Financial Report 1998

Net Insight AB(publ) Financial report on full year operation 1998. Important events during the year Net loss before appropriations and tax for the financial year 1998 amounted to -50.9 MSEK. Liquidity in the form of cash and bank balance, amounted, as per December 31, 1998, to 28.4 MSEK The company participated for the first time, in June, at one of the major data and telecommunications exhibitions, SUPERCOMM '98, in Atlanta, Georgia, USA. Net Insight and Vasa Läns Telefon, in Vasa, Finland, started in November the first testbed with live traffic . Stokab, owner of fibre-optic networks in Stockholm, and Net Insight initiated collaboration for joint testing and evaluation of Net Insight's products. In November 1998, Net Insight signed an agreement with ICG Telecom, Inc., a U.S. operator (the third largest city network operator (CLEC) with operations in 700 cities), to conduct a joint test project in Englewood, Colorado, USA, starting in February 1999. Net Insight signed an agreement with Toshiba Electronics for development and production of highly integrated circuits (ASIC) -- a switch core with the product name Twintin. Flextronics International Sweden and Net Insight signed a Letter of Intent covering a global co-operation regarding design, manufacturing and assembling of Net Insight's products. The number of employees has, during the financial year, increased from 29 to 50. In the December issue of Data Communications, one of the major magazines covering the networking industry, Net Insight was listed as "One of the Top 25 Hot Start-ups of 1998". Business concept & overview Net Insight is a networking company developing and marketing DTM-based solutions (Dynamic synchronous Transfer Mode) that enables network operators to reduce costs, differentiate services, and to build future-proof network with superior performance and unique scalability. Net Insight's vision is to help release the full potential of the Internet and fibre technology, thereby enabling network operators to provide full interactive communication to people all over the world. Products & Product development The company's activities have mainly been focused on developing the first product family, which consists of a switch optimised for IP-traffic in a city network. It also includes a number of interfaces to be able to communicate with other network technologies, a router based on the Swedish company EffNet's technology, and a network management system. The first product generation is estimated to be introduced during first quarter 1999. This is a quarter later than earlier indicated. Twintin is a specially designed DTM switch core that will constitute the base of Net Insight's next product generation. Net Insight will also offer Twintin as a building block for suppliers who want to create DTM based switches within their respective product area. Net Insights next product generation, based on Twintin, is estimated to be ready by year-end 1999/2000. All costs incurred in connection with product development are expensed as they occur. Market, customers & partners Net Insight's products are mainly directed at operators investing in high- capacity networks for Internet traffic. Net Insight's first generation of products will be used in city and regional networks handling aggregated traffic between Internet Service Providers (ISP) and IP-routers in corporate Intranets (LANs). There is a considerable interest in Net Insight and the company's DTM products. The first testbed was implemented at the end of November 1998, at Vasa Läns Telefon, intended for a city network in Vasa, Finland. Vasa Läns Telefon is a part of the Finnet-group, which consist of 45 regional network operators in Finland. A second testbed will be implemented at the beginning of February, at ICG Telecom Inc., in the U.S. ICG is the third largest city operator in the U.S., a so called CLEC (Competitive Local Exchange Carrier), specialised in operating networks in, and between, medium-sized U.S. cities. The agreement means that Net Insight and the DTM-technology will receive valuable feedback from one of the leading operators on the important U.S. market. Net Insight has signed a Letter of Intent with Stokab, a major owner of fibre- optical networks in the Stockholm area, regarding a field trial during 1999 with one of Stokab's customers. Stokab's customers include, for example, schools, hospitals, and insurance companies. Furthermore, Stokab also provides fibre to several network operators in the greater Stockholm area. Net Insight and Toshiba Electronics have signed a long-term agreement regarding design and production of the next generation's switching products based on specially constructed hardware (ASIC). This switch core will form the base of Net Insight's future product families, but it will also be marketed separately under the product name Twintin. There will be a great need for investments in city networks during the next few years. The total market for equipment to city networks is expected to, by year 2000, amount to 30 billion USD, according to the market research company Dataquest. In North America alone, the number of CLEC's amounts to 2800, a number that was close to zero just three years ago. The collaboration with Toshiba (Twintin) enables Net Insight to broaden its market. Customers will be other suppliers of equipment within the field of tele and data communications, which, with Twintin, will have the opportunity to supply DTM based products. Net Insight and Flextronics Sweden AB, part of Flextronics International Ltd., have signed a Letter of Intent covering a collaboration on design and manufacturing of Net Insight's network solutions. In Flextronics International Ltd., Net Insight has a global full-service supplier