SinnerSchrader Annual Report 2001/2002

S I N N E R SCH RADE R AKTI E NG E S E LLSCHAF T 200 1/2002 AN N UAL R E P ORT

interactivate your business

S I N N E RSCH RADE R S HAR E PR ICE PE R FOR MANCE

160 % 140 % 120 % 100 % N E M A X A L L- S H A R E

80 %

SI N N E R SCH RADE R 60 % 40 %

SALE S VOLU M E I N € 000S

400 350 300 250 200 150 100 50 0

09/01 10/01 11/01 12/01 01/02 02/02 03/02 04/02 05/02 06/02 07/02 08/02

KEY FIG U R E S OF TH E S I N N E RSCH RADE R G ROU P

01.09.2001 31.08.2002

01.09.2000 31.08.2001

01.09.2000 31.08.2001 1)

Revenues Gross profit EBITDA EBITA

in  000s in  000s in  000s in  000s

14,544 2,954 - 3,608 - 4,284

17,395 4,692 - 215 - 631

19,866 5,546 468 7

Net loss

in  000s

- 17,901

- 2,452

- 3,480

including cumulative effect of changes in accounting principles

in  000s

- 14,703

–

–

Net loss per share Shares outstanding 2)

in  000s in 000s

- 1.55 11,533

- 0.23 10,735

- 0.30 11,543

Cash flows from operating activities

in  000s

- 328

609

880

221

222

239

Employees – Ø full-time equivalents

Liquid funds and marketable securities Shareholders’ equity Balance sheet total Employees – end of period

in  000s in  000s in  000s

1) Pro forma assuming consolidation of Netmatic as of 01.09.2000 2) Weighted average shares outstanding (diluted)

31.08.2002

31.08.2001

27,465 30,985 35,026 205

29,283 43,610 53,337 259

F I NANCIAL CALE N DAR 2002/2003

annual general meeting 19 December 2002 quarterly report September – November 2002 15 January 2003 quarterly report December 2002 – February 2003 15 April 2003 quarterly report March – May 2003 15 July 2003 annual report 2002/2003 November 2003

E D I TO R I A L

publisher SinnerSchrader Aktiengesellschaft, Hamburg conception and design MUTABOR, Hamburg photography Simone Scardovelli print Hartung, Hamburg

22.08.2002

SinnerSchrader relaunches online shop for Der Club Bertelsmann.

14.08.2002

Hamburger Hochbahn appoints SinnerSchrader to develop concept and design of a new company presentation on the web.

24.06.2002

18.06.2002

13.06.2002

06.06.2002

01.06.2002

maxblue and SinnerSchrader are awarded an Intermedia-Globe Silver at the Worldmediafestival 2002.

SinnerSchrader realises shop-in-shop solution and first online shop with continuously visible order status for Tchibo.

22.04.2002

SinnerSchrader develops eBusiness system for Talkline, which halves the work required to process online orders.

17. 0 4 . 2 0 0 2

SinnerSchrader is among the top ten in the New Media Services Ranking 2002.

28.02.2002

SinnerSchrader wins the “People Award” at the New Media Awards 2002.

15.01.2002

The investment portal maxblue starts in Italy with the support of SinnerSchrader.

SinnerSchrader establishes new analytical methods to specifically increase profitability of eBusiness with Web Mining.

23.01.2002

maxblue wins Corporate Media Award 2002.

3 0.11.200 1

Intel and SinnerSchrader open a joint eBusiness Solution Lab.

SinnerSchrader wins the Internet budget for Yello Strom.

23.11.200 1

SinnerSchrader develops new market information section for Internet presence of Deutsche Bank 24.

SinnerSchrader connects online shop discount24 to the OTTO Versand call centre.

0 9.11.200 1

SinnerSchrader develops first European eBusiness project on the basis of IBM software “Websphere Commerce Suite” for Saturn.

04.09.2001

Baur Versand appoints SinnerSchrader to develop new web design and several online marketing campaigns.

28.05.2002

SinnerSchrader concludes distribution partnership with the content management provider Coremedia.

23.05.2002

SinnerSchrader relaunches Internet site for “art”, Europe’s highest circulating art magazine published by Gruner+Jahr.

21.05.2002

Online shop of O2 is relaunched by SinnerSchrader in the design of the new European brand.

M I S S I O N STATE M E NT

We work for the success of our customers.

We help them to manage their relations with consumers, partners and employees better and more efficiently than ever before.

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C O NTE NTS

6 10 13

Letter to the shareholders SinnerSchrader share Corporate Governance

J O I N T S TAT U S R E P O R T 14 14 16 26 28 29

I General II Market and competitive environment III Development and position of the group IV Development and position of the AG V Risks of future business VI Outlook

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 32 33 34 36 37 62

Consolidated balance sheets Consolidated statements of operations Consolidated statement of shareholders’ equity Consolidated statements of cash flows Notes to the consolidated financial statements Auditors’ opinion

F I N A N C I A L S TAT E M E N T S S I N N E R SCH RADE R AG 64 66 67 75 76

Balance sheets AG Statements of operations AG Notes to the financial statements AG Auditors’ opinion Supervisory Board report

BOAR DS 78

Management Board and Supervisory Board

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MANAG E M E NT BOAR D

6

Thomas Dyckhoff, Matthias Schrader, Detlef Wichmann (l. to r.)

LETTE R TO TH E S HAR E H O LD E R S

dear shareholders, 2001/2002 was a difficult business year for SinnerSchrader. We clearly missed our targets to slightly increase sales revenues compared with the previous year and to achieve earnings significantly above the break-even point. Why? >

We did not expect the demand for information technologies and Internet services to continue to decline in 2002 after a zero-growth year in 2001. In particular, banks and financial service providers, as well as the media and the retail sector substantially cut their IT/Internet budget due to their own cost pressures. After cancellations and budget reductions of major projects had been recorded in the second quarter of our fiscal year, we started to adjust capacities by personnel cutbacks. The cost effects of these measures will not be realised in full before the coming fiscal year.

>

In view of increased competition, the extent and the scope of our sales and marketing activities were still too small to win new business at a satisfactory rate. In addition the necessary consolidation of the supply side is only taking place very slowly. Therefore, the realisable prices at the market were under pressure during the entire business year.

>

The re-leasing and returning of office space that we vacated to consolidate our office situation in Hamburg resulted in higher expenses than planned due to the poor economic situation for commercial real estate. We terminated our London, Rotterdam and Denver sites in the fiscal year 2001/2002. This caused additional one-off expenses.

>

The acquisition of Netmatic Internet/Intranet Solutions GmbH did not meet our expectations. Due to the sustained drop in market valuations for companies in our business sector, last year’s acquisition resulted in considerable extraordinary write-offs.

SinnerSchrader achieved sales revenues of  14.5 million, an EBITA of -  4.3 million and a net loss after extraordinary write-offs of goodwill from the Netmatic acquisition of -  17.9 million. Overall, our business results for 2001/2002 are disappointing. However, they do not reflect the progress we achieved through the measures taken in all segments during the fiscal year, which will enable a return to profitability even under sustained difficult market conditions:

>

We reduced the average personnel capacity from 247 full-time employees in the first quarter of the fiscal year 2001/2002 by nearly 30 % to about 175 employees in the first quarter of the current business year. Together with additional oneoff restructuring measures for the withdrawal from offices and the termination of operating activities of our international subsidiaries we reduced SinnerSchrader’s cost base by more than  3.5 million.

>

As a result of extraordinary write-offs of intangible assets and goodwill from the Netmatic acquisition, no significant burdens will arise from the acquisition in the future.

>

We only increased the number of employees in sales and marketing. A team of four employees has been taking care of new customer acquisitions since the beginning of the current business year.

>

We added application support and Web-Mining to our service offering. With these services we are able to achieve for our customers an improved performance of the Internet applications they operate. Application support safeguards system operations 24 hours a day,

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LETTE R TO TH E S HAR E H O LD E R S

7 days a week. Web-Mining analyses the data generated from Internet applications with regard to user behaviour. Both services intensify the relationships to our existing customers. In addition, they provide excellent opportunities to gain new customers. Both services were favourably received by existing and new customers. >

In the Project business, we were able to establish new customer relationships with potentially rewarding customers during the second half of the fiscal year. They include DaimlerChrysler, T-Online, TUI, and Yello Strom. Moreover, we were appointed to a cooperation on the Internet component of one of the major infrastructure projects in Germany.

We were pleased to having been able to extend the range of sectors covered through these new customers.

>

The adjustments and improvements of our operating structures are implemented on the basis of SinnerSchrader’s continuing sound financial structure. At the end of the fiscal year 2001/2002, the company had a liquidity reserve of  27.5 million. Owing to successful working capital management and the quality of our customer base we did not have to suffer any bad debt losses in the fiscal year. We were able to limit our cash consumption to  1.8 million during the business year. SinnerSchrader still does not require bank loans and the balance sheet as at 31 August 2002 records an equity ratio of nearly 89 %.

>

Thus, some essential preconditions for renewed success after the poor figures during the year under review were set for the coming years. In view of the changes in the market for IT and Internet services, however, it is even more important how SinnerSchrader positions itself. The Internet as a platform for interactive systems has become a standard in recent years, as well as many technologies, with which systems are designed and implemented. With the continuation of this trend, the competitive environment has become broader and less transparent. A clear distinctive profile is, therefore, the more decisive.

SinnerSchrader is among a small number of providers in Germany, which are able to combine powerful, highly-available IT systems with functional and attractive interfaces.

It is our objective to design digital processes on the basis of the requirements of the endusers. Without doubt the crucial success factor of innovative services is acceptance by the target group. In the past many IT projects failed because the new processes were not viewed and developed from the perspective of the end-users.

The design of attractive user interfaces and functional processes are crucial projects, affecting the profitability of an entire system to a considerable extent. Often it is precisely this part of the system development that decides whether the entire investment will be a success or a failure. Many companies which operate unsuccessful and therefore very expensive Internet projects despite substantial development budgets and the use of complex technologies experience this. Therefore, we know from many discussions with customers that the industry is very interested in user-centric systems.

It is our special expertise to combine user expectations and process demands. This is the only way positive overall results are achieved with a return on the invesment. This is the field SinnerSchrader will focus on in the coming years. We have an excellent starting point with our core competencies, experience from numerous successful projects, renowned customers and an evident lead over many of our competitors. We are convinced that our projects create sustainable value for our customers.

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LETTE R TO TH E S HAR E H O LD E R S

At the end of the fiscal year 2001/2002 Oliver Sinner resigned from his management position at SinnerSchrader. Oliver Sinner co-founded and built the company. His work contributed decisively to SinnerSchrader being a service provider with a good reputation and sound financial structures even after the end of the Internet boom. Oliver Sinner did not see sufficient opportunities for him to provide necessary momentum for a successful further development of the company. After having worked for the company for six years, he consequently did not prolong his appointment to the Management Board.

We are well aware that the current business year will be very difficult. In an environment of major overall economic adjustments, in Germany in particular, the IT and Internet service sector is in a stage of general change. “The fat years are over” is a common theme, and not only for us. The sector will have to address the question of sensible and appropriate price/value relations. Capital expenditure in information and Internet technologies will not be the companies’ priorities in the coming years, either. The necessary adjustments will considerably burden the market in the near future and will keep up a still unchanged level of competitive intensity.

SinnerSchrader implemented important steps in this adjustment process in the past fiscal year. We streamlined the internal structures and strengthened the sales and marketing activities. Despite the disappointments and uncertainties of the past year our employees are committed. We have been able to maintain the essential values of our work – professional expertise and personal commitment – also during times of personnel reductions.

The results are customers, who highly regard our work and our willingness to provide excellent services.

We do not expect growth in sales revenues during the fiscal year 2002/2003. However, it is our target to lead SinnerSchrader back to operating profitability.

Hamburg, November 2002 TH E MANAG E M E NT BOAR D

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S I N N E R S C H RAD E R S HAR E

SI N N E R SCH RADE R SHAR E 514 190 During the course of the fiscal year 2001/2002 from September 2001 to August 2002, the already weakened domestic and international stock markets experienced significant declines. Global uncertainties regarding the overall economic development, several scandals of inflated sales revenues and window-dressing of financial statements crushed investors’ confidence permanently world-wide. During the period under review the DowJones Index dropped by about 16 %, the Nikkei declined from its already low level by a further 10 % and the DAX actually dropped by 30 %. The losses on the international technology stock exchanges were even higher. The Nasdaq Composite Index fell by 27 %, the NEMAX All-Share Index by more than 50 %.

In contrast, the first months of the fiscal year were positive overall despite the shortterm drop as a response of the terrorist attacks on 11 September 2001. For an extended period of time the market’s expectation of a quick rebound of the economy from the recession in the second half of 2001 towards a new, even though weaker period of growth prevailed. With the realisation that the economic optimism was premature, the trend on all stock markets turned negative again during the first months of 2002.

The performance of SinnerSchrader shares mainly followed this pattern during the fiscal year. From a level of  2.80 the stock price rose to more than  4 and remained in the range of between  3 and  4 for some time. With the realisation that the difficulties in the market for IT and Internet services have longer-term effects, a continuous decline in the stock price towards the closing price of  1.30 at 31 August 2002 began. Thus, the stock price performance reflected the business development of SinnerSchrader in the business year 2001/2002: after a satisfactory first quarter, SinnerSchrader was not able to separate itself from the trend of the entire market, remained significantly below its forecasts from the second quarter onwards, and generated clear losses due to the sharp unexpected decline in sales revenues.

However, considering the book value of SinnerSchrader’s assets the stock price of  1.30 is a negative exaggeration. As of 31 August 2002, the book value per share amounted to nearly  2.80, the value of the liquidity reserve alone amounted to around  2.38.

The performance of the stock price of about - 54 % during the fiscal year was roughly in line with the development of the NEMAX All-Share Index. In contrast, the NEMAX Internet Index performed significantly better. In particular, the performance of T-Online, which is with 63.4 % a heavy-weight in the NEMAX Internet Index and which displayed a favourable development in a difficult stock market environment due to meeting the company’s targets, was the reason for this trend.

I N V E S TO R R E L AT I O N S

10

The fiscal year 2001/2002 was the most difficult year for SinnerSchrader in its history.

Moreover, it was a poor year for the global stock markets.

In this adverse environment, it was our aim to continue the transparent and honest information and communication policy of the past and not to hide in view of the negative news in order to maintain transparency regarding the development of SinnerSchrader and thus maintain the confidence in SinnerSchrader’s work both of investors and analysts.

Through continuous contacts to the IT and business press we also informed a broader audience about the developement of SinnerSchrader. We were able to achieve a good level of attention by the press for a company of our size.

S I N N E R S C H RAD E R S HAR E

S I N N E RSCH RADE R S HAR E PR ICE PE R FOR MANCE

N E MA X I N T E R N ET

160 % 140 % 120 % 100 %

N E MA X A L L- S H A R E

80 % 60 %

S I N N E RS C H R A D E R

40 %

SALE S VOLU M E I N € 000S

4 00 350 3 00 250 200 150 100 50 0

0 9 /0 1 1 0 /0 1 11/ 01 12/ 01 01/ 02 02/ 02 03/ 02 04/ 02 05/ 02 06/ 02 07/ 02 08/ 02

KEY FIG U R E S S I N N E RSCH RADE R S HAR E 2001/2002

German securities code number Symbol Stock exchange Indices Designated Sponsors Shares issued Issue price at IPO Share price at business year end ( 30.08.2002 ) High / low share price Performance Ø-Sales volume Market capitalisation (30.08.2002)

514190 SZZ Frankfurter Wertpapierbörse (Neuer Markt) NEMAX All-Share, NEMAX Internet Commerzbank AG, Berenberg Bank 11,542,764  12.00  1.3  4.8/  0.95 - 53.6 % 11,822 shares per day / 32,030  15 million

S HAR E HOLDE R STR UCTU R E AS OF 31.08.2002 F R E E F LOAT

33.1 %

4.8 %

6.8 % O LI V E R S I N N E R, M AT T H I AS S C H R A D E R A N D FA M I L I E S

43 %

12.3 %

LO C K E D S H A R E S O F F O R M E R OW N E R S O F N E T M AT I C E M P LOY E ES O F S I N N E RS C H R A D E R F R OM P R E - I PO S H A R E HO LD I N G

ST R AT E G IC I N V E STO R

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S I N N E R S C H RAD E R S HAR E

S HAR E HOLDE R STR UCTU R E

N E W S TO C K M A R K E T S E G M E N TAT I O N

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The shareholder structure has only changed marginally since the IPO in November 1999 and the change mainly results from the dilution in the course of the acquisition of Netmatic Internet/Intranet Solutions GmbH. The company’s founders Oliver Sinner and Matthias Schrader still hold the largest proportion of shares with 43 %. After Oliver Sinner’s resignation from the Management Board on 31 August 2002, he still remains the largest individual shareholder of SinnerSchrader Aktiengesellschaft. The other members of the Management Board and employees still hold about 6.8 % from their pre-IPO participation. The strategic investors have not reduced their number of shares since the IPO; their share of the subscribed capital amounted to about 12.3 % as of 31 August 2002. Of the about 1.5 million shares, that were issued to the former shareholders of Netmatic, about one third of the shares still have lock-up periods until the end of 2002 and 2003. These shares amount to about 4.8 % of the subscribed capital. The free float increased to 33.1 %.

As of 31 August 2002, the total number of shares issued amounted to 11,542,764. Due to the market capitalisation, which is significantly below the book value and the value of the liquidity position, SinnerSchrader made use of its authorisation to buy-back own shares during the fiscal year and acquired 86,227 shares on the market until 31 August 2002.

At the end of September Deutsche Börse announced the division of the stock market into a “Prime Standard” and a “General Standard” and therewith officially resolved upon the end of the Neuer Markt and the SMAX. In principle, we are in favour of this initiative of the exchange, which should help quality stocks of the Neuer Markt to distance themselves from the existing negative image of the Neuer Markt due to several scandals. While the General Standard with its lower transparency requirements aims at issuers with a rather domestic focus, the Prime Standard as a quality segment with the high transparency requirements common to international markets is intended to provide companies access to a broader, international capital market.

As soon as the formal requirements are outlined by Deutsche Börse, SinnerSchrader will file for a listing in the quality segment Prime Standard. We already comply with all the admission criteria for a listing in the Prime Standard that have so far been published.

C O R P O RATE G OVE R NAN C E

C O R P O R AT E G O V E R N A N C E In the year 2002, the German Corporate Governance Code, which recommends standard principles for responsible and value-added based management and control in particular for exchange-listed companies, was passed by a specially appointed government commission. The Transparency and Publicity Act, which became effective in July 2002, stipulates that each public limited company must declare annually the extent to which the recommendations of the Corporate Governance Code are being followed and for what reasons the Code is not being followed on some points if applicable. Such a statement has to be submitted for the first time by 31 December 2002.

The Management Board and the Supervisory Board of the SinnerSchrader Aktiengesellschaft welcome and support the aims pursued by the Corporate Governance Code since the responsible work of the Boards of SinnerSchrader to the good of the company are now formally confirmed. However, the Code should not be regarded as a cure-all to achieve good corporate business management.

As one of the first companies in Germany we are, therefore, already commenting on the recommendations in this annual report. On the basis of our Articles of Association and the Rules of Procedures, the Management Board as well as the Supervisory Board of SinnerSchrader have already complied with the recommendations of the Code to a great extent in the past few years. During the first months of the fiscal year 2002/2003 we took the following additional measures in order to implement further recommendations: S HAR E HOLDE R S AN D G E N E RAL M E ETI NG

Documents regarding the Annual General Meeting on 19 December 2002 (including among others the invitation, agenda and legally required reports and documents) will be published on our Internet page www.sinnerschrader.com/investor/hauptversammlung. In addition, SinnerSchrader will appoint an agent for its shareholders to exercise their voting rights as directed.

MANAG E M E NT BOAR D AN D S U P E RVI SORY BOAR D

A deductible amount of  10,000 per person was agreed upon for the D&O insurance for the members of the Management Board with effect from 1 November 2002.

As a long-term incentive beginning in the fiscal year 2002/2003 a variable salary component as well as a stock option plan was agreed upon for Management Board members Thomas Dyckhoff (CFO) and Detlef Wichmann (COO) at the beginning of their new appointment to the Management Board. Due to Mr. Schrader's significant stake in the company, the two components were once again not included for Mr. Schrader.

R E PORTI NG

In the future, the interim reports will be published within 45 days of the end of the period under review.

Due to the fact that the Supervisory Board only consists of three members and their remuneration is low in accordance with the Articles of Association, we currently do not comply with the recommendations regarding the formation of separate Supervisory Board committees as well as variable remuneration components and a deductible for the D&O insurance for the members of the Supervisory Board. Apart from this, the company is complying with the recommendations of the Corperate Governance Code.

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J O I NT STATU S R E P O RT

J O I N T S TAT U S R E P O R T O F T H E S I N N E R S C H R A D E R G R O U P AN D TH E S I N N E R S C H RAD E R AKTI E N G E S E LLS C HAFT

i. general The SinnerSchrader Group (“SinnerSchrader” or “Group”) is made up mainly of SinnerSchrader Aktiengesellschaft (“SinnerSchrader AG” or “AG”) and its 100 % subsidiary SinnerSchrader Deutschland GmbH (“SinnerSchrader DTL”), located in Hamburg with an office in Frankfurt am Main. In the Group’s fiscal year 2001/2002, SinnerSchrader Deutschland GmbH was formed with retroactive effect from 1 January 2001 through the merger of the former German subsidiaries SinnerSchrader Interactive Marketing GmbH, SinnerSchrader Interactive Software GmbH and SinnerSchrader Netmatic GmbH (previously Netmatic Internet/Intranet Solutions GmbH, “Netmatic”), which was acquired in January 2001.

In addition, SinnerSchrader UK Limited, SinnerSchrader Benelux BV and Netmatic Inc. are part of the SinnerSchrader Group. During the course of the fiscal year, the start-up of the operating activities of these international subsidiaries was stopped and operations were suspended temporarily at least.

SinnerSchrader is a consulting and services company for the development, design and implementation of Internet-based communication and transaction systems. SinnerSchrader AG performs the functions of a management holding company. The consulting and services business is carried out by the subsidiaries. The financial status of SinnerSchrader AG is therefore presented together with that of the Group in a joint status report. Unless specific reference is made to the AG, the information provided refers to the Group. The financial statements for the Group are drawn up on the basis of the US generally accepted accounting principles (“US-GAAP”) with discharging effect in accordance with Article 292a of the German Commercial Code (HGB). The individual accounts of the AG are prepared in accordance with German accounting principles.

The fiscal year 2001/2002 for the Group and the AG extended from 1 September 2001 to 31 August 2002. SinnerSchrader Netmatic GmbH was acquired during the previous fiscal year from 1 September 2000 to 31 August 2001. However, the acquired company could not be consolidated before 1 January 2001 and has therefore only been included in the Group’s financial statements for eight months. For a better assessment of the economic development of the Group, a comparison with unaudited pro-forma financial statements, which are based on the assumption of an initial consolidation of Netmatic as of 1 September 2000, is discussed in the following in addition to a comparison with last year’s audited financial statements.

ii. market and competitive environment The entire business development 2001/2002 was characterised by a continuation of a period of overall economic weakness, which had started at the end of 2000 and which resulted in a decline in the gross domestic product in Germany, SinnerSchrader’s main market, in the second half of 2001. For the full-year 2001, the economic growth rate finally amounted to around 0.6 %, one of the smallest growth rates since Germany’s reunification. Expectations at the beginning of SinnerSchrader’s fiscal year of a rapid revitalisation of the economy in 2002 did not materialise. In contrast, currently it appears that economic growth in 2002 will be even below the previous year’s level. Germany is still among the developed countries with the smallest growth momentum.

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J O I NT STATU S R E P O RT

While information and communication technology were not affected noticeably by economic fluctuations in the past ten years, the current economic difficulties are particularly a result of the considerable slowdown of development in this sector. After years of doubledigit growth rates, the development of corporate expenditures on information technology and services slowed down drastically in 2001. In a recent report on the development of IT budgets of European companies in 2002, the investment bank Goldman Sachs assumes a decline of at least 2 % compared with the previous year and expects an additional decrease of about 2 % in 2003. In their quest for cost-savings, many companies have cut their IT budgets, which had steadily risen over the past few years due to reengineering projects, the Y2K problem, the Euro changeover and the Internet.

According to an analysis of the European Information Technology Observatory (EITO), the market for information and communication technology in Germany will decline by 1.3 % in the current year and the below-average performance in a European context will probably continue in 2003. The analysis shows that also in the information technology sector the German market is currently particularly difficult.

The drastic reversal hit the IT/Internet service sector in Germany at a time when overall capacities were still being expanded until mid 2001 oriented at original growth targets for that year. In particular in the relevant sub-sector for SinnerSchrader – IT services for Internet-based communication and transaction systems – the total capacity was also increasing because the traditional, established IT service providers specifically expanded their service range to this segment. The market’s resulting excess capacity led to a further intensification of competition and the continuation of the deterioration in realisable prices in the market,

MAR KET AN D COM PETITIVE E NVI RON M E NT

-1.3 %

G E R MANY

0.7 %

1.6 % 3.8%

U N ITE D KI NG DOM

2.7% 4.0%

FRANCE

3.6% 4.4%

S PA I N

1.1% 3.2%

W E STE R N E U R O P E

Source: EITO Update 2002

2002

2003

15

J O I NT STATU S R E P O RT

which had already noticeably declined during the past fiscal year. Despite the capacity adjustment measures, which were initiated by almost all market participants in 2002, and despite some insolvencies in the sector, competitive pressures have not eased during the course of the business year since a longer period of time is required for an effective reduction of total market capacity. Price declines with at the same time increasing costs for sales and customer retention have considerably narrowed the margins for the entire sector.

Due to the cost pressures, to which almost all customers are exposed, the project priorities have shifted once again further from the development of new market potential towards efficiency improvements and cost-savings. Only those projects that were able to clearly prove their profitability from the outset were funded. In this context, the efficiency, quality and economic stability of the providers were and are being increasingly critically analysed by customers. In this respect, confidence was and is placed more readily in our bigger and more established competitors and the requirements with regard to the performance of smaller, specialised providers such as SinnerSchrader are increased.

iii. development and position of the group The difficult market and competitive environment in the business year 2001/2002 and the fact that we had not expected a further deterioration of the situation in 2002 after the decline in 2001 and a stable business development in our first quarter to the end of November 2001 and that we, therefore, did initiate clear cost-reduction measures only at the beginning of 2002, resulted in SinnerSchrader reporting significant losses in the financial statements for the Group.

The decline in sales revenues, which we experienced despite increased sales efforts, completely affected the operating result since the initiated cost-reduction measures will only have their full impact in the next business year. In addition, the collapse of market valuations for companies in our sector, manifest also in the development of SinnerSchrader’s stock price, forced us to extraordinarily write-off the complete goodwill from last year’s acquisition of Netmatic in the context of the transition to a new accounting standard under US-GAAP. Despite the considerable loss, the financial stability of the SinnerSchrader Group hardly changed in the business year 2001/2002. The liquidity reserves declined by  1.8 million only and were still very high at  27.5 million at the balance sheet date. Still, SinnerSchrader does not require any bank loans, and the equity ratio of nearly 89% as of 31 August 2002 documents the quality and solidity of our financial position. We reduced the cost basis for the current business year by more than  3.5 million through the cost-reduction measures, in particular the reduction of the workforce, implemented during the past business year.

16

J O I NT STATU S R E P O RT

D E V E LO P M E N T OF SALE S

Gross sales of  14.5 million in the business year 2001/2002 were 19 % below the level reported in the income statement of the previous year and about 27 % below sales of the pro-forma statements. The Project Services business, SinnerSchrader’s main business activities, declined substantially by 18 % (- 28 % compared with pro-forma figures) as did the Media Services business by 32 %, while revenues from Other Services increased by nearly 50 % compared, however, with the low level of the previous year.

Net revenues, which are calculated as gross revenues less cost of media placements charged through to our customers, amounted to  13.0 million in the past business year, also a decrease of 17 % from the previous year (- 26 % compared with the pro-forma basis).

The negative development of the Project Services business results in particular from major customers’ budget reductions, for which we were not able to compensate fully through new business. Our major customers are active in the banking/financial services, media, telecommunications and retail sectors. In particular, these sectors have been and still are especially strongly impacted by the economic downturn and the bursting of the speculative bubble on the international stock markets. Cost-savings and restructuring programmes implented by customers from these sectors led to cancellations or delays in originally planned projects to expand or advance Internet-based IT solutions.

However, not only the decline in the number of projects, but also the further intensification of the pricing situation contributed to the adverse development of sales revenues.

The daily rates effectively realised declined on average by around 10 % to 15 % from the already low level of the past business year.

The quarterly comparison of the Project Service revenues shows that these developments only started to have their full impact at the beginning of 2002. While sales revenues were still at the level of the previous quarter in the first quarter of 2001/2002, revenues fell sharply in the second quarter of SinnerSchrader’s fiscal year, which included the turn of the year. Delays in project decisions and project cancellations in January 2002 were the reasons for this drop. Due to the insolvency of major parts of the Kirch Group in February 2002, with which we had realised considerable sales revenues in the previous year and in the first half of the year under review, additional projects planned by of one of our largest customers for the second half of the fiscal year were cancelled, so that the Project Services once again declined in the third quarter. In the fourth quarter we were able to increase Project Service revenues again in particular through projects with new customers.

Despite the significant decline, we realised 80 % of sales revenues in the Project Service business with our existing customers. On the one hand, this shows that again and again we are able to convince our customers through our solution competence and our service orientation. On the other hand, however, it also shows that we have not progressed far enough in broadening and intensifying of our sales efforts. Only in the second half of 2001/2002 we were successful in winning significant new customers with potential, amongst them DaimlerChrysler and T-Online, which did not contribute fully to sales revenues in the year under review.

The business with services for the planning and implementation of online media campaigns once again decreased considerably in the period under review after the decline already experienced in the previous year. Despite innovative transaction structures, which are based on the success of the respective online campaign and which SinnerSchrader successfully implemented with its customers, the still favourable sales level supported by Christmas campaigns in the first half of the business year could not be maintained during the second half. Here especially, the success in gaining new customers failed to materialise.

The business activities of the services summarised as “Others” were favourable, even though on a low level still. These activities mainly include system management services for Internet-based systems and data analysis services of traffic data, generated by web applications, so-called Web-Mining-Services. Analogous to Media Services, the system man-

17

J O I NT STATU S R E P O RT

agement and Web-Mining services refer to Internet-based systems already in operation. We invested in the development of these service offerings in the previous year in particular, since these services enable us to accompany our customers continuously over the life-cycle of Internet-based solutions and therefore generate higher customer loyalty. In addition, these service offerings also provide opportunities for an alternative entry into a new customer relationship.

The distribution of gross revenues among our sector-oriented Solution Center shows that the Communication & Technology and Travel & Transportation segments were able to increase their share in relation to total sales, while the relative proportion of the other three segments declined. We were only able to realise an absolute increase in sales revenues in the Communication & Technology segment. Overall, a more even allocation of sectorial sales revenues and therefore a broadening of the sales basis resulted.

With regard to individual customer relationships, the concentration of sales revenues remained roughly at last year’s level. While sales to our largest customer declined from 34% (31 % pro-forma) in the previous year to 29 % in the business year 2001/2002, relative sales to our next largest customers increased slightly, so that we realised about 62 % of our sales revenues with our six largest customers, a concentration slightly above previous year’s level. Moreover, the fact that the overall customer structure has improved substantially, since the business with start-ups and new economy customers is of no importance at all, can be seen from the lack of bad debt losses and allowances in the business year 2001/2002.

In the previous year, bad debt allowances had resulted in a burden of  1.1 million.

18

J O I NT STATU S R E P O RT

D E V E LO P M E N T O F R EVE N U E S I NCE F O U N D AT I O N IN € M

19.9 1) OT H E R M E DIA SE RVICES

17.9

P R OJ E CT SE RVICES

14.5

14.7

5.0

1.8 0.7

1996/ 1997

1) pro forma

Q U A R T E R LY D E V E LO P M E N T O F R EVE N U E IN € M

1997/ 1998

1999/ 2000

2000/ 2001

2001/ 2002

OT H E R M E DIA SE RVICES P R OJ E CT SE RVICES

0.1

0.2

0.4

0.7

4.1

4.0

Q4 2000/ 2001

DI STR I B UTION OF R E V E N U E BY SOLUTION CE NTE R S

1998/ 1999

FI NANCIAL SE RVICES

FS

R E TA I L & CONSUMER GOODS

RC

Q1 2001/ 2002

S ME

C O M M U N I CATi O N & T E C H N O LO GY CT T R AV E L & T R A N S P O R TAT I O N TT

TT

0.1

0.2 0.8

0.1

0.1

2.8

0.4 2.4

2.8

Q2 2001/ 2002

Q3 2001/ 2002

Q4 2001/ 2002

3%

ME

9%

TT

5%

S

0.5 %

8%

6.5 %

CT

FS

17.5 %

RC

25 %

39 %

FS CT

37.5 %

27 %

RC

22 %

M E DIA & E N T E R TA I N M E N T ME OT H E R

S

2000/2001

2001/2002

19

J O I NT STATU S R E P O RT

D E V E LO P M E N T O F O P E R AT I N G R E S U LT

Due to the sharp decline in sales revenues and the resulting restructuring requirements, operating earnings before amortisation of intangible assets including the amortisation of goodwill from the Netmatic acquisition – the EBITA – once again deteriorated significantly compared with the previous year by  3.7 million to a loss of  4.3 million. The decrease compared with the EBITA of the pro-forma statements of the previous year is even higher by  0.6 million. Adding the results of the past business years still yields a slightly positive EBITA for SinnerSchrader. However, the amount by which earnings declined clearly shows the burdens SinnerSchrader had to bear in the fiscal year 2001/2002.

As we had already stopped the capacity increase in Germany in the third quarter of the previous year and had also terminated the start-up of the London branch soon afterwards, we were able to achieve, as planned, a nearly balanced EBITA for the first quarter of the year under review with sales revenues already clearly below the level of the preceding year. However, the unexpected sales drop from the second quarter onwards forced us to reduce the forecasts for the business year and to initiate restructuring measures. burdens from restructuring measures Thus, starting in December we reduced human resources in Germany in several steps by nearly 25 % from 243 full-time employees on average in the first quarter of the business year to 182 full-time employees in the fourth quarter, supported by not replacing fluctuations and by applying short-time work in the fourth quarter. Therefore, net sales revenues per full-time employee rose from a low of  49,700 in the third quarter to a level of  64,500 in the fourth quarter once again.

However, this level is not sufficient to lead SinnerSchrader safely back to operating profitability. Since we are currently expecting that the sales revenue levels in the coming quarters will not be substantially above the level of the fourth quarter, we agreed upon additional personnel reductions as of the end of the business year, further burdening the results of the business year 2001/2002. After the complete implementation, the average number of full-time employees will be about 170 as of the second quarter of the current business year. The charge for the personnel adjustments as part of total restructuring charges against EBITA amounted to  0.7 million.

SinnerSchrader had to bear an additional  0.9 million in restructuring charges in the course of the consolidation of its offices in Hamburg and in connection with the leased offices in London after the decision to pull out of this market. Passing on the leases or subletting of the vacated offices was much more problematic than assumed in the forecasts due to the impact of the overall economic development on the commercial real estate market. In the meantime, except for one partial area in Hamburg, all offices were either leased or returned early. All burdens from the respective transactions as well as a provision for all lease obligations for the part not yet leased are included in the financial statement of the business year 2001/2002.

In total, restructuring charges of about  1.6 million were incurred in the period under review, which will relieve the cost basis of SinnerSchrader by more than  3.5 million in the future.

In addition, we terminated operating activities at the Rotterdam and Denver sites during the course of the business year. Until termination of the financing of the companies, operating losses of about  0.2 million in total were incurred in the fiscal year, which are included in the administrative expenses.

20

J O I NT STATU S R E P O RT

D E V E LO P M E N T O F E B I TA S I N C E F O U N D AT I O N IN € M

3.4

1.5

< 0.1

1 9 9 6 /1 9 9 7

0.2

- 0.6

1 997/ 1998

1998/ 1999

1999/ 2000

0.0

1)

2000/ 2001

- 4.3

2001/ 2002

1) pro forma

Q U A R T E R LY D E V E LO P M E N T O F E B I TA IN € M

0.2

Q4 2 0 0 0 /2 0 0 1

T R A N S I T I O N O F E B I TA 2 0 0 0 / 2 0 0 1 TO 2 0 0 1 / 2 0 0 2 IN € M

E B I TA

- 0.1

- 1.7

- 1.3

- 1.2

Q1 2001/ 2002

Q2 2001/ 2002

Q3 2001/ 2002

Q4 2001/ 2002

N ET R EVE N U ES

R E ST R U CT. C O STS

C O ST O F S,G + A1) R + D 2) E B I TA R EVE N U ES EXPE NSES EXPE NSES

- 0.6

- 4.3

+ 0.9

- 2.7

+0.1 - 0.5 - 1.5 2000/2001

2001/2002

1) Selling, general and administrative expenses 2) Research and development expenses

21

J O I NT STATU S R E P O RT

cost of revenues slightly improved, increased sales expenses Due to the capacity adjustments implemented during the course of the business year, the cost of revenues already improved by an absolute amount of  0.9 million compared with the previous year. However, only part of the decline in net sales revenues of  2.7 million was offset resulting in a decrease in the gross profit margin based on net revenues from 30 % to 23 % on an annual basis. Both the drop of the average annual capacity utilisation and the further decline in the prices effectively realised contributed to this decrease.

The selling, general and administrative expenses rose by  0.5 million in total compared with the previous year. This results mainly from the sales expenses, which are reported separately for the first time this year and which amounted to about  1.3 million in the business year 2001/2002. In addition to higher expenses incurred by increased marketing efforts on the level of the sector-oriented Solution Centers, whose heads fulfil sales tasks in addition to their management functions, expenses are included for the first time for a centralised sales and marketing function, which was set up during the course of the business year. In contrast, the administrative expenses were reduced in particular due to the fact that no bad debt losses were recorded during the course of the business year and no allowances for bad debt had to be made as of the balance sheet date. research and development maintained The research and development expenses of the SinnerSchrader Group amounted to a total of  0.2 million in the business year 2001/2002 after about  0.3 million in the previous year. Therefore, the percentage of research and development expenses to net revenues declined only slightly from 1.9 % (1.6 % pro-forma) to 1.6 %. The research and development work was focused on the support and the enhancement of SinnerSchrader’s proprietary software frameworks, object libraries and multiple-use components. In November 2001, an eBusiness Solution Lab was set up by Intel Deutschland at SinnerSchrader for the identification and realisation of cost-saving potential and for the implementation of corresponding performance tests in the area of hardware and infrastructure, which accounts for another part of the research work. In addition, theses were written at SinnerSchrader on application service provider (ASP) models, on Web Mining, and in the field of software ergonomics. Due to SinnerSchrader’s technological requirements, we believe that it is imperative to continue the development of technical competence and solution approaches for the project business even in economically difficult times. extraordinary burdens incurred by netmatic acquisition Due to the rapid deterioration in market conditions, SinnerSchrader’s expectations with regard to the acquisition of Netmatic in the previous business year were not met. The financial difficulties of Netmatic’s largest and most important customer and the migration of an employee team together with the loss of an additional important customer relationship decisive for the acquisition, significantly limited the realisable value from the acquisition. In addition, the integration process was made more difficult due to necessary cost-saving measures. Moreover, the new accounting principles in accordance with US-GAAP regarding the treatment of acquired goodwill necessitated modified write-offs.

As a consequence, we completely wrote off the intangible assets from the acquisition of Netmatic, predominantly the customer base, as of the balance sheet date of these financial statements. The fact that employees of the former Netmatic were also affected by personnel cutbacks, resulted in accelerated amortisation of deferred compensation granted in the course of the acquisition. Both effects caused the operating result reported in the income statement pursuant to US-GAAP to be burdened by about -  1.1 million, an increase of -  0.5 million compared with the previous year.

In accordance with the new US-GAAP regulations regarding the treatment of goodwill,

22

J O I NT STATU S R E P O RT

we had to completely write-off the goodwill in light of the market capitalisation of the SinnerSchrader Group on the date of adoption of the new rules on 1 September 2002, which was significantly below the book value of the equity. The resulting write-off of about  14.7 million had to be reported in the income statement as “effect of a change in accounting principles” below the operating result. Due to the simultaneous suspension of the scheduled amortisation of goodwill, the operating result was relieved by  2.1 million compared with the previous year.

The EBITA and the effects from the Netmatic acquisition resulted in an operating loss of  5.4 million for the business year 2001/2002, which was  1.9 million below last year’s operating result.

FI NANCIAL R E S U LT S , TA X E S A N D N ET I NCOM E

Excluding the extraordinary effect from the one-time adjustment of the valuation of the goodwill at the beginning of the business year, net earnings of the business year 2001/2002 amounted to -  3.2 million. The difference of -  0.7 million to the previous year is significantly smaller than the difference in the operating results. On the one hand, we realised an income of  1.5 million – up by  0.2 million – from the investment of the liquidity reserve. On the other hand, write-offs of investments in start-ups, which had burdened previous year’s results by  0.3 million were avoided. In addition, we were partly able to carry back the losses of the domestic companies of the SinnerSchrader Group to the profit of the previous year, so that tax income in the amount of  0.7 is reported in the income statement of the year under review. In the previous year, the tax expenses amounted to  0.1 million. Deferred tax assets from the losses exceeding the carry-back potential of the domestic companies and the losses of the international subsidiaries were only included up to the amount, which was covered by deferred tax liabilities in the balance sheet.

With regard to the outstanding shares, a loss of -  0.28 before the effect of changes in accounting principles results in comparison with -  0.23 (-  0.30 pro forma) in the previous year. Including the effect of the first-time application of the new accounting standard regarding goodwill, the net loss amounted to -  17.9 million in 2001/2002, which corresponds to an amount of -  1.55 per share.

M O D E R AT E CAS H CON S U M PTION

Despite the considerable burdens from the unsatisfactory business development, the cash used in operating activities only amounted to around  0.3 million. Besides the facts that essential parts of the net loss are due to depreciation and write-offs and that significant accruals were recorded from restructuring charges which will lead to future cash consumption, the success in the working capital management especially with regard to the management of accounts receivable contributed to the relatively small amount of cash used in operating activities.

Adjusted for the increase in the investment of liquid funds in marketable securities, which impacts the cash flow from investing activities through the balance of additions and disposals of marketable securities, the cash used in investing activities amount to about  1.1 million. The major share relates to investments in fixed assets, in an amount mainly determined by the refurbishment and equipment of the new office in Hamburg. In addition, we invested in the expansion of our business management systems. About  0.1 million of the investments were recorded in connection with a supplementary payment and increased transaction expenses for the acquisition of Netmatic.

In view of the SinnerSchrader stock’s trading significantly below book value, the management made use of its authorisation to buy-back own shares and bought 86,227 own shares on the market in view of future acquisitions and for the performance of supplementary payment obligation for the acquisition of Netmatic. About  0.1 million was paid in cash for the share purchase.

23

J O I NT STATU S R E P O RT

Together with the effect of changes in unrealised gains, the amount of liquid funds and marketable securities, which make up the liquidity reserve of SinnerSchrader, declined from  29.3 million at the end of the previous year to  27.5 million at the end of the business year 2001/2002.

BALANCE S H E ET STR UCTU R E S R E MAI N SOU N D

24

The write-off of intangible assets and goodwill from the Netmatic acquisition significantly shortened the balance sheet overall without considerably deteriorating the balance sheet structures. The corresponding reduction in fixed assets on the asset side is on the liabilities side set against a reduction in shareholders’ equity as well as of the amount to settle the second purchase price payment to the sellers of Netmatic reported as a short term liability in last year’s balance sheet.

As of 31 August 2002, the equity ratio amounted to nearly 89 % (previous year: 82 %) and is thus still high. Due to the settlement of the second purchase price payment for Netmatic at the end of 2001, short-term liabilities decreased by around  5.1 million. In addition, the increase in accruals and accounts payable was more than offset by a significant decline in liabilities to tax authorities.

As of 31 August 2002, the share of the liquidity reserve to total assets amounted to nearly 79 % (previous year: 55 %). The liquidity reserve is invested in time deposits, money market or similar funds, short-term commercial papers as well as corporate bonds with an investment-grade. The duration of the total investment is nearly unchanged at less than one year. The accounts receivable declined by around  2.0 million to  2.3 million compared with the previous year due to the success in the receivables management and the lower business volume; this is set against a slight increase in unbilled services of  0.5 million to  0.9 million as of the balance sheet date.

The future liabilities from rent and lease payments, which are not reported in the balance sheet, were reduced from  7.8 million to  4.8 million, due among others to the solving of the problem of unused space in the vacated offices, in particular in the course of the restructuring measures. Companies of the SinnerSchrader Group are defendants in several lawsuits still pending in connection with the delivered notices of cancellation during the course of the year. Although SinnerSchrader deems the claims of the respective opponents in the lawsuits as unjustified, SinnerSchrader formed provisions for potential claims in the financial statements 2001/2002 for those cases, where the probability of an unfavourable outcome is sufficiently high.

J O I NT STATU S R E P O RT

BALANCE S H E ET STR UCTU R E IN € M

ASSETS

TO TA L S H A R E H O L D E R S ’ EQUITIES AND LIABILITIES 2.1

17.0

7.6 NON-CU R R E NT AS S E TS

AC C R U E D EXPENSES CU R R E NT LIAB I LITI E S

43.6

OT H E R CU R R E NT AS S E TS

2.1

2. 2

7.0

1.9

5.3

31.0 29.3

27.5 S HAR E H O LD E R S’ EQU ITY

LIQU I D FU N DS AN D S H O R T-T E R M I N V E S T M E N TS

31.08.2001

E M P LOY E E S

BY F U N C T I O N

31.08.2002

31.08.2001

40 C O N S U LT I N G

26 EXPERIENCE D E S I G N 1)

34 140 24 94

ENGINEERING

BUSINESS M A N AG E M E N T SE RVICES C O M PA N Y SE RVICES

12

13

41

40

2)

1) include 2 trainees respectively 2) include 6 and 8 trainees respectively

31.08.2001

31.08.2002

25

J O I NT STATU S R E P O RT

H U MAN R E SOU RCE S

R E DUCTION OF TH E MANAG E M E NT BOAR D

The negative business development required a considerable adjustment of employee capacities in the business year 2001/2002. Due to the measures implemented until the end of the business year as well as the non-replacement of fluctuations, the number of employees decreased from 259 at the end of the previous year to 205 at the end of the business year 2001/2002. The reduction in the workforce was focused on the engineering function, which was most affected by the decline in revenues and whose capacity had to be reduced by one third. In particular, employees of the Media & Entertainment Solution Center which was hit by the financial difficulties of the Kirch Group were impacted.

In view of the possibility of a more rapid recovery of sales, we registered for short-time working in the fourth quarter to avoid additional lay-offs. Since no significant recovery of the market and competitive environment was visible at the end of the business year, however, we laid off additional employees as of 31 August 2002. Due to this measure, the number of employees will probably be reduced to 170 employees as of the beginning of the second quarter of the current business year. Despite the substantial reductions especially in the “Engineers” function, this employee group is still the largest within SinnerSchrader with a share of 46 %. We are fully meeting our obligations in connection with apprenticeship agreements. As of 31 August 2002, 10 apprentices were employed.

The personnel cutbacks during the course of the business year resulted in understandable uncertainty amongst the employees. At the request of the majority of the employees, the Management Board committed itself to follow agreed rules for a constructive co-operation with representatives elected by the employees. Through this, we were able to form a trusting basis for the co-operation with the workforce, despite all the burdens from the current situation.

In the summer of 2002 Mr. Oliver Sinner and the Supervisory Board of SinnerSchrader AG reached a mutual agreement in the course of the talks regarding the prolongation of the appointments of the members of the Management Board at Mr. Sinner’s request, that he resigns from the Management Board of the Company by the end of the business year 2001/2002 and that the reduced Management Board will manage the AG and the Group under the sole chairmanship of Mr. Schrader.

iv. development and position of the ag SinnerSchrader AG (“AG”) is the management holding company of the SinnerSchrader Group. SinnerSchrader AG shares have been traded on the Neuer Markt of the Frankfurt Stock Exchange since 2 November 1999.

The business activities of SinnerSchrader AG centre around the management of the wholly owned subsidiaries, the central handling of administrative tasks for the Group, the facility management, the administration and control of the Group’s liquidity, the management of other equity interests and the performance of central Group functions.

From the performance of management functions for the subsidiaries and from the renting of office space to them, the AG generated revenues of  2.1 million (previous year:  1.4 million). The increase compared with the previous year is attributable to the further centralisation of administrative functions as well as the facility management after the consolidation of the office situation in Hamburg. The other operating income mainly stems from disposals of marketable securities in the course of the central liquidity management of the Group.

Owing to profit and loss transfer agreements with subsidiaries concluded in October 2000, the AG received an income of  0.8 million (previous year  0.2 million) from SinnerSchrader Deutschland GmbH on 31 December 2001.

26

J O I NT STATU S R E P O RT

From investing liquid funds, the AG generated interest income amounting to around  1.2 million in addition to the gains from the sale of marketable securities amounting to  0.2 million. Further interest income came from the financing of Group companies in connection with the administration of a central cash pool. This is also where most of the interest and similar expenses occurred, which in addition mainly included fees for bank guarantees for leases.

Personnel expenses of  1.6 million (previous year:  1.4 million), write-offs of  0.5 million (previous year:  0.1 million) and other operating expenses of  2.6 million (previous year:  2.0 million) were set against this income. The rise in personnel expenses is attributable to transfers of personnel from subsidiaries in connection with the further centralisation of administrative functions and new hirings in connection with the introduction of our own accounting system during the business year. The increase in depreciation and other operating expenses is due to the investments in refurbishment and fitting of the new office space and the assumption of lease obligations for the mutual office space by the AG, which is set against a rise in revenues from renting activities.

The income statement of the AG in the business year 2001/2002 is characterised by write-offs on investments in the amount of  16.7 million. Due to the significant deterioration of market valuations of companies in the sector, in which SinnerSchrader Deutschland GmbH is active, and which results in the AG’s stock trading below the book value of its assets on the basis of the current share price, SinnerSchrader AG deems the value of its 100 % participation permanently impaired and accounted for this fact with the reduction of the book value of the participation by  16.7 million to  8.0 million. In addition, a further small amount was attributed to the complete write-off of the participation in SinnerSchrader Benelux BV after the termination of the local business operations.

The AG will perform a loss carry-back to the previous business year for the tax loss remaining after excluding all revenues and expenses non-relevant for tax purposes and included the resulting tax refund claim at the amount of around  0.2 million as tax income in the income statement.

In total, a net loss at the amount of  16.7 million resulted, which is after the allocation of retained earnings completely covered by means of a withdrawal from the capital reserve amounting to  16.2 million.

Due to the considerable write-off of the participations, which is set against a reduction of the capital reserve through the performed withdrawal to offset the occurred net losses, the balance sheet of the AG has shortened considerably in total. In addition to the adjusted values for the participations in associated companies, the assets are mainly composed of the liquid funds and marketable securities in the amount of  27.3 million (previous year:  28.8 million). Through the investments in the refurbishment and equipment for the new office space in Hamburg, fixed assets increased to  1.4 million (previous year:  0.9 million). The other assets of  1.8 million (previous year:  2.5 million) mainly include income tax refund claims. Receivables from associated companies amounted to  2.4 million (previous year:  1.2 million) as of 31 August 2002.

Even after the withdrawal from the capital reserves to offset the net loss the equity and liabilities side is still dominated by shareholders’ equity amounted to around  40.0 million (previous year:  53.7 million) as of 31 August 2002. Provisions and short-term liabilities amounted to  0.4 million and  0.8 million, respectively.

Against the background of the other reserves of  1.3 million, which were formed in the previous years, the AG started to buy back its own shares to a limited extent on the market in June. The AG acquired 86,227 own shares by the balance sheet date. They are presented as assets with a value of  0.1 million at the balance sheet date. A corresponding amount was formed as a reserve for treasury stock through a reduction of other reserves.

27

J O I NT STATU S R E P O RT

v. risks of future business The future business development of SinnerSchrader is subject to risks which could negatively affect its earnings and financial position or could mean that SinnerSchrader fails to achieve the goals of future business development. The Management Board of SinnerSchrader AG considers it one of its key tasks to continuously evaluate the risks with regard to their possible impact on earnings and financial position and the probability of their occurrence, and also to define measures to limit these risks.

The scope of risk changed only marginally in the past fiscal year. In particular, these risks are associated with the general economic developments, the intensification of competition in view of reduced growth expectations, the rapid rate of technological change as well as the relatively brief business history of SinnerSchrader. For the most part, but not exclusively, they relate to the following: ECONOM IC RISKS

COM PETITION

O P E R AT I N G RISKS

28

The general economic trend influences the volume of investment in Internet-based communication and transaction solutions, outlays for online advertising and related services. A further deterioration in the economic environment could distinctly reduce the market volume addressed by SinnerSchrader – in terms of quantity and price. The capacity reduction measures necessary to respond to such a development could only be taken with a certain time-lag and would lead to additional costs for restructuring measures.

The competition in the market for Internet-based communication and transaction systems has constantly increased in the past years. In particular, IT service providers are now active in this market, offering a broader range of services than SinnerSchrader and partly disposing of longer-term and better established customer relationships. As a specialised provider without the ability of temporary cross-subsidies, the future development of SinnerSchrader depends strongly on SinnerSchrader’s success in realising market-adequate prices for its services.

SinnerSchrader generates 30 % of its revenue with one client; five additional customers account for about 33 % of sales. A loss of business with one of these clients could only be compensated, if at all, after a time-lag during which it would not be possible to reduce costs correspondingly.

Because revenues in the business conducted by SinnerSchrader are not secured by longterm contracts and generally arise on the basis of single orders with a limited time horizon, sales forecasts are therefore subject to a high degree of uncertainty. The order backlog is below the level in recent year’s in particular due to the increasing trend of SinnerSchrader’s customers to subdivide orders in today’s environment.

In the course of project work for its clients, SinnerSchrader in some cases does a large amount of work in advance without receiving corresponding advance payments. The inability or unwillingness of individual clients to pay bills for services already provided could have a negative impact on the financial position of SinnerSchrader.

