diversified businesses, which include, inter alia, the provision of certain online services ancillary to their business divisions.
Cranwood, an initial management shareholder of the Company, has two wholly owned subsidiaries whose
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businesses consist of the provision of mobile content products and online services. Another wholly owned subsidiary of Cranwood has a minority interest in a company which is engaged in internet mobile businesses. The Directors believe that there is a risk that such businesses may compete with those of the Group.
Save as disclosed above, during the three months ended March 31, 2007, none of the Directors or the management shareholders of the Company (as defined under the GEM Listing Rules) or their respective Associates have any interests in a business which competes or may compete with the business of the Group.
OTHER INFORMATION
Audit Committee
The Company has established an audit committee (“Audit Committee”) in February 2004, in accordance with the GEM Listing Rules, which reviews the internal accounting procedures and considers and reports to the board of directors of the Company with respect to other auditing and accounting matters, including selection of independent auditors, the scope of annual audits, fees to be paid to the independent auditors and the performance of the independent auditors. The Audit Committee comprises three independent non-executive Directors, namely Mr. Gordon Kwong, Mr. Ma Wei Hua and Dr. Lo Ka Shui. Mr. Gordon Kwong is the chairman of the Audit Committee.
The unaudited consolidated results of the Group for the three months ended March 31, 2007 have been reviewed by the Audit Committee.
Purchase, Sale or Redemption of Securities
During the three months ended March 31, 2007, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed shares.
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