of innovative design, technology and manufacturing solutions with an excellent production capacity. In September 1998 Net Insight signed a Letter of Intent with Qeyton Systems AB (previously ChordNet) regarding a collaboration to adapt respective company's products, enabling the products to be compatible and to be marketed jointly. Qeyton was founded in July 1998 by a group of seven who previously held key positions at Ericsson in developing their DWDM (Dense Wavelength Division Multiplexing) products. DWDM represent the latest generation of fibre-optic solutions resulting in operators being able to increase capacity in the networks, without having to install new fibre. Qeyton's first product is optimised for city networks and is able to increase capacity in networks more than 100 times. Commercial introduction is planned for third quarter 1999. By combining both companies' products, the operator is offered an effective solution to increase flexibility, capacity and scalability in a modular way. In June a collaboration begun with Effnet concerning product adaptation, to be able to directly connect EffNet's high-performance IP-routers to Net Insight's products family. Patents and licensing Patents and patent applications represent strategical assets. Net Insight place much effort on continuously making sure that capital invested in development of new technology leads to tangible intellectual property in the form of patents. During the last quarter 1998, the Swedish Patent Office granted Net Insight four new patents, thereby complementing a fifth patent that was granted in 1997. During the last year, approx. ten additional patent applications have been submitted, regarding commercially interesting aspects of Net Insight's DTM products. The objective is to gain a leading position in technology, especially concerning the technology that is implemented in the Twintin-core. Net Insight has engaged Skjerven, Morrill, MacPherson, Franklin & Friel LLP, in San José, California, USA, one of Silicon Valley's prominent law firms specialising in handling and advising on IPR (patents, trademarks, etc.) issues, as the company's advisor in these matters. Employees & co-workers The number of employees has, during the financial year, increased from 29 to 50. Furthermore the company engages approx. 10 consultants. Net Insight's three founders are employed by the company since the beginning of 1997. Net Insight's CEO, Bengt Olsson, has been employed since March 1, 1998. All employees own shares and/or warrants. Since the beginning of July, Net Insight has a representative in San Francisco, assigned to handle contacts with prospective customers and partners on the American market. Special events Net Insight was one of 40 "high-tech future companies", in Europe and Israel, selected by the magazine "Red Herring" to present themselves in London at the seminar "Venture Market Europe 1998". Net Insight has participated as speaker in a number of seminars and exhibitions, including Eurescom in Heidelberg, Telekomdagarna in Stockholm, ATM '98 in London, and SDH Forum in London. In the December issue of Data Communications, one of the major magazines covering the networking industry, Net Insight was listed as "One of the Top 25 Hot Start-ups of 1998". Håkan Kihlberg, responsible for Nya Medier at Bonnier AB, was elected Chairman of the Board, on May 27, 1998. Vincent Tobkin, Director and Board member at Bain & Company, as well as responsible for their data and telecommunications department , is engaged as an advisor regarding strategical issues. Vincent Tobkin's past as a venture capitalist, focusing on data communications, implies that he, in addition to his network, possesses valuable insight into companies like Net Insight. Net Insight initiated standardisation of DTM technology within the framework of ETSI (European Telecommunications Standards Institute). The company is also a member of IETF (Internet Engineering Task Force), the multi media body DAVIC and Optical Internet Working Forum. After year-end, Net Insight's DTM-products have, in the January '99 issue of Data Communications, been listed among the "50 Hot Products 1999". The Board of Directors has decided to, during 1999, apply for listing on the Stockholm stock exchange. Forthcoming information The complete Annual Report will be available to the shareholders from the beginning of May at Net Insight on Ingenjörsvägen 3 in Marievik. It will, at the same time, be sent to the shareholders. @ Annual General Shareholders Meeting @ -May 31, 1999, in Stockholm. @ Quarterly report for 1st quarter 1999 @ -April 29, 1999 @ Half year report for 2nd quarter 1999 @ -August 9, 1999 @ Quarterly report for 3rd quarter 1999 @ -October 14 1999 Financing, liquidity and results The operations has been financed through two new share issues during 1997, for a total of 107,7 MSEK. Net Insight made the decision, at the Annual General Shareholders Meeting, May 27, 1998, to implement a bonus issue and subdivision of shares (4:1). The bonus issue and subdivision of shares altered the nominal amount for each share from 75 öre to 20 öre. The total share capital after the bonus issue amounts to 1,075,044 SEK and 80 öre. The liquidity in the form of cash and bank balance amounts, as of December 31, 1998, to 28.4 MSEK. The company has, at the moment, no operating income. The net loss before appropriations and tax for the full year totals -50.9 MSEK. Investments Investments in instruments, equipment and improvement of premises totalled 1.3 MSEK. No development expenses are capitalised. Dividend The company will not propose any dividend for the 1998 financial year. [REMOVED GRAPHICS] [REMOVED GRAPHICS] ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/01/20/19990127BIT00290/bit0001.doc