SinnerSchrader generates a considerable part of its revenue under fixed-price agreements. Due to the complexity and the highly technical requirements, the originally calculated costs may be exceeded, which could result in unforeseen losses. In addition, under project contracts SinnerSchrader takes on customary warranty and liability obligations from which considerable consequential costs could result for individual projects.

SinnerSchrader’s projects implemented for well-known customers are exposed to considerable publicity effects. Quality deficiencies in work delivered could therefore lead to negative publicity which could negatively affect the ability of SinnerSchrader to sell its services and consequently significantly impair the future development of business.

J O I NT STATU S R E P O RT

PE RSON N E L RISKS

SinnerSchraderâ&#x20AC;&#x2122;s success depends strongly on the qualifications and motivation of its employees. In this context, some key employees are particularly important. If SinnerSchrader does not manage to tie these employees to the company and to constantly win new qualified employees for SinnerSchrader, its success could be significantly adversely affected due to the loss of know-how.

AC QU I S ITION RISKS

In the past, SinnerSchrader acquired one company through an acquisition and plans to do so in the future as well. The success of acquisitions mainly depends on the successful integration into the existing organisation and the realisation of synergies. A failure of the integration efforts could result in a significant reduction in the value of the acquired company and require consequential extraordinary write-offs.

T E C H N O LO G I C A L RISKS

The market for Internet-based communication and transaction systems is characterised by a rapid rate of change with regard to the basic technologies used and a still low level of standardisation. SinnerSchraderâ&#x20AC;&#x2122;s future market success depends on its ability to maintain an adequate level of technological competence in view of high training costs with limited resources and to avoid technological dead ends.

vi. outlook The market for IT and Internet services has been in a difficult state for the last two years, which matches the overall negative economic environment. Again and again, there were speculations as to whether the bottom had been reached or whether there was any light at the end of the tunnel during the past two years. On the basis of our own experience in the past months, we are not able to detect either of them and therefore expect a continuation of the difficulties during the business year 2002/2003, which accompanied us in 2001/2002: hesitant project decisions, subdivision of orders, fierce competition for the projects on the market as well as a strong position for customers to enforce their desired prices and conditions.

Therefore, we expect a flat trend in sales in the business year 2002/2003. We are aware that the achievement of that target depends as much on the consistent continuation of the activation and broadening of our sales and marketing activities, as on the relationship to our existing customers by providing innovative solutions and maintaining the quality and reliability of our services, and on our conceptual and technological leadership, in what SinnerSchrader stands for: Internet-based communication and transaction applications, which distinguish themselves through high user acceptance and high use efficiency. Therefore, sales and marketing, customer relationships and employee qualification are the main areas of activities in order to stabilise sales revenues at the level of the business year 2001/2002.

With the cost-saving measures implemented in 2001/2002 we reduced the cost base for the current business year to an extent that enables us to break even on an operating level with stable sales. We are committed to this goal.

29

30

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S O F S I N N E R S C H RAD E R AG

31

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C O N S O L I D AT E D B A L A N C E S H E E T S as of 31 August 2002 and 31 August 2001 >

ASS ETS

Current assets: Cash and cash equivalents Short-term investments/marketable securities Accounts receivable, net of allowances for doubtful accounts of  566,586 and  598,927, respectively

>

LIAB I LITI E S AN D S HAR E HOLDE R S’ EQU ITY

Unbilled revenues Prepaid expenses and other current assets Total current assets Non current assets: Property and equipment, net Intangible assets, net Investments Goodwill, net Total non current assets Total assets Current liabilities: Trade accounts payable Advance payments received Accrued expenses Income tax payable Deferred tax liabilities Purchase price payable Deferred income and other current liabilities Total current liabilities

31.08.2002

31.08.2001

in €

in € 1)

1,451,285 26,013,507

3,996,452 25,286,422

2,326,310

4,361,090

983,923 2,074,488 32,849,513

466,678 2,237,691 36,348,333

2,176,119 – – – 2,176,119 35,025,632

1,849,303 1,241,076 4,107 13,894,398 16,988,884 53,337,217

1,180,041 91,002 1,766,616 334,523 – – 668,241 4,040,423

695,464 – 853,927 1,295,839 433,836 5,087,331 1,360,484 9,726,881

Commitments and contingencies (note III f) Shareholders’ equity Common stock par value  1, issued: 11,542,764 and 10,412,246, outstanding: 11,456,537 and 10,412,246 as of 31.08.2002 and 31.08.2001, respectively

11,542,764

10,412,246

Additional paid-in capital

37,355,960

33,399,147

Treasury stock 86,227 and 0 as of 31.08.2002 and 31.08.2001, respectively

>

Retained earnings/accumulated deficit Accumulated other comprehensive income/loss Deferred compensation Total shareholders’ equity Total liabilities and shareholders’ equity

- 140,820

–

- 17,723,812 57,786 - 106,669 30,985,209 35,025,632

176,865 252,558 - 630,480 43,610,336 53,337,217

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

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

32

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C O N S O L I D AT E D S TAT E M E N T S O F O P E R AT I O N S for the fiscal years 2001/2002 and 2000/2001

Revenues: Project services Media services Other Total revenues, gross Media costs Total revenues, net Cost of revenues Gross profit/loss Selling and marketing expenses General and administrative expenses Research and development expenses Restructuring and other related costs Amortisation and impairment of intangible assets Amortisation of goodwill Amortisation of deferred compensation Operating income/loss Other income/expense Interest income and expenses Income from investments and participations Result before provision for income tax Provision for income tax >

>

Net income/loss before cumulative effect of changes in accounting principles

2001/2002

2000/2001

in €

in € 1)

11,894,517 2,010,782 638,528 14,543,827 - 1,560,658 12,983,169 - 10,029,417 2,953,752 - 1,297,818 - 4,140,188 - 202,409 - 1,617,767 - 553,900 – - 523,811 - 5,382,141 24,274 1,488,223 - 4,107 - 3,873,751 675,800

14,528,134 2,978,713 428,263 17,935,110 - 2,274,814 15,660,296 - 10,968,153 4,692,143 - 527,085 - 4,379,572 - 309,851 - 163,613 - 281,551 - 2,111,380 - 331,269 - 3,412,178 56,483 1,327,746 - 278,154 - 2,306,103 - 146,266

- 3,197,951

- 2,452,369

- 14,702,726 - 17,900,677

– - 2,452,369

Net income/loss per share before cumulative effect of changes in accounting principles (basic)

- 0.28

- 0.23

Net income/loss per share before cumulative effect of changes in accounting principles (diluted)

- 0.28

- 0.23

Cumulative effect of changes in accounting principles per share (basic)

- 1.27

–

Cumulative effect of changes in accounting principles per share (diluted)

- 1.27

–

Net income/loss per share (basic) Net income/loss per share (diluted)

- 1.55 - 1.55

- 0.23 - 0.23

11,532,500 11,532,500

10,735,308 10,735,308

Cumulative effect of changes in accounting principles Net income/loss

Weighted average shares outstanding (basic) Weighted average shares outstanding (diluted)

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

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

33

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C O N S O L I D AT E D S TAT E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y for the fiscal years 2001/2002 and 2000/2001

>

NUMBER OF SHAR ES OUTSTAN DI NG

NOM I NAL VALU E in €

ADDITIONAL PAI D-I N CAPITAL in €

9,975,000

9,975,000

21,103,790

Net income/loss

–

–

–

Unrealised gains on available-for-sale securities, net of tax

–

–

–

Foreign currency translation adjustment, net of tax

–

–

–

437,246

437,246

12,295,357

–

–

–

10,412,246

10,412,246

33,399,147

Net income/loss

–

–

–

Unrealised gains on available-for-sale securities, net of tax

–

–

–

Foreign currency translation adjustment, net of tax

–

–

–

1,130,518

1,130,518

3,956,813

– - 86,227

– –

– –

11,456,537

11,542,764

37,355,960

Balance as of 31.08.20001)

First instalment of common stock issued for acquisition of Netmatic Amortisation of deferred compensation >

Balance as of 31.08.20011)

Second instalment of common stock issued for acquisition of Netmatic Amortisation of deferred compensation Purchase of treasury stock >

Balance as of 31.08.2002

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

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

34

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

TR EASU RY STOCK in €

DE FE R R E D COM PE NSATION in €

R ETAI N E D EAR N I NGS in €

ACCU M U LATE D OTH E R COM PR E H E NSIVE I NCOM E in €

TOTAL SHAR EHOLDE R S’ EQU ITY in €

COM PR E H E NSIVE I NCOM E in €

–

–

2,629,234

90,604

33,798,628

2,058,667

–

–

- 2,452,369

–

- 2,452,369

- 2,452,369

–

–

–

145,163

145,163

145,163

–

–

–

16,791

16,791

16,791

–

- 961,750

–

–

11,770,853

–

–

331,270

–

–

331,270

–

–

- 630,480

176,865

252,558

43,610,336

- 2,290,415

–

–

- 17,900,677

–

- 17,900,677

- 17,900,677

–

–

–

- 230,579

- 230,579

- 230,579

–

–

–

35,807

35,807

35,807

–

–

–

–

5,087,331

–

– - 140,820

523,811 –

– –

– –

523,811 - 140,820

– –

- 140,820

- 106,669

- 17,723,812

57,786

30,985,209

- 18,095,449

35

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C O N S O L I D AT E D S TAT E M E N T S O F C A S H F LO W S for the fiscal years 2001/2002 and 2000/2001 2001/2002

2000/2001

in €

in € 1)

Cash flows from operating activities: Net income/loss Cumulative effect of changes in accounting principles

- 17,900,677 14,702,726

- 2,452,368 –

Net income/loss before cumulative effect of changes in accounting principles

- 3,197,951

- 2,452,368

Depreciation of property and equipment Amortisation of intangible assets and goodwill Stock-based compensation Write-down on investments Bad dept expense Losses/gains on the disposal of fixed assets

676,302 553,900 523,811 4,107 – 70,079

416,696 2.392,931 331,270 278,153 1.142.067 24,609

Losses/gains on disposal of marketable securities (available-for-sale)

- 166,071

- 292,026

- 274,175 35.917

- 74,177 –

2,034,780 - 517,245 163,203 - 186,292 - 961,316 912,689 - 328,262

192,252 392,197 - 572,693 26,581 - 1,366,695 170,273 609,070

- 51,523 – - 43,925,862 42,967,450 - 1,125,499 52,259 - 2,083,175

- 1,471,597 - 209,029 - 33,428,064 39,663,269 - 1,500,842 24,360 3,078,097

- 140,820 - 140,820 7,090 - 2,545,167 3,996,452 1,451,285

– – 19,302 3,706,469 289,983 3,996,452

5,087,331

12,732,604

Adjustments to reconcile net income/loss to net cash provided by (used in) operating activities:

>

>

>

Deferred tax provision Other non cash expense/revenue Changes in assets and liabilities: Accounts receivable Unbilled revenue Other current assets and prepaid expenses Accounts payable, deferred revenues and other liabilities Income taxes payable Other accrued expenses Net cash provided by (used in) operating activities Cash flows from investing activities: Acquisition of subsidiaries, net of cash acquired Purchase of investments Purchase of short term investments Proceeds from sale of short term investments Purchase of property and equipment Proceeds from sale of equipment Net cash provided by (used in) investing activities Cash flows from financing activities: Payment for treasury stock Net cash provided by (used in) financing activities Net effect of currency translation in cash and cash equivalents Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplementary disclosures of non-cash financing activities Common stock issued for acquisition of Netmatic

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

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

36

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

N OT E S TO T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S F O R TH E F I S CAL YEAR 2001/2002 i. organisation and operations of the sinnerschrader group As of 31 August 2002 the SinnerSchrader Group (“SinnerSchrader” or “Group”) consisted primarily of SinnerSchrader Aktiengesellschaft (“SinnerSchrader AG” or “Company”) and its wholly owned subsidiary SinnerSchrader Deutschland GmbH (“SinnerSchrader DTL”), both registered in Germany with offices in Hamburg (headquarters) and Frankfurt am Main. SinnerSchrader DTL was formed through the merger of all of SinnerSchrader AG’s former wholly owned domestic subsidiaries SinnerSchrader Interactive Marketing GmbH, SinnerSchrader Interactive Software GmbH and SinnerSchrader Netmatic GmbH with retroactive effect from 1 January 2001. In addition, the wholly owned foreign subsidiaries SinnerSchrader UK Limited (“SinnerSchrader UK”), SinnerSchrader Benelux BV (“SinnerSchrader BV”) and Netmatic Inc. (“NM Inc”) form part of the Group. All three companies had ceased their operating activities, at least temporarily, by the end of 2001.

SinnerSchrader Interactive Marketing GmbH and SinnerSchrader Interactive Software GmbH were founded as limited liability companies in February 1997 and December 1997, respectively. In August 1999, SinnerSchrader AG was formed as stock corporation with the aim of functioning as a corporate holding company. As part of the formation of SinnerSchrader AG the shareholders of SinnerSchrader Interactive Marketing GmbH and SinnerSchrader Interactive Software GmbH contributed their interest in these companies to a capital increase of SinnerSchrader AG for 6,000,000 no-par value ordinary shares of Sinner-Schrader AG with a nominal value of  1 per share. Parallely, an outside investor purchased a total of 1,500,000 no-par value ordinary shares in SinnerSchrader AG with a nominal value of  1 per share for a total cash contribution of DM 4 million ( 2,045,168).

On 1 November 1999, SinnerSchrader issued 2,475,000 no-par value ordinary shares of SinnerSchrader AG with a nominal value of  1 per share in an initial public offering. Since then, the SinnerSchrader share has been listed on the Neuer Markt in Frankfurt, Germany.

SinnerSchrader Netmatic GmbH (formerly Netmatic Internet/Intranet Solutions GmbH, “Netmatic”) together with its wholly owned subsidiary NM Inc. was acquired on the basis of a purchase agreement signed on 18 September 2000 for a purchase price of DM 3,000,000 ( 1,533,876) in cash and 1,567,764 in no-par value ordinary shares of SinnerSchrader AG with a nominal value of  1 per share. After necessary shareholder approval was given at the annual shareholders’ meeting on 12 December 2000 the transaction was consummated in January 2001.

SinnerSchrader is a leading provider of IT-technology consulting, implementation and management services specialising in Internet-based, user-centric software applications that help its clients to better build, manage, and maintain their relationship with customers, employees, and business partners. With its services, SinnerSchrader primarily targets large corporate clients. The services include eBusiness strategy consulting, user experience design and user-centric interface development, Internet-based software and systems implementation and integration, solution management and maintenance, web data mining services as well as online media campaign planning and management.

SinnerSchrader is subject to a number of risks, including but not limited to, operating in a new and rapidly evolving market, competition from larger, more-established companies, dependence on key personnel and key clients, failure to meet fixed price and fixed time commitments, inability to adjust cost to declines in demand and a limited operating history.

The Group’s financial results for the fiscal year 2001/2002 declined substantially compared to previous fiscal years due to a significant decrease in demand for its services, intense price competition, and the insolvency of a major client. As consequence of the

37

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

sequential decline in quarterly revenues, SinnerSchrader reduced its workforce in December 2001, January 2002 and August 2002, stopped investing in the build-up of foreign operations, and consolidated its facilities to better align its cost-base to a reduced revenue level.

Despite the use of cash during fiscal 2001/2002, SinnerSchrader’s liquidity position (cash, cash equivalents, short-term investments) as of 31 August 2002 was at  27.5 m. The Company believes that the Group’s existing liquidity position will be sufficient to meet its future working capital and capital expenditure requirements.

ii. summary of significant accounting policies A. BAS I S OF FI NANCIAL S TAT E M E N T S

The consolidated financial statements have been prepared according to United States generally accepted accounting principles (US-GAAP). They include the accounts of SinnerSchrader AG and its wholly owned subsidiaries SinnerSchrader DTL (together with its subsidiary NM Inc.), SinnerSchrader UK, and SinnerSchrader BV. All significant intercompany transactions and balances between the companies have been eliminated. The accounts have been prepared after making necessary adjustments to the companies’ books and records that are maintained in accordance with respective local GAAPs, most prominently the German Commercial Code.

All references in the Notes to Consolidated Financial Statements to the periods “2001/2002” and “2000/2001” refer to the periods from 1 September 2001 to 31 August 2002 and from 1 September 2000 to 31 August 2001, respectively.

B . U S E O F E S T I M AT E S

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

C. CHANG E OF R E PORTI NG C U R R E N CY A N D F O R E I G N C U R R E N CY T R A N S L AT I O N S

Beginning 1 September 2001, the Company and its domestic subsidiary changed their reporting and functional currency from “Deutsche Mark (DM)” to “Euros ()” in preparation for the adoption of the Euro as local currency in Germany on 1 January 2002.

Amounts for dates and periods prior to 1 September 2001 were translated from Deutschmarks to Euro using the fixed exchange rate of DM 1.95583/.

The functional currencies of SinnerSchrader’s subsidiaries outside the Euro-zone, the group of European countries that adopted the Euro as their currency are the local currencies. The financial statements of these subsidiaries are translated to Euro using period-end rates of exchange for assets and liabilities and average rates during the period for revenues, cost of revenues and expenses. Translation gains and losses are accumulated and reported as a component of shareholders’ equity under “accumulated other comprehensive income/loss”.

Transaction gains and losses are reported in the consolidated statements of operations.

D . FA I R VA L U E O F FI NANCIAL I N STR U M E NTS

E . C O N C E N T R AT I O N O F CR E DIT R I S K AN D S IG N IF I C A N T C U S TO M E R S

38

SinnerSchrader’s financial instruments, including cash equivalents, accounts receivable, accounts payable, are carried at amounts that approximate fair value. Marketable securities are carried at their fair value.

SinnerSchrader extends credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts.

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

Net receivables from and unbilled services to significant customers as a percentage of total net receivables and unbilled revenues were as follows:

Customer A Customer B Customer C Customer D Customer E Customer F

31.08.2002

31.08.2001

14 % 12 % 11 % 11 % 10 % 1%

– 33 % – 8% – 13 %

Gross sales to significant customers as a percentage of total gross revenues were as follows:

Customer B

2001/2002

2000/2001

29 %

34 %

With effect from 1 July 2002, a member of SinnerSchrader AG’s Supervisory Board was appointed CEO of customer D. Gross sales to customer D amounted to 8 % and 5 % in 2001/2002 and 2000/2001, respectively. Furthermore, SinnerSchrader realised approximately 3 % and 5 % of total revenues in 2001/2002 and 2000/2001, respectively, with a customer whose general manager is Chairman of the Company’s Supervisory Board. Outstanding receivables from and unbilled services to that customer were 0 % and 2 % as of 31 August 2002 and 31 August 2001, respectively.

