Asiaone 1-42

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our results of operations are generally affected by the content based nature of our business. Our
main costs components are staff cost representing more than 75% of the total cost of revenue and
depreciation expenses. Staff were identified on the basis of the personnel employed under the
Multimedia division of SPH while depreciation expenses are allocated based on the fixed assets
transferred to us under the Business Transfer Agreement which we entered into with SPH on 25
November 1999 and additions purchased for the six months ended 29 February 2000. From 1997 to
1999 we received approximately a total of $2.49 million in grants, through SPH, from the Economic
Development Board of Singapore and the National Computer Board for the development of AsiaOne
websites and SingaporeConnect respectively. These grants reduced our cost of revenue. The grant
from the Economic Development Board of Singapore was for 50% of the actual cost incurred by us
in the development of our AsiaOne website during the qualifying period from 1 April 1996 to 31
December 1997. The grant from the National Computer Board was for 50% of the actual cost incurred
by us for the development of the SingaporeConnect during the qualifying period from 1 September
1996 to 30 March 1998. A detailed discussion on our annual cost of revenue from FY1997 to FY1999
is set out below under the “Analysis of Financial Condition and Results of Operations - Review of
Operations”.
We expect our cost of revenue for FY2000 to be substantially higher than FY1999 primarily due to
higher staff costs and depreciation. Staff costs are likely to rise as we expect our average headcount
to increase four folds from FY1999 to FY2000. Depreciation is expected to be higher in FY2000 as
a result of the assets transferred from SPH’s Multimedia division to us in November 1999 under the
Business Transfer Agreement described in the “General Information on Our Group – History” section
of this Prospectus, and also because of the increase in our investment in portal infrastructure and
technology.
Our operating expenses consist largely of advertising and promotional expenses as well as facilities
related expenses and management fees paid to our parent company. We have been investing in
building up the AsiaOne.com and Zaobao.com brand names through advertisements and promotions.
We intend to step up our branding activities to increase the public’s awareness of AsiaOne’s and
Zaobao’s image and service offerings. Our marketing and branding strategy is detailed in the “Business
– Marketing and Branding Strategy” section of this Prospectus. We rent a large part of the premises
we are currently occupying from SPH. Details on the lease agreement we have with SPH are set out
in the “Interested Person Transactions – Lease Agreement” section of this Prospectus. We also pay
SPH management fees based on the estimated time spent by management and administrative
resources of SPH on our affairs. A detailed discussion on our annual operating expenses from
FY1997 to FY1999 is set out below under the “Analysis of Financial Condition and Results of
Operations - Review of Operations”.
Our operating expenses for FY2000 will be substantially higher than FY1999. Our operating expenses
for the six months ended 29 February 2000 of $2.59 million was already significantly higher that our
operating expenses for the 12 months ended 31 August 1999 of $1.90 million. In the second half of
FY2000, we will continue to invest heavily in advertising and promotion in accordance with our
marketing and branding strategy set out in the “Business – Marketing and Branding Strategy” section
of this Prospectus.
As discussed in the “Risk Factors” section of this Prospectus, we have a history of losses and
anticipate to incur losses for the foreseeable future.
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