In the fiscal year 2000/2001 SinnerSchrader recognised approx. 2% of total revenues from services provided to related parties in which the Company has non-controlling equity interests. In fiscal 2001/2002 SinnerSchrader did not realise any revenue with these companies.

F. P R O P E R T Y A N D EQU I PM E NT

G. GO ODW I LL AN D OT H E R P U R C H A S E D I N TA N G I B L E S

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally three to thirteen years. Depreciation expense is included in cost of revenues and operating expenses.

In June 2001, the Financial Accounting Standard Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets”. SinnerSchrader chose to early adopt the new standards set forth in those statements as from the beginning of its fiscal year 2001/2002 on 1 September 2001.

Based on the new rules of SFAS No. 141 and SFAS No. 142, SinnerSchrader performed the following tasks as on the adoption date 1 September 2001 with respect to its only acquisition of Netmatic consummated in January 2001:

>

Examination of purchase price allocations with respect to identifiable intangible assets: as a result, the book value of the acquired assembled work force of  687,176, as of 1 September 2001, was reclassified from intangible assets to goodwill upon adoption. No other intangible assets were identified in the course of the analyses than were identified in the original purchase price allocation.

>

Examination of the classification of and related amortisation period of identified intangible assets: as a result, none of the identified intangible assets was classified as having an indeterminable useful life.

39

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

>

Suspension of the scheduled straight-line amortisation of goodwill as from 1 September 2001 and test of the goodwill for impairment: as a result, the entire book value of goodwill was determined to be impaired and consequently the book value was adjusted to nil (refer to note III b). Pursuant to SFAS No. 142, the impairment charge due to the initial impairment test of  14,702,726 is shown under “Cumulative effects of changes in accounting principles”.

Prior to adoption of SFAS No. 142 goodwill and other intangible assets were evaluated for impairment under SFAS No. 121 (refer to III h).

As required by SFAS No. 142, the following tables show what reported net income/loss and net income/loss per share would have been in all periods presented in the financial statements exclusive of amortisation expense related to goodwill and intangible assets that are no longer being amortised and considering changes in amortisation periods for intangible assets that will continue to be amortised net of any related tax effects:

Reported net income/loss before cumulative effects of changes in accounting principles

2001/2002

2000/2001

in €

in €

- 3,197,951

- 2,452,369

Add-back: Goodwill amortisation

–

2,111,380

Add-back: Amortisation of intangible assets that are no longer amortised (workforce subsumed into goodwill)

–

196,336

- 3,197,951

- 144,653

2001/2002

2000/2001

in €

in €

Adjusted net income/loss before cumulative effects of changes in accounting principles

Per share amounts, basic and diluted:

Reported net income/loss before cumulative effects of changes in accounting principles

- 0.28

- 0.23

Add-back: Goodwill amortisation

–

0.20

Add-back: Amortisation of intangible assets that are no longer amortised (workforce subsumed into goodwill)

–

0.02

- 0.28

- 0.01

Adjusted net income/loss before cumulative effects of changes in accounting principles H . I M PA I R M E N T O F LO N G - L I V E D A S S E T S

40

SinnerSchrader periodically evaluates the recoverability of the carrying amount of its long-lived assets in accordance with SFAS No. 121 “Accounting for the Impairment of LongLived Assets and for Long-Lived Assets to be Disposed of”. Whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable, the Company will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the assets, the Company will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. During the period ended 31 August 2002, SinnerSchrader recorded impairment charges of  316,514 with respect to intangible assets acquired as part of the acquisition of Netmatic (refer to note III b). Apart from this no other impairment charges were recognised in the periods ended 31 August 2002 and 31 August 2001 other than for impairment of investments referred to under i.

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

AMORTISE D COST

U N R EALISE D LOSSES

in €

U N R EALISE D GAI NS in €

11,011,922 14,996,474 26,008,396

30,580 5,000 35,580

- 3,925 - 26,544 - 30,469

– – –

11,038,577 14,974,930 26,013,507

4,107 4,107

–

– –

- 4,107 - 4,107

–

–

AMORTISE D COST

U N R EALISE D LOSSES

I M PAI RM E NT

R ECOR DE D BASIS

in €

U N R EALISE D GAI NS in €

in €

in €

24,891,070 24,891,070

399,381 399,381

- 4,029 - 4,029

25,286,422 25,286,422

Convertible bond and embedded option

63,231

–

Equity interest Loan to equity investee Total investments

167,900 51,129 282,260

– – –

I. I NVE STM E NTS

31.08.2002

Money market funds Corporate debt securities Total short-term investments Convertible bond and embedded option Total investments

31.08.2001

Money market funds Total short-term investments

I M PAI RM E NT

in €

R ECOR DE D BASIS in €

– - 59,124 – - 167,900 – - 51,129 – - 278,153

–

4,107 – – 4,107

SinnerSchrader’s short-term investments consist of marketable debt securities or marketable fund certificates of money market funds and funds which themselves invest in debt securities that it holds available to sell at its discretion to cover any cash requirement. As of 31 August 2002 all marketable securities had contractual maturities of less than two years. In accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”, SinnerSchrader has categorised these marketable securities as “available-for-sale”. Consequently, they are carried on the balance sheet at their fair market value. Unrealised holding gains or losses are included as a separate component of shareholders’ equity, net of tax. The Company evaluates its short-term investments for other than temporary impairment on a security by security basis and would realise impairment losses to the extent the fair value is below original cost if the decline is deemed to be other than temporary (generally 9 months). The Company had no other than temporary impairments for the year ended 31 August 2002 and 2001.

SinnerSchrader’s investments consisted of non-controlling equity interests, convertible securities and loans. The investments were accounted for under the cost method. SinnerSchrader assessed the fair market value of its cost-based investments and recognised any identified impairment.

SinnerSchrader received the convertible bond in exchange for services in 1999. Due to severe economic difficulties of the issuer of the bond, SinnerSchrader considers both the embedded option as well as the debt security as impaired. In prior years the fair value of the embedded option was calculated on the basis of the Black-Scholes model, and the debt security was accounted for at par. The decrease in the fair value of the convertible bond was recorded against earnings in fiscal years 2001/2002 and 2000/2001. The Group recorded any interest income related to this bond on a cash basis. No interest was received on this bond in the year ended 31 August 2002.

41

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

The equity investment and the loan to equity investee are related to the same company.

This company filed for bankruptcy in September 2001. Bankruptcy procedures are ongoing.

As a consequence, SinnerSchrader considers these investments impaired.

Effective 1 September 2000, SinnerSchrader has adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. There was no material effect from applying SFAS No. 133 in the fiscal years 2001/2002 and 2000/2001, respectively.

J . S TAT E M E N T S O F C A S H F LO W S

K. R EVE N U E R ECOG N ITION

SinnerSchrader paid  4,232 and  619 for interest in the fiscal periods 2001/2002 and 2000/2001, respectively. The Company paid  1,920,404 and  2,151,801 for income taxes in 2001/2002 and 2000/2001, respectively. In those periods the Group received income tax refunds in the amounts of  1,417,573 and  395,199, respectively.

For the purpose of the consolidated statements of cash flows, SinnerSchrader considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash equivalents consist of amounts on deposit at commercial banks.

P R OJ E C T S E R V I C E S :

Services provided by SinnerSchrader range from consulting services for eBusiness strategies and concepts for Internet-based business applications, the design and production of web based user front-ends, to the implementation of software for middleware and backend systems, as well as to maintenance and content management services for installed solutions. Project and service agreements are either on the basis of time and material incurred or on a fixed-fee basis. Revenues pursuant to a fixed-fee contract are generally recognised as services are rendered on the percentage-of-completion method of accounting according to the provisions of Statement of Position (“SOP”) 81-1 of the American Institute of Certified Public Accountants (“AICPA”), “Accounting for Performance of Construction Type and Certain Production Type Contracts”. Percentage of completion is determined based on the total efforts expended to date measured in man hours as a percentage of the total efforts expected to be incurred under the contract. Provisions for estimated losses on uncompleted contracts are made on a contract by contract basis and are recognised in the period in which such losses become probable. Revenues pursuant to time and materials contracts are generally recognised as services are performed. Revenues include reimbursable expenses charged to and collected from clients. Revenue recognised on the percentage of completion basis in advance of contractual billings is presented in the balance sheet as unbilled revenues net of advance payments received. Advance payments received in excess of unbilled revenues are shown as advance payments.

M E DIA S E RVICE S:

SinnerSchrader also provides online-marketing services for Internet web sites, i.e. the planning, design, execution and controlling of online-marketing campaigns, mainly to project services customers. For these services, customers are billed for the cost of the advertising space concerned and for the campaign planning and controlling services rendered by SinnerSchrader either on the basis of a monthly fixed rate or as a percentage of the total value of advertising space managed, and for the design and production services of related online-marketing instruments on an hourly basis. Revenue from the reselling of advertising space is generally recognised according to the appearance of the advertisements concerned. The additional services are generally recognised as performed on a monthly basis. While gross revenue includes the entire amount invoiced, the cost of advertising space is excluded from net revenues. Any revenue recognised in advance of contractual billing is presented in the balance sheet as unbilled revenues net of advance payments received and plus advance payments made for advertising space.

42

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

OT H E R S E R V I C E S :

SinnerSchrader also provides operational services, e.g. hosting services, application management and monitoring as well as web-data mining services. Fees for these services are generally billed and recognised on a monthly basis. In addition, SinnerSchrader provides customers with any required hardware and software on a by request basis. Revenue for third party hardware and software is realised upon delivery.

In general, revenues are recognised only when there is persuasive evidence of an agreement, the fee is fixed and determinable, delivery has occurred and collectibility of the claim is probable.

L. ADVE RTI S I NG EXPENSE

SinnerSchrader expenses the cost of advertising and promoting its services and the image of SinnerSchrader in general as incurred. These expenses are included in sales, general and administrative expenses in the consolidated statement of operations. They totalled  66,139 and  58,388 in the financial periods 2001/2002 and 2000/2001, respectively.

M . S TO C K C O M P E N S AT I O N

In October 1995, the Financial Accounting Standard Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation”. This standard permits the use of either a fair value based method of accounting or the method defined in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” to account for stock-based compensation arrangements.

SinnerSchrader has elected to account for its employee stock compensation arrangements in accordance with provisions of APB No. 25, and complies with the provisions of SFAS No. 123 to disclose the pro-forma net income that would have resulted from the application of a fair value based method under section VI.b of these notes. Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant between the fair market value of SinnerSchrader’s capital stock and the exercise price.

N. COM PR E H E N S IVE I NCOM E

Comprehensive income is the total of net income and all other non-owner changes in equity. Accumulated other components of comprehensive income were as follows:

Net unrealised gains on marketable securities available-for-sale Foreign currency translation adjustment Total

31.08.2002

31.08.2001

in €

in €

5,111

235,690

52,675 57,786

16,868 252,558

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C O N S O LI DATE D F I NAN C IAL STATE M E NTS

A summary of the components of other comprehensive income for the year ended 31 August 2002 is shown in the following tables: TOTAL B E FOR E TAX in €

I NCOM E TAX in €

TOTAL AFTER TAX in €

Unrealised gains/losses on marketable securities available-for-sale

- 224,169

90,530

- 133,639

Less: reclassification adjustments Adjustment of income tax

- 166,071 –

67,067 2,064

- 99,004 2,064

Net unrealised gains/losses on marketable securities available-for-sale

- 390,240

159,661

- 230,579

Foreign currency translation adjustment Total

35,807 - 354,433

– 159,661

35,807 - 194,772

2001/2002

2000/2001

Unrealised gains/losses on marketable securities available-for-sale Less: reclassification adjustments Adjustment of income tax Net unrealised gains/losses on marketable securities available-for-sale Foreign currency translation adjustment Total

493,950

- 262,773

231,177

- 292,026 –

155,353 50,659

- 136,673 50,659

201,924

- 56,761 – - 56,761

145,163

16,791 218,715

16,791 161,954

The adjustment of income tax shown for 2001/2002 represents the effect of the dissolution of deferred tax liabilities pertaining to the accumulated amount of unrealised gains on marketable securities available-for-sale due to SinnerSchrader’s current loss situation.

For fiscal year 2000/2001 the adjustment was due to the change in the statutory tax rate from 53.2 % to 40.4 % effective for the Company as from 1 September 2001.

O. N ET EAR N I NG S PE R S HAR E

SinnerSchrader computes earnings per share in accordance with SFAS No. 128 “Earnings per Share”. Basic earnings per share are computed using the weighted-average number of vested shares of common stock outstanding. Diluted earnings per share are computed using the weighted average number of vested shares of common stock outstanding and, when dilutive, unvested common stock outstanding from potential common shares from options and warrants to purchase common stock using the treasury stock method. SinnerSchrader has granted options to purchase shares of common stock to its employees under the 1999 employee stock option programme and under the 2000 employee stock option programme.

All potential common shares have been excluded from the computation of diluted net loss per shares for both fiscal years 2001/2002 and 2000/2001 because the effect would be antidilutive.

Net income/loss Basis weighted average shares of common stock outstanding Basic and diluted earnings per share Weighted average shares of common stock outstanding Add: Stock option grant (antidilutive) Diluted average share of common stock outstanding Diluted earnings per share

44

2001/2002

2000/2001

in € or share

in € or share

- 17,900,677 11,532,500 - 1.55 11,532,500 – 11,532,500 - 1.55

- 2,452,369 10,735,308 - 0.23 10,735,308 – 10,735,308 - 0.23

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

P. S E G M E N T R E PORTI NG

Q . R E C L A S S I F I C AT I O N S

R. R ECE NT AC C OU NTI NG PRONOU NCE M E NTS

SinnerSchrader has adopted the provisions of SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”. SFAS No. 131 stipulates the management approach for determining reportable business segments. This approach requires that business segment information used by management to assess performance and manage company resources be the source for information disclosure SinnerSchrader engages in business activities in one operating segment, which provides integrated eBusiness strategy, implementation and marketing services. Revenues by geographical location are attributed to the country from which the sale is made. For 2001/2002 all of SinnerSchraders’s revenues are to be attributed to Germany. In 2000/2001 SinnerSchrader also generated revenue in the United States, the Netherlands and the United Kingdom.

Certain prior year amounts have been reclassified to confirm to the current year presentation.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognised in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalised as part of the carrying amount of the long-lived asset. An entity shall measure changes in the liability for an asset retirement obligation due to passage of time by applying an interest method of allocation to the amount of the liability at the beginning of the period. The interest rate used to measure that change shall be the credit-adjusted risk-free rate that existed when the liability was initially measured. That amount shall be recognised as an increase in the carrying amount of the liability and as an expense classified as an operating item in the statement of income. SFAS No. 143 is effective for fiscal years beginning after 15 June 2002.

The Company does not anticipate that adoption of SFAS No. 143 will have a material impact on its results of operations or its financial position.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 establishes a single accounting model for longlived assets to be disposed of by sale consistent with the fundamental provisions of SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”. Whilst it supersedes APB Opinion 30 “Reporting the Results of operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” it retains the presentation of discontinued operations but broadens that presentation to include a component of an entity (rather than a segment of a business). However, discontinued operations are no longer recorded at net realisable value and future operating losses are no longer recognised before they occur. Under SFAS No. 144 there is no longer a requirement to allocate goodwill to long-lived assets to be tested for impairment. It also establishes a probability weighted cash flow estimation approach to deal with situations in which there are a range of cash flows that may be generated by the asset being tested for impairment. SFAS No. 144 also establishes criteria for determining when an asset should be treated as held for sale.

SFAS No. 144 is effective for fiscal years beginning after 15 December 2001 and interim periods within those fiscal years, with early application encouraged. The provisions of the Statement are generally to be applied prospectively. The Company currently has no plans to dispose of any operations and accordingly, does not anticipate that adoption of SFAS No. 144 will have a material impact on its results of operations or its financial position.

In November 2001, the FASB issued Topic Number D-103 regarding “Income Statement Characterisation of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred”. This announcement requires that reimbursements received for out-of-pocket expenses incurred

45

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

should be characterised as revenue in the statement of operations. The provisions of this announcement will be effective for fiscal years beginning after 15 December 2001.

Adoption of these provisions will not have any effect on SinnerSchrader’s results of operations and financial position, since SinnerSchrader has been recording for reimbursements of out-of-pocket expenses as revenue in the past and will continue to do so.

In April 2002, the FASB issued SFAS 145 “Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13 and Technical Corrections”. The principal change is that gains or losses from extinguishment of debt which are classified as extraordinary items by SFAS 4 will no longer be classified as such. The provisions of SFAS 145 are effective for fiscal years beginning after 15 May 2002 although early application of the Statement related to the rescission of SFAS 4 is encouraged. The Company plans to adopt SFAS 145 for its fiscal year ending 31 August 2003. The Company does not anticipate that adoption of SFAS No. 145 will have a material impact on its results of operations or its financial position.

In June 2002, the FASB issued SFAS 146 “Accounting for Costs Associated with Disposal or Exit Activities”. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognised when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognised at the date of an entity's commitment to an exit plan.

This statement provides that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3 until a liability has been incurred and establishes that fair value is the objective for initial measurement of the liability. However, this standard does not apply to costs associated with exit activities involving entities acquired under business combinations or disposal activities covered under SFAS 144. The Company does not anticipate that adoption of SFAS No. 146 will have a material impact on its results of operations or its financial position.

iii. balance sheet components A. PROPE RTY AN D EQU I PM E NT

Property and equipment is comprised of the following:

Computer hardware and software Furniture and fixtures Leasehold improvements Total, at cost Less: Accumulated depreciation Total, at book value

46

31.08.2002

31.08.2001

in €

in €

1,474,865 1,096,583 1,103,018 3,674,466 - 1,498,347 2,176,119

1,281,611 844,158 606,580 2,732,349 - 883,046 1,849,303

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

B . I N TA N G I B L E ASS ETS AN D GO ODW I LL

Certain intangible assets were acquired in connection with the Company’s acquisition which was accounted for as a purchase. The following table summarises the cost of intangible assets as well as accumulated amortisation and impairment charges concerning these assets: AT COST

ACCU M U LATE D AMORTISATION in €

I M PAI R M E NT

in €

in €

B OOK VALU E in €

EST. USE FU L LI FE in €

639,115 16,814,106 17,453,221

- 322,601 - 2,111,380 - 2,433,981

- 316,514 - 14,702,726 - 15,019,240

– – –

3 – –

Assembled workforce 883,512 Customer list 639,115 Goodwill 16,005,778 Total 17,528,405

- 196,336 - 85,215 - 2,111,380 - 2,392,931

– – – –

687,176 553,900 13,894,398 15,135,474

3 5 5 –

31.08.2002

Customer list Goodwill Total 31.08.2001

In accounting for acquired intangible assets and goodwill, SinnerSchrader has adopted SFAS No. 141 and SFAS No. 142 as from 1 September 2001. Thus, the development of book value of acquired intangible and goodwill as shown in the table is affected both by the transition to the new accounting rules as described under II.g as well as business developments.

The cost base for goodwill was adjusted upwards primarily due to the reclassification of assembled workforce upon adoption of SFAS No. 141 at book value on the date of adoption because assembled workforce is no longer considered an identifiable intangible asset.

Additionally, the cost base of goodwill was raised by increases of the final purchase price paid due to a court decision and additional transaction cost (refer to note V.).

Following the new rules of SFAS No. 142, SinnerSchrader concluded consistent with its segment reporting (refer to note 2.p) that it consists of only one reporting unit which corresponds to the Group as a whole. Consequently, the entire goodwill, which was up to the transition date assigned only to the acquired business of Netmatic, was assigned to this reporting unit upon adoption of SFAS No. 142 and the transitional impairment test had to be performed based on a valuation of the whole Group. In assessing the fair value of the Group, SinnerSchrader primarily relied on the market capitalisation of its stock around the adoption date 1 September 2001. The market value method was supported by a fair value calculation based on discounted future cash flows. Both methods led to a value below the total value of SinnerSchrader’s net assets as of 1 September 2001. After assigning the estimated fair value of the reporting unit to the fair value of its identifiable assets and liabilities, there was no residual value left to be assigned to goodwill. Consequently, SinnerSchrader took an impairment charge totalling the book value of the goodwill as on 1 September 2001 (after adjusting for the value of the assembled work force and purchase price corrections). According to SFAS 142, the impairment charge is shown as an effect of changes in accounting principles in SinnerSchrader’s statement of operations.

With respect to the customer list, one major customer filed for bankruptcy in the first half of the year 2002 and another major customer was lost. As a result of these losses of customers and the severe decline in realised net margin from the remaining clients on the list resulting from overall lower demand for the Group’s services, SinnerSchrader assessed the fair value of the list as of 31 August 2002 to be not materially different from nil and thus took an impairment charge against income from operations. The charge is shown under “Amortisation and impairment of intangible assets”.

47

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C . C O N S O L I D AT E D SCH E DU LE OF F I X E D ASS ETS

The consolidated schedule of fixed assets shows the change in fixed assets during the fiscal year 2001/2002: AC Q U I S ITI O N C O ST

in €

R ECLASSIFICATIONS in €

BALANCE

01.09.2001

EXCHANG E RATE E FFECTS in €

ADDITIONS

DISPOSALS

in €

in €

Intangible assets: Customer list and assembled work force acquired Goodwill Total intangible assets Tanglible assets: Computer hard- and software Furniture and fixtures Leasehold improvements Total tangible assets

1,522,627

- 883,512

–

–

–

16,005,778 17,528,405

687,176 - 196,336

– –

121,152 121,152

– –

1,281,611 844,158 606,580 2,732,349

– – – –

- 2,120 - 527 – - 2,647

247,223 380,097 498,179 1,125,499

51,849 127,145 1,741 180,735

4,107 4,107

– –

– –

– –

– –

20,264,861

- 196,336

- 2,647

1,246,651

180,735

Investments: Convertible bond Total investments >

D . OT H E R C U R R E N T A S S E T S A N D P R E PA I D EXPENSES

Total fixed assets

The major components of other current assets and prepaid expenses are shown in the following table:

Tax receivables Prepaid expenses Other current assets Total E. AC CR U E D EXPENSES

31.08.2001

in €

in €

1,815,649 102,167 156,672 2,074,488

1,938,814 98,568 200,309 2,237,691

31.08.2002

31.08.2001

in €

in €

868,738 177,185 302,165 314,599 103,929 1,766,616

428,057 160,208 – 163,613 102,049 853,927

Accrued expenses consist of the following:

Accrued compensation Accrued warranty expense Accrued losses on contracts Accrued rent and related expenses Other accruals Total accrued expenses

48

31.08.2002

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

AC C U M U LATE D D E P R E C IATI O N; AM O RTI SATI O N AN D WR ITE-D OWN S

BALANCE

BALANCE in €

R ECLASSIFICATIONS in €

EXCHANG E RATE E FFECTS in €

31.08.2002

01.09.2001

in €

ADDITIONS in €

N ET B O O K VALU E

DISPOSALS in €

BALANCE

BALANCE

BALANCE

31.08.2002

31.08.2002

31.08.2001

in €

in €

in €

–

1,241,076

639,115

281,551

- 196,336

–

553,900

–

639,115

16,814,106 17,453,221

2,111,380 2,392,931

– - 196,336

– –

14,702,726 15,256,626

– –

16,814,106 17,453,221

1,474,865 1,096,583 1,103,018 3,674,466

491,019 383,736 8,291 883,046

– – – –

- 2,342 - 613 – - 2,955

454,606 121,743 99,952 676,301

28,817 28,287 941 58,045

914,466 476,579 107,302 1,498,347

560,399 620,004 995,716 2,176,119

790,592 460,422 598,289 1,849,303

4,107 4,107

– –

– –

– –

4,107 4,107

– –

4,107 4,107

– –

4,107 4,107

21,131,794

3,275,977

- 196,336

- 2,955

15,937,034

58,045

18,955,675

F. C O M M I T M E N T S A N D CONTI NG E NCI E S

– 13,894,398 – 15,135,474

2,176,119 16,988,884

Facilities and certain equipment are leased under operating leases. As of 31 August 2002 future annual minimum lease payments are as follows:

01.09.2002 – 31.08.2003 01.09.2003 – 31.08.2004 01.09.2004 – 31.08.2005 01.09.2005 –31.08.2006 01.09.2006 –31.08.2007 Thereafter Total

31.08.2002 in €

31.08.2001 in €

1,182,829 1,175,335 1,171,285 1,275,908 – – 4,805,357

1,717,330 1,580,074 1,368,689 1,275,907 – – 5,942,000

Total rent and lease expense excluding accrued rent and lease expense were  1,758,053 and  796,912 in 2001/2002 and 2000/2001, respectively.

The Group has certain contingent liabilities that arise in the ordinary course of business activities. The Group accrues contingent liabilities when it considers it more likely than not that future expenditure will be made and such expenditure can be reasonably estimated. The consolidated Group companies are subject to various legal claims primarily related to employment issues. In fiscal year 2001/2002, accruals for some of the potential claims were charged against operating expenses. In fiscal year 2000/2001 no such charges had to be made.

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C O N S O LI DATE D F I NAN C IAL STATE M E NTS

iv. components of the statements of operations A. COSTS AN D O P E R AT I N G E X P E N S E S

BY E X P E N D I T U R E

The split of the total of costs of revenues and selling, administrative and research and development expenses by expenditure is shown in the following table:

Personnel expense Cost of materials and services in cost of revenue: Materials Services Depreciation of property and equipment Other operating expenses Total B. R E STR UCTU R I NG C H A R G E S A N D OT H E R R E L AT E D C H A R G E S

2001/2002

2000/2001

in €

in €

11,141,008

10,974,625

137,551 366,831 595,685 3,428,757 15,669,832

136,371 276,381 416,695 380,589 16,184,661

Starting in 2000/2001, but primarily in fiscal year 2001/2002 SinnerSchrader undertook steps to align its cost base to the severe decline in demand for Internet related consulting, design and IT-services by reducing its workforce, consolidating its facilities and closing down all foreign operations. Restructuring charges and other related charges as of, and for the year ended, 31 August 2002 were as follows: UTI LI S E D

BALANCE

ADDITIONAL CHARG ES in €

NON CASH in €

CASH

in €

– 163,613 – 163,613

733,765 881,282 2,720 1,617,767

– - 80,617 – - 80,617

- 175,538 - 648,056 - 2,720 - 826,314

31.08.2002

CU R R E NCY ADJ USTM E NT

in €

BALANCE

31.08.2002 in €

2001/2002

Workforce Facilities Other Total

– - 1,623 – - 1,623

558,227 314,599 – 872,826

In December 2001, January 2002 and August 2002, SinnerSchrader announced the termination of a total of 45 employees in Germany. This followed decisions to cut back on investments in start-up losses of SinnerSchrader’s operations in London (United Kingdom), Rotterdam (The Netherlands), and Denver (United States) in August, November and December 2001, respectively, Six employees were laid-off from these operations. The charges include all costs relating to the termination of employment contracts including severance payments, payroll costs for periods in which the respective employees were released from their work duty, and legal costs.

In 2000/2001 SinnerSchrader had prepared to consolidate its facilities in Hamburg from four different locations into one. By the end of fiscal 2000/2001 two of the former offices had not yet been surrendered or sublet. In addition, with its decision to stop operating in the UK SinnerSchrader abandoned the office it had rented there. Restructuring charges concerning the vacant offices include rent and service charges, the cost of efforts to sublet or to be released from the rent agreements (such as cost of legal advice, premium payments to surrender and fees to real estate agents) as well as depreciation/impairment charges on leasehold improvements and office equipment that had to be abandoned.

Other restructuring charges primarily relate to non-cancellable contracts in the UK. The balances as at 31 August 2002 are recorded as accrued compensation expense and accrued rent and related expense.

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C O N S O LI DATE D F I NAN C IAL STATE M E NTS

C. I NTE R E ST I NCOM E A N D G A I N S / LO S S E S R EALI S E D ON MAR K ETAB LE S ECU R ITI E S

Interest income and expense consists of the following components:

Interest income Realised gains/losses, net on the sale of marketable securities Interest expense Total

2001/2002

2000/2001

in €

in €

1,326,384

1,036,339

166,071

292,026

- 4,232 1,488,223

- 619 1,327,746

v. acquisitions On 10 January 2001, the Company acquired all shares of Netmatic Internet/Intranet Solutions GmbH (“Netmatic”), Hamburg, pursuant to a purchase agreement signed on 18 September 2000 which was approved by the ordinary shareholders’ meeting on 12 December 2000. The total consideration for the shares was split in two instalments. The first instalment was determined at the execution of the purchase agreement to be DM 3,000,000 ( 1,533,876) in cash and 437,246 ordinary shares of common stock of SinnerSchrader. The second instalment was made dependent on the performance of Netmatic in terms of revenue and operating profit margin for the year ended 31 December 2000. This instalment was fixed on 31 March 2001 to be 1,130,518 ordinary shares of common stock of SinnerSchrader. Since the shares had not been issued prior to the previous balance sheet date, a purchase price liability was recorded in the year ended 31 August 2001. The shares of the second instalment were then issued on 18 October 2001.

All shares issued under the purchase agreement were under lock-up for one to three years starting from 1 January 2001. In addition, three of the Netmatic selling shareholders are bound by the purchase agreement to form a partnership with the sole purpose of distributing 80,818 shares of common stock received as purchase price to the employees of Netmatic. The shares can be obtained by the employees after vesting periods of 1, 2 and 3 years. 20 %, 30 %, and 50 %, of the total shares can be received on 1 January 2002, 1 January 2003 and 1 January 2004, respectively. The Company accounts for this programme as deferred compensation acquired.

The acquisition was accounted for as a purchase and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair value. Subsequent to the issuance of the stock for the second instalment, SinnerSchrader was sued by the sellers of Netmatic before an arbitration tribunal on late delivery of the second instalment and errors in the calculation of the number of shares of the second instalment. According to a settlement reached between SinnerSchrader and the sellers in front of the tribunal, SinnerSchrader had to deliver an additional 36,227 shares of common stock of SinnerSchrader and to pay interest on the late delivery of those shares. The settlement was executed subsequent to the balance sheet day on 19 September 2002. To honour the settlement, SinnerSchrader repurchased 36,227 of its common stock in June 2002. The total value of the settlement including interest and the cost for the tribunal proceedings amounted to  99,068. Furthermore, transaction cost for the delivery of the shares in the second instalment came out to be  22,084 higher than anticipated in the original purchase price allocation shown above. Thus, the total purchase price paid was raised by  121,152.

51

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

The following table shows the value of the components of the total consideration for the acquisition of Netmatic: in â&#x201A;Ź

Cash Common stock Transaction cost Total consideration

1,551,371 17,889,562 121,619 19,562,552

The purchase price was allocated to assets acquired and liabilities assumed as shown in the following table: in â&#x201A;Ź

Tangible fixed assets Cash, cash equivalents and short-term investments Other current assets and prepaid expenses Liabilities assumed Assembled work force Customer list Deferred compensation Goodwill Total

241,196 422,740 1,477,180 - 1,189,871 883,512 639,115 961,750 16,126,930 19,562,552

The purchase price allocation was subject of a review by management in the course of adopting SFAS No. 141 as of 1 September 2001. The review resulted in the reclassification of the value allocated to the assembled workforce as goodwill. Through the review no additional intangible assets were identified.

In the fiscal year 2000/2001 all intangible assets were amortised on a straight-line basis over lives ranging from three to five years. Following the new rules of SFAS No. 142, scheduled amortisation of goodwill was ceased beginning with the date of adoption on 1 September 2001. Instead the goodwill and other intangible assets were subject to an annual impairment test. The amortisable intangible assets were continued to be amortised on a straight-line basis over their useful lives.

Deferred compensation is amortised according to the vesting schedule of the stock programme or when the respective employees leave the company before vesting has occurred.

Below are the unaudited pro-forma results of operations for the Company and Netmatic assuming that the acquisition of Netmatic were consummated at the beginning of the twelve month period ended 31 August 2001.

2000/2001 in â&#x201A;Ź

Gross revenue Net loss Basic net loss per share Diluted net loss per share

19,865,513 - 3,479,825 - 0.30 - 0.30

The unaudited pro-forma financial information is not necessarily indicative of the operating results that would have occurred had this acquisition been consummated on 1 September 2000 nor is it necessarily indicative of future operating results.

52

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

vi. shareholders’ equity A. I N ITIAL P U B LIC OFFE R I NG

In November 1999, SinnerSchrader AG issued 2,475,000 new shares of common stock as part of on an initial public offering on the Neuer Markt (225,000 shares thereof as greenshoe) at a price of  12 per share. The offering raised aggregate proceeds – net of expenses for the flotation of  1,7 million – of  28.0 million. The cost resulting from the initial public offering was charged against the capital reserve net of  0.9 million in taxes.

B. AUTHOR I S E D C A P I TA L

The Management Board was authorised to increase the Company’s share capital up until 24 September 2004 with the approval of the Supervisory Board in one or more steps up to a maximum of 225,000 shares. In November 1999, the Company issued 225,000 shares based on this authorisation in connection with the greenshoe granted to banks as part of the initial public offering.

Furthermore, the Management Board is authorised to increase the Company’s share capital up until 30 September 2004 with the approval of the Supervisory Board in one or more steps up to a maximum of 4,650,000 shares. On 12 December 2001, the Management Board partly exercised its right and issued 437,246 shares of common stock in connection with the acquisition of Netmatic to the sellers of Netmatic. Relating to the same transaction, the Management Board issued another 1,130,518 shares of common stock to the sellers of Netmatic on 18 October 2001 as a second instalment of the total purchase price.

C. CON DITIONAL C A P I TA L

D . E M P LOY E E S TO C K O P T I O N P L A N S

On 31 August 2002 and 31 August 2001 the Company had conditional capital of  750,000 covering the grants under SinnerSchrader’s 2000 Stock Option Plan and 1999 Stock Option Plan described under d.

S I N N E R SCH RADE R 1 9 9 9 STO CK OPTION P LAN

In October 1999, the shareholders of SinnerSchrader AG approved the SinnerSchrader 1999 Stock Option Plan (the “1999 Plan”), which provides for the granting of stock options to the members of the Management Board of SinnerSchrader AG, the management of affiliated companies, all employees of SinnerSchrader AG, as well as all employees of affiliated companies. The total number of options that can be assigned by the Management Board and the Supervisory Board of SinnerSchrader AG is 375,000 of which 40,000, 10,000, 55,000, and 270,000, respectively, are dedicated to the groups mentioned above.

Options granted under the 1999 Plan have an exercise price of 120 % of the average Frankfurt closing price during the ten trading days prior to the grant date. Options granted on 1 November 1999, the day of the initial public offering, had an exercise price of  14.40. The options of the 1999 Plan vest in equal instalments of one third over two, three and four years. They have to be exercised within six years after the date of grant. As of 31 August 2002 a total of 238,650 stock options from the 1999 Plan were outstanding which were granted with an average exercise price of  18.45. No options were granted to the Management Board.

S I N N E R SCH RADE R 2000 STO CK OPTION P LAN:

In December 2000, the shareholders of SinnerSchrader AG approved the SinnerSchrader 2000 Stock Option Plan (the “2000 Plan”); which provides for the granting of stock options to the members of the Management Board of SinnerSchrader AG, the management of affiliated companies, all employees of SinnerSchrader AG, as well as all employees of affiliated companies. The total number of options that can be assigned by the Management Board and the Supervisory Board of SinnerSchrader AG is 375,000 of which 40,000, 40,000, 55,000, and 240,000, respectively, are dedicated to the groups mentioned above.

53

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

Options granted under the 2000 Plan have an exercise price of 120 % of the average Frankfurt closing price during the ten trading days prior to the grant date. The options of the 2000 Plan vest in equal instalments of one third over two, three and four years. They have to be exercised within six years after the date of grant. As of 31 August 2001 a total of 131.000 stock options from the 2000 Plan were outstanding which were granted with an average exercise price of  2.76. No options were granted to the Management Board.

SinnerSchrader applies APB No. 25 in accounting for its stock option plans. Had compensation expense for options granted in 2001/2002 and 2000/2001 been determined based on the fair value at the grant dates as prescribed by SFAS No. 123, SinnerSchrader’s net income/loss and net income/loss per share would have been affected as indicated in the following table:

Reported net income/loss Pro-forma compensation expense due to options granted Pro-forma net income/loss Reported net income/loss per share, basic and diluted Pro-forma net income/loss per share, basic and diluted

2001/2002

2000/2001

in €

in €

- 17,900,677 - 470,842 - 18,371,519 - 1.55 - 1.59

- 2,452,369 - 773,723 - 3,226,092 - 0.23 - 0.30

Because additional option grants are expected to be made each year, the pro-forma impact on the years 2001/2002 and 2000/2001 is not necessarily representative of the proforma effects which may be expected in future years.

The fair value of each option was estimated on the date of grant using the BlackScholes option pricing model with the following assumptions for the options granted in the periods 2001/2002 and 2000/2001:

Expected life of the option Risk-free interest rate Expected dividend yield Expected volatility

2001/2002

2000/2001

2.5 - 4.5 years 3.1 % - 4.9 % 0% 85 % - 90 %

2.5 - 4.5 years 4.2 % - 5.1 % 0% 88 % - 122 %

The following table summarises the changes in the total options outstanding in the periods 2001/2002 and 2000/2001:

Outstanding at 31.08.2000 Granted Exercised Cancelled Outstanding at 31.08.2001 Granted Exercised Cancelled Outstanding at 31.08.2002

54

NUMBER OF OPTIONS G RANTE D

WE IG HTE D AVE RAG E EXE RCISE PR ICE in €

165,300 145,900 – - 84,400 226,800 264,068 – - 121,218 369,650

32.96 17.21 – 27.14 25.03 2.86 – 13.75 12.89

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

The subsequent table presents a summary of the stock options outstanding as of 31 August 2002 O PTI O N S O UTSTAN D I N G

RANG E OF EXE RCISE

NUMBER

WEIGHTED AVERAGE R E MAI N I NG CONTRACTUAL LIFE in years

WE IG HTE D AVE RAG E EXE RCISE PR ICE in €

NUMBER

WE IG HTE D AVE RAG E EXE RCISE PR ICE in €

213,947 20,300 78,234 31,300 25,869 369,650

5.11 4.63 3.58 3.89 3.54 4.55

2.88 6.92 15.76 36.33 63.33 12.89

– – 17,916 6,940 9,145 34,001

– – 14.40 37.84 63.15 32.30

PR ICE in €

0.00 – 5.00 5.01 – 10.00 10.01 – 30.00 30.01 – 50.00 50.01 – 90.00 Total E. TR EAS U RY S TO C K

O PTI O N S E X E R C I SAB LE

In 2001/2002 the Company repurchased 86,227 shares of its own common stock for an average purchase price of  1.6331.

vii. income tax SinnerSchrader accounts for income taxes pursuant to SFAS No. 109 “Accounting for Income Taxes.” The provision for income taxes consists of the following:

Current Deferred Total

2001/2002

2000/2001

in €

in €

- 401,624 - 274,176 - 675,800

220,443 - 74,177 146,266

The provision for income taxes differs from the expected tax provision amount computed by applying the statutory income tax rate to income before taxes. For the fiscal period ended 31 August 2002 the statutory income tax rate was at 40.4 % (2000/2001: 53.2 %) consisting of municipal trade tax (“Gewerbesteuer”) at 19.0 % (2000/2001: 19.0 %), corporation tax (“Körperschaftsteuer”) at 25.0 % (2000/2001: 40 %) and a corporation tax surcharge (“Solidaritätszuschlag”) of 5.5 % (2000/2001: 5.5 %).

55

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

The following table presents the reconciliation of tax provisions shown in the statements of operations to the income tax provisions expected under the statutory income tax rate: 2001/2002

2000/2001

in €

in €

Tax provision (+), Tax credit (-) at statutory rate

- 7,502,039

- 1,226,809

Non deductible amortisation and impairment of goodwill and certain intangible assets acquired

6,062,676

1,266,956

211,539 97,757

176,230 1,888

Valuation allowance and difference in tax rate concerning losses in foreign subsidiaries, net of tax-effects on write-downs on investment in foreign subsidiaries

- 72,438

61,067

Valuation allowance on losses in domestic group companies Tax deduction due to a fictitous foreign withholding tax

361,596 –

– - 11,500

Non deductible amortisation of deferred stock compensation Non deductible other expenses

Various effects due to the structuring of the domestic group for tax purposes related to group internal dividend payments and corporation tax surcharge

–

87,775

Applicability of lower tax rate for domestic subsidiary Change in tax rate for deferred taxes

– –

- 176,995 - 30,307

Tax rate difference on tax effect of losses carried backwards for tax purposes Taxes relating to previous years Other Provision for income tax

122,071

–

27,259 15,779

– - 2,039

- 675,800

146,266

31.08.2002

31.08.2001

in €

in €

723,458 - 508,823 214,635

189,368 - 189,368 –

127,299

92,465

The deferred tax position consists of the following items:

Deferred tax assets: Tax on loss carry forwards Valuation allowance Total deferred tax assets Deferred tax liabilities: Valuation of unfinished/unbilled services Valuation of unrealised gains on marketable securities available-for-sale Valuation of fixed assets Valuation of current assets Total deferred tax liabilities Total deferred tax asset/liabilities, net

56

15,681

182,490

60,267 11,388 214,635

132,691 26,190 433,836

–

- 433,836

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

A valuation allowance has been recorded for the deferred tax assets up to the value that is covered by deferred tax liabilities on an entity by entity basis for 2001/2002 and 2000/2001 as a result of uncertainties regarding the realisation of the assets in Germany, the stop of operations in the UK, USA and Netherlands, as well as the limited operating history of the Group.

For the year ended 31 August 2002, SinnerSchrader had tax loss carry-forwards in Germany, UK, USA and the Netherlands. In Germany losses for tax purposes carry forward indefinitely. The loss carry-forwards in the foreign entities will most likely not be usable since operating business was ceased in those countries, respectively. In Germany tax laws contain provisions which may limit the net loss and tax loss carry-forwards to be used in any given year upon occurrence of certain events, including a significant change in ownership.

viii. related parties During 2001/2002 and 2000/2001 SinnerSchrader generated revenues with companies in which members of its Supervisory Board hold general management or Supervisory Board positions of  1,500,816 and  1,842,008, respectively. The total of accounts receivable and unbilled services net of bad-debt allowances to those companies on 31 August 2002 and 31 August 2001 amounted to  349,895 and  441,855, respectively.

In 2000/2001 SinnerSchrader realised sales of  430,772 with a company in which it holds a non-controlling equity stake. In September 2001 this company filed for bankruptcy.

Thus, the amounts due as at 31 August 2001 were charged as bad-debt allowance against operating earnings in 2000/2001. As of 31 August 2002 the bankruptcy procedures had not been completed. The investment in this company has been written down to “0” in 2000/2001.

A company in which one member of SinnerSchrader AG’s Supervisory Board is the managing partner provided legal services to the Company during 2001/2002 and 2000/2001.

The total net amount charged to SinnerSchrader in those periods were  56,823 and  18,429, respectively.

Subsequent to the balance sheet date, SinnerSchrader entered into a consultancy agreement with a former member of the Management Board who retired from his position on 31 August 2002. Under the terms of the agreement, SinnerSchrader will buy a minimum of  72,000 worth of consultancy services per annum. The agreement will terminate on 31 August 2004. SinnerSchrader retains the right to terminate the contract after one year with a two month notice period.

57

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

S U M M A RY O F S I G N I F I C A N T D I F F E R E N C E S B E T W E E N U S G A A P A N D G E R M A N L AW W I T H R E G A R D TO A C C O U N T I N G , VA L U AT I O N A N D C O N S O L I D AT I O N P R I N C I P L E S

A. G E N E RAL

The consolidated financial statements of SinnerSchrader AG as of 31 August 2002, were drawn up in accordance with Article 292a of the German Commercial Code (“HGB”) applying the US generally accepted accounting principles (“US-GAAP”) and German accounting standard No. 1 (DRS 1) of the Deutscher Standardisierungsrat DSRC e. V. (German Accounting Standards Committee) as consolidated financial statements with discharging effect.

The regulations of the HGB and of the German Stock Corporation Act (“AktG”) differ in certain key aspects from the US-GAAP. The main differences which could be relevant for assessing the assets and liabilities, financial position and results of the company are presented below.

Under the HGB, all balance sheet and income statement lines must be presented in the form and sequence specified in Articles 266, 275 HGB. Under US-GAAP, items are compiled differently and the sequence of the balance sheet lines begins with the short-term items.

Under US-GAAP, the short-term parts of long-term receivables and liabilities are stated in a separate line of the balance sheet. The part which is due within one year is treated as being short-term.

B . TA N G I B L E A S S E T S

Unlike in the HGB accounts, acquired standard software for internal use is not shown as an intangible asset but is included within tangible assets as plant and office equipment.

The manufacturing cost of software developed in-house can be capitalised under US-GAAP and depreciated over the normal useful life. Under HGB, software created in-house cannot be capitalised as tangible assets. In the fiscal year and in the previous years the Company also charged all manufacturing costs of software developed in-house against income under US-GAAP. Pursuant to HGB, accelerated depreciation permitted under German Income Tax Law (Article 7 EStG) is stated as special reserves and dissolved as expense over the useful life of the assets concerned. In accordance with US-GAAP depreciation only permissible under tax law was not taken into account.

Under HGB, depreciation was charged in agreement with the tax regulations on a straight-line basis applying the half-year method (“Halbjahresmethode”). Under US-GAAP, straight-line depreciation was charged as from the day of the addition.

C . D E F E R R E D TA X E S O N LO S S C A R R Y- F O R W A R D S

According to HGB, deferred tax refund claims arising from tax loss carry-forwards may not be stated in the balance sheet, as the expected future tax savings are deemed to have not yet been realised. Under US-GAAP such future tax refund claims have to be capitalised.

Their value depends on whether it is more likely than not that they can be used before they expire. In the fiscal year 2001/2002 the capitalised tax loss carry-forwards of all the consolidated companies of the SinnerSchrader Group were written down to zero owing to the uncertainty of realisation as of 31 August 2002.

D . E M P LOY E E S TO C K OPTION S

Under US-GAAP, stock-based compensation paid to staff can be stated on the balance sheet in two ways. According to one method the market value of the employee shareholding is determined and distributed as expense over the vesting time of the share option.

Alternatively, only the difference between the exercise price of an option and the market price of the stock concerned at the time the option was granted (intrinsic value) may be spread as expense over the vesting period. When applying the latter method, the impact on net income of accounting for stock-based compensation using the first method must be disclosed in a pro-forma calculation in the financial statements. SinnerSchrader AG has

58

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

selected the intrinsic value method to account for its stock-option plans.

As indicated, the difference between the market value of the underlying security and the exercise price of an option at the time of grant must under US-GAAP be treated as personnel expense pro rata over the vesting period of the option and carried accordingly as a deferred item in shareholders’ equity. As at the time of the grant, the intrinsic value of the options was negative, no personnel expense from the granting of share options needed to be taken into account under US-GAAP. Under the prevailing accounting practice pursuant to HGB, only the capital increase would be taken into account upon exercising of the options. Personnel expense is not taken into account.

E . E Q U I T Y C A P I TA L

Under HGB, the Company would have had to draw up consolidated financial statements for the first time following the acquisition of Sinner+Schrader Interactive Marketing GmbH and Sinner+Schrader Interactive Software GmbH on 27 August 1999. The difference between the investment stated at market value and the equity of the subsidiaries would have to be distributed in line with the actual values of the assets and liabilities included and the remaining amount would have to be stated as goodwill and either amortised over the expected useful life or netted with the capital reserve on the face of the balance sheet.

The subscribed capital of the Company would have been formed by the capital of the single financial statements.

Under US-GAAP, the capital consolidation of the Company was prepared in line with APB No. 16 “Business Combinations” as a “transaction under common control”, according to which the shares of SinnerSchrader IM and of SinnerSchrader IS are contributed to SinnerSchrader AG at the book value of the respective equity. Consequently, no remaining amount arose from these transactions under US-GAAP.

F. B U S I N E S S C O M B I N AT I O N S

SinnerSchrader AG paid for parts of the purchase price of its wholly owned subsidiary price by issuing new shares. Under US-GAAP, the cost of the acquisition for the purpose of first consolidation is determined in this case according to the average market value of the shares of SinnerSchrader AG in a representative period prior to and after announcement of the acquisition. Parts of the purchase price were subject to a variable price clause according to the business development of the company acquired. In this case the acquisition cost is based on the market value of the shares at the time at which the variable price components were finally determinable.

Under HGB, the acquisition costs would have been determined by the price at which the shares were issued.

In June 2001, the Financial Accounting Standard Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 141 and SFAS No. 142 establish new rules for the treatment of intangible assets and goodwill. They must be applied to all business years starting after 15 December 2001. Companies whose business year differs from the calendar year can, however, adopt the new rules already to business years that started after 15 March 2001. SinnerSchrader, whose business year 2001/2002 started on 1 September 2001, decided on early adoption of the new rules.

According to the rules for the changeover to the new standard SFAS No. 142, SinnerSchrader suspended the scheduled amortisations of goodwill at the date of adoption.

Scheduled amortisations of goodwill make way for an “impairment test” – carried out annually or as a result of triggering events – that results, if relevant, in a corresponding writedown of goodwill to the lower fair value ascertained in the course of the impairment test.

An impairment test must be carried out for the first time as of the date of the adoption of the new accounting rules. If necessary, write-downs required after this initial impairment

59

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

test are to be shown as “cumulative effects from the application of new accounting principles” net possible tax effects separately outside the operating result. The impairment test relates in each case to reporting units to which a part of the overall book value of the goodwill is to be allocated. The impairment test is carried out in two steps. In the first step, a fair value must be ascertained for the respective reporting unit. If this fair value exceeds the the book value of the net assets of the reporting unit, the need for a writedown of the goodwill does not arise. If the fair value of the reporting unit is below the book value, the fair value must – in the second step – be distributed among the reported assets and liabilities as well as any identifiable, unreported intangible assets excluding goodwill. If the remaining fair value (“implied fair value of goodwill”) is below the book value of the goodwill, a non-scheduled amortisation must be carried out. Accourding to SFAS No. 142, calculation of the fair value of a reporting unit must be performed on the basis of either a market value or the present value of the expected cash flow to be generated in the future by the reporting unit.

As specified in the changeover rules of SFAS No. 142, SinnerSchrader carried out an impairment test related to the changeover cut-off date in the second quarter of the 2001/2002 business year. In the second stage of the impairment test, the result of distributing the ascertained fair value among the assets reported in the balance sheet, without goodwill and liabilities, and among identifiable, but unreported assets of SinnerSchrader, was that there was that no residual value remaining for reported goodwill so that this prescribed non-scheduled amortisation is to be performed with retrospective effect as of 1 September 2001.

Comparable regulations do not exist within the HGB framework. Pursuant to Article 309 Para. 1 HGB, goodwill from equity consolidations has to be written off over the respective useful life according to schedule in principle or has to be set directly against reserves.

In accordance with HGB principles extraordinary write-offs to the lower attributable value could have been necessary result.

G. DE FE R RAL OF PE RSON N E L EXPE N S E

H. R EVE N U E R ECOG N ITION

60

In connection with the acquisition of Netmatic part of the purchase price paid in shares of the Company accrued indirectly to the staff of the acquired company. Under US-GAAP, this part is to be charged against income over the period over which the shares are likely to be issued to the employees. As these shares derive from a capital increase, the shareholders’ equity has to be corrected accordingly by a deferred compensation item. The deferred compensation item is dissovled pro rata through the retained earnings, so that at no time an increase of shareholders’ equity is shown for this portion of the capital increase.

Under HGB, this part of the capital increase would have been attributed to the acquisition cost and as a result would have increased goodwill.

Under US-GAAP, revenue for services is recognised in accordance with American Institute of Public Accountants Statement of Position (SOP) 81-1 “Accounting for performance of construction type and certain production type contracts”. Under US-GAAP services in process are entered according to the percentage of completion method in which the respective project progress leads to the proportional recognition of revenue. Application of the percentage of completion method is subject to the traceable and verifiable recording of project progress.

Under HGB, the completed contract method has to be applied under which services in process are included in inventories at manufacturing cost. The revenue is not taken into account until the services have been completed.

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

I . VA L U AT I O N O F S E C U R I T I E S C L A S S I fi E D AS CU R R E NT ASS ETS ( AVA I L A B L E - F O R - S A L E )

Under US-GAAP, securities under current assets are stated at their market value on the balance sheet date if they are held available-for-sale at any time. Gains or losses that have not yet been realised by sale are stated without affecting net income as an adjustment item in shareholdersâ&#x20AC;&#x2122; equity and are part of comprehensive income.

Under HGB, SinnerSchrader AG states securities classiďŹ ed as current assets at acquisition cost or market value, whichever is lower.

Hamburg, November 2002

MAT TH IAS SCH RADE R

DETLE F W ICH MAN N

THOMAS DYCK HOF F

61

C O N S O LI DATE D F I NAN C IAL STATE M E NTS

A U D I TO R S ’ O P I N I O N We have audited the consolidated financial statements, consisting of consolidated balance sheet, consolidated income statement, consolidated statement of shareholders’ equity, consolidated cash flow statement and notes to the consolidated financial statements of SinnerSchrader Aktiengesellschaft for the financial year from 1 September 2001 to 31 August 2002. The preparation and the content of the consolidated financial statements is the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US-GAAP), based on our audit.

We conducted our audit of the consolidated financial statements pursuant to German auditing standards and in compliance with the generally accepted auditing principles set forth by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The scope of the audit was planned taking into account our understanding of business operations, the Company’s economic and legal environment, and any anticipated potential errors. An audit includes examining, mainly on the basis of spot checks, evidence supporting the amounts and disclosures in the consolidated financial statements. The audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present a true and fair view of the financial position, the results, and cash flows of the Company in compliance with US-GAAP. Our audit, which also includes the management report for the financial year from 1 September 2001 to 31 August 2002, prepared by the legal representatives of the Company, did not give any cause for qualification. In our opinion the management report accurately presents, in all material respects, the situation of the Company and the risks arising from future developments. Furthermore, we confirm that the consolidated financial statements and the management report meet the requirements for an exemption to present consolidated financial statements and a management report according to German law.

Hamburg, 8 November 2002 Arthur Andersen Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft mbH

62

SCH N E I DE R

N E N DZA

Wirtschaftsprüfer

Wirtschaftsprüfer

F I N A N C I A L S TAT E M E N T S A G

63

F I NAN C IAL STATE M E NTS AG

BALAN C E S H E ETS O F S I N N E R S C H RAD E R AG as of 31 August 2002 and 31 August 2001

ASS ETS

31.08.2001

in €

in € 1)

110,108

281,568

431,356 966,305 – 1,397,661

332,255 519,658 71,807 923,720

8,000,000 8,000,000 9,507,769

24,558,362 24,558,362 25,763,650

18,089 2,370,393 1,786,253 4,156,735

– 1,227,339 2,470,232 3,697,571

112,095 25,974,678 26,086,773 1,390,957 31,634,465

– 24,834,540 24,834,540 3,929,493 32,461,604

60,645

56,565

41,202,879

58,281,819

Fixed assets: Intangible assets: Concessions, industrial property rights and similar rights and assets as well as licences in such rights and assets Tangible assets: Other equipment, plant and office equipment Leasehold improvements Advance payments Total tangible assets Financial assets: Shares in affiliated companies Total financial assets Total fixed assets Current assets: Receivables and other assets: Accounts receivable Receivables from affiliated companies Other assets Total receivables and other assets Securities: Treasury stock Other securities Total securities Cash on hand and in banks Total current assets Prepaid expenses

>

31.08.2002

Total assets

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

64

F I NAN C IAL STATE M E NTS AG

LIAB I LITI E S AN D S HAR E HOLDE R S’ EQU ITY

31.08.2002

31.08.2001

in €

in € 1)

11,542,764 27,109,898

10,412,246 41,422,500

112,095 1,272,431 – 40,037,188

– 1,413,251 471,083 53,719,080

–

3,063,704

– 403,610 403,610

270,459 199,271 469,730

522,808 31 2,119 233,044

157,605 – 0 871,700

758,002

1,029,305

4,079

–

41,202,879

58,281,819

Shareholders’ equity: Subscribed capital (Conditional capital  750,000; previous year:  750,000)

Capital surplus Reserves: Reserve for treasury stock Other reserves Retained earnings Total shareholders’ equity Contribution made for a capital increase not yet resolved Accruals: Accrued tax liabilities Other accrued liabilities Total accrued liabilities Liabilities: Trade payables Payables to affiliated companies Liabilities to companies in which investments are held Other liabilities thereof taxes  193,152 (previous year:  835,214) thereof relating to social security and similar obligations  24,609 (previous year:  21,727)

Total liabilities

Deferred revenues >

Total liabilities and shareholders’ equity

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

65

F I NAN C IAL STATE M E NTS AG

S TAT E M E N T S O F O P E R AT I O N S O F S I N N E R S C H R A D E R A G for the fiscal years 2001/2002 and 2000/2001 2001/2002

2000/2001

in €

in € 1)

2,126,580 277,326

1,379,162 400,535

- 1,424,934 - 190,496 - 1,615,430 - 455,601 - 2,581,463

- 1,243,783 - 133,935 - 1,377,718 - 76,954 - 2,034,519

–

3,640,385

771,938

214,616

1,428,855

1,037,711

- 16,738,150

- 434,082

–

- 17,809

- 144,113

- 27,159

Income from ordinary activities

- 16,930,058

2,704,168

Taxes on income Other taxes Net income/loss

185,046 - 584 - 16,745,596

- 1,061,096 - 404 1,642,668

Profit/loss carried forward Withdrawal from capital surplus Withdrawal from reserves: from reserves for treasury stock from other reserves Additions to reserves: to reserves for treasury stock to other reserves Balance sheet profit

471,083 16,245,788

60,416 –

28,725 140,820

– –

- 140,820 – –

– 1,232,001 471,083

Revenues Other operating income Personnel expense: Wages and salaries Social security Total personnel expense Depreciation of intangible assets, property and equipment Other operating expense Income from participations thereof from affiliated companies  0 (previous year:  3,640,385)

Income from profit/loss transfer agreements Other interest and similar income thereof from affiliated companies  53,070 (previous year:  30,328)

Depreciation of financial assets and securities classified as current assets Expense from profit/loss transfer agreements Interest and similar expense thereof from affiliated companies  140,260 (previous year:  22,586)

>

1) Prior-year balances were restated from DM into € using the exchange rate as of 1 January 1999 of DM 1.95583/€.

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F I NAN C IAL STATE M E NTS AG

N OT E S TO T H E F I N A N C I A L S TAT E M E N T S A S O F 3 1 A U G U S T 2 0 0 2

i. legal fundamentals The company is considered to be a large corporation as defined by Article 267 of the German Commercial Code (HGB). The annual financial statements were prepared in compliance with the regulations of the Commercial Code (HGB) and of the German Stock Corporation Act (AktG).

ii. accounting and valuation principles The annual financial statements are drawn up in Euro ().

Tangible and intangible assets are stated at acquisition or manufacturing cost less scheduled depreciation. The straight-line method of depreciation is applied with useful lives of three to fifteen years. The full annual rate of depreciation is applied to additions of movable assets in the first half of the fiscal year and half the annual rate to additions in the second half of the year. Low-value assets with acquisition costs of up to  410 are depreciated in full in the year of addition. Leasehold improvements are written off on a straight-line basis over the period of the lease contract since moving into the office in September 2001.

Financial assets are stated at purchase cost or at the lower value applicable on the balance sheet date.

Receivables and other assets are recorded at their nominal value. Receivables in foreign currency are stated at the original exchange rate or the exchange rate on the balance sheet date, whichever is lower.

Marketable securities are recorded at cost or market price, whichever is lower.

The other reserves were referred to as statutory reserves in previous financial statements.

Other accrued liabilities cover all recognisable risks. They are stated at the amount which appears necessary according to reasonable commercial judgement.

Liabilities are recorded at the amount repayable. Foreign currency liabilities are stated at the original exchange rate or the exchange rate prevailing on the balance sheet date, whichever is higher.

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F I NAN C IAL STATE M E NTS AG

iii. explanatory notes on items in the balance sheet A. FIXE D ASS ETS

The development of fixed assets is presented in the following schedule: 01.09.2001

RECLASS.

ADDITIONS

DISPOSALS

31.08.2002

300,388

–

106,623

–

407,011

393,993

35,042

272,166 126,756

519,658 71,807

36,765 - 71,807

533,221 –

24,716,885 167,900 51,129 26,221,760

– – – –

01.09.2001

RECLASS.

ADDITIONS

DISPOSALS

31.08.2002

18,820

–

278,083

–

296,903

61,738

–

82,564

1,213

143,089

– –

– –

94,955 –

– –

94,955 –

SALS AC QU I S ITION AN D M A N U FA C T U R I N G C O S T S IN €

Intangible assets: Concessions, industrial property rights and similar rights and assets, as well as licences for such rights and assets Tangible assets: Other equipment, plant and office equipment

>

A C C U M U L AT E D D E P R E C I AT I O N IN €

Leasehold improvements Advance payments Financial assets: Shares in affiliated companies Investments Loans to investee companies Total

28,384 –

574,445 1,061,260 –

121,152 – 24,838,037 – – 167,900 – – 51,129 1,033,162 155,140 27,099,782

Intangible assets: Concessions, industrial property rights and similar rights and assets, as well as licences for such rights and assets Tangible assets: Other equipment, plant and office equipment

>

N E T B O O K VA L U E S IN €

Leasehold improvements Advance payments Financial assets: Shares in affiliated companies Investments Loans to investee companies Total

158,522 167,900 51,129 458,109

– 16,679,515 – – – – – 17,135,117

– 16,838,037 – 167,900 – 51,129 1,213 17,592,013

01.09.2001

31.08.2002

281,568

110,108

Intangible assets: Concessions, industrial property rights and similar rights and assets, as well as licences for such rights and assets Tangible assets: Other equipment, plant and office equipment

>

68

Leasehold improvements Advance payments Financial assets: Shares in affiliated companies Investments Loans to investee companies Total

332,255

431,356

519,658 71,807

966,305 –

24,558,362 – – 25,763,650

8,000,000 – – 9,507,769

F I NAN C IAL STATE M E NTS AG

B . R E C E I VA B L E S A N D OT H E R A S S E T S

C. S ECU R ITI E S

Receivables and other assets in the amount of  4,156,735 are due within one year.

Receivables from associated companies, mainly from SinnerSchrader Deutschland GmbH, amount to  2,370,393. The other assets relate to a very large extent to corporation tax refund claims against the internal revenue service.

The securities consist of shares in money market and similar funds as well as corporate bonds with a term to maturity of less than two years, which are valued at acquisition cost.

D . T R E A S U R Y S TO C K

At the balance sheet date the company held 86,227 shares of its own common stock representing a nominal value of  86,227 or 0.75 % of the total subscribed capital. All shares were bought over the stock exchange at an average share price of  1.6331 during the fiscal year in the months of June, July and August 2002. Of the total treasury stock, 36,227 shares serve to meet a deferred purchase price obligation to the former shareholders of SinnerSchrader Netmatic GmbH. An additional 50,000 shares were repurchased for potential future acquisitions. The shares are recorded at the stock price as of the balance sheet date. The necessary write-down was recorded against the net loss and offset by a withdrawal from the reserves for treasury stock.

E . P R E PA I D E X P E N S E

Prepaid expense in the amount of  60,645 mainly consist of exceptional lease payments for company vehicles, insurance premiums and the annual fees for designated sponsors.

F. S H A R E C A P I TA L

The company’s subscribed capital amounted to  11,542,764 as of 31 August 2002. It is made up of 11,542,764 non-par value bearer shares with a nominal value of  1, of which 1,130,518 were subscribed from the authorised capital in the fiscal year 2001/2002.

By resolution of the Annual General Meeting of 8 October 1999, with supplement of 26 October 1999, the Management Board was authorised to increase the share capital by 30 September 2004, once or several times by up to  4,650,000 with the approval of the Supervisory Board by issuing non-par value bearer shares against cash contribution or contribution in kind without conferring subscription rights to existing shareholders (authorised capital II).

By resolution of the Management Board with the approval of the Supervisory Board of 12 December 2000, the share capital of the company was increased by  437,246 from the authorised capital II. The capital was increased by issuing new bearer shares against contribution in kind. The subject matter of the contribution in kind was the contribution of all shares in Netmatic Internet/Intranet Solutions GmbH, Hamburg, in accordance with the contribution agreement of 18 September 2000.

In addition a second capital increase by  1,130,518 from the authorised capital II was due for the contribution of all shares in Nematic. On 18 October 2001, the Management Board with the approval of the Supervisory Board passed the necessary resolution for this capital increase. On the balance sheet date the authorised capital amounted to  3,082,236.

By resolution of the Annual General Meeting of 26 October 1999, a conditional capital in the amount of  375,000 was created for the granting of rights to purchase 375,000 non-par value shares to employees and members of the management of the company and of affiliated companies (“1999 Option Programme”). Of the option rights available, 238,650 options with an average exercise price of  18.45 had been issued to employees of the company and of affiliated companies as at 31 August 2002. None of these option rights had been exercised as of the balance sheet date.

By resolution of the Annual Shareholders’ Meeting of 12 December 2000, a conditional capital in the amount of  375,000 was created for the granting of rights to purchase 375,000 non-par value shares to employees and members of the management of the company and of affiliated companies (“2000 Option Programme”). Of the option rights avail-

69

F I NAN C IAL STATE M E NTS AG

able, 131,000 options with an average exercise price of  2.76 were outstanding at 31 August 2002. None of these option rights had been exercised as of the balance sheet date.

G . C A P I TA L R E S E R V E

The capital reserve developed as follows in the 2001/2002 fiscal year: in €

Capital reserve as of 31.08.2001 Surplus from capital increases Withdrawal from capital reserve Capital reserve as of 31.08.2002

41,422,500 1,933,186 - 16,245,788 27,109,898

The surplus results from the capital increase for the payment of the second purchase price instalment for the acquisition/contribution of Netmatic Internet/Intranet Solutions GmbH. In order to balance the net loss,  16,245,788 were withdrawn from the capital reserve pursuant to Article 150 Para. 4 No. 1 AktG. H. R E S E RVE FOR T R E A S U R Y S TO C K

The reserve for treasury stock was set up in the amount of the acquisition costs of the shares at the time of the acquisition. The amount stated in the balance sheet includes the write-off of own shares to the stock price at the balance sheet date.

I . OT H E R R E S E R V E S

During the fiscal year  140,820 of the other reserves set up in the previous years were allocated to set up the reserve for treasury stock pursuant to Article 272 Para. 4 HGB.

J. AC CR U E D LIAB I LITI E S

The other accrued liabilities amounting to  403,610 were mainly set up for leasing obligations for unused office space, outstanding accounts, costs connected with the annual financial statements and holiday entitlements.

K. LIAB I LITI E S

All liabilities, which amount to  758,002, have a residual term of up to one year. The other liabilities mainly relate to value-added tax liabilities for the domestic Group for value-added tax purposes and liabilities for payroll and church tax.

iv. explanatory notes on items in the statement of operations A. R EVE N U E S

The revenues of  2,126,580 relate to management services provided by the company to the affiliated companies in the Group and to the charging on of proportional rent expense.

B . OT H E R O P E R AT I N G I NCOM E

The other operating income stems with an amount of  277,326 primarily from income from the sale of securities classified as current assets.

C. WR ITE- OFF OF I N TA N G I B L E A S S E T S

D. I NCOM E FROM P R O F I T / LO S S TRAN S FE R AG R E E M E NTS

70

The write-off includes a non-scheduled write-off of an acquired purchased trade name the course of the acquisition of Netmatic Internet/Intranet Solutions GmbH. On 31 October 2000, the Company signed a profit and loss transfer agreement with SinnerSchrader Deutschland GmbH (previously: SinnerSchrader Interactive Marketing GmbH), effective as of 1 September 2000. The reported earnings in the amount of  771,938 result from SinnerSchrader Deutschland GmbH’s fiscal year ended on 31 December 2001. The profit and loss transfer agreement was cancelled with effect from 31 December 2001.

F I NAN C IAL STATE M E NTS AG

E. WR ITE- OFF OF I NVE STM E NTS

F. I N T E R E S T I N C O M E AN D EXPE N S E

In addition to the write-off of the participation in SinnerSchrader Benelux BV after the termination of the operating activities of this company, the write-off of investments are predominantly characterised by a substantial value adjustment for the participation in SinnerSchrader Deutschland GmbH, Hamburg. This write-off reflects the sharp decline in the market valuations of companies in the sector in which SinnerSchrader Deutschland GmbH is active.

Interest income derives from the investment of liquid funds and other securities.

Interest expense was incurred within centralised liquidity management, which the company operates for its domestic subsidiaries.

v. other information A . OT H E R F I N A N C I A L O B L I G AT I O N S

The financial obligations mainly relate to fixed-term rent and lease contracts: in €

01.09.2002 - 31.08.2003 01.09.2003 - 31.08.2004 01.09.2004 - 31.08.2005 01.09.2005 - 31.08.2006 01.09.2006 - 31.08.2007 after 01.09.2007 Total

1,172,249 1,167,462 1,166,612 1,275,908 – – 4,782,231

In addition, the company had guarantee obligations arising from a guarantee in favour of the landlord of SinnerSchrader UK Limited, London, covering all obligations from the leasing agreement. The monthly lease amounted to about  10,000. The lease agreement was terminated on 23 October 2002.

B . E M P LOY E E S

C. MANAG E M E NT BOAR D

On 31 August 2002, the company employed 23 staff. An average of 23.75 staff were employed for the fiscal year 2001/2002.

The following were members of the Management Board in the fiscal year 2001/2002: M AT T H I A S S C H R A D E R ,

Chief Executive Officer Chief Executive Officer (until 31.08.2002) T H O M A S DYC K H O F F , Chief Financial Officer D E T L E F W I C H M A N N , Chief Technology Officer OLIVE R S I N N E R,

R E M U N E R AT I O N

Matthias Schrader Oliver Sinner Detlef Wichmann Thomas Dyckhoff

FIXE D SALARY

OTH E R B E N E FITS

VAR IAB LE COM PON E NTS

STOCK OPTIONS

127,920 127,920 102,258 102,258

12,897 6,749 9,583 9,589

– – – –

– – – –

The remuneration of the Management Board in the fiscal year totalled  499,174. All members of the Management Board are active for the company full time.

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F I NAN C IAL STATE M E NTS AG

D. S U P E RVI SORY BOAR D

The members of the Supervisory Board were as follows in the fiscal year: D R . M A R K U S C O N R A D , Chairman Managing Partner of Georg Lingenbrink GmbH & Co., Hamburg Member of the Supervisory Board of Tchibo Holding AG, Hamburg

F R I T Z R . S E I K O W S K Y , Deputy Chairman (until 31.05.2002), Managing Partner of DB Capital Partners, Frankfurt am Main

R E I N H A R D P Ö L L AT H , Deputy Chairman Attorney at Law, Munich Chairman of the Supervisory Board of Tchibo Holding AG, Hamburg Chairman of the Supervisory Board of Deutsche Woolworth GmbH & Co. OHG, Frankfurt am Main Chairman of the Supervisory Board of Tchibo Frisch-Röst-Kaffee GmbH, Hamburg Member of the Supervisory Board of Beiersdorf AG, Hamburg Member of the Supervisory Board of TA Triumph-Adler AG, Nuremberg Member of the Supervisory Board of F-LOG AG, Greven Member of the Supervisory Board of Tchibo Holding AG, Hamburg (dormant) Member of the Supervisory Board of Verwaltungsgesellschaft Otto Versand mbH, Hamburg

F R A N K N Ö R E N B E R G (until 13.06.2002) Attorney at Law and Managing Partner of Nörenberg, Schröder + Partner, Rechtsanwälte – Wirtschaftsprüfer – Steuerberater, Hamburg Chairman of the Supervisory Board of 7D AG, Hamburg Deputy Chairman of the Supervisory Board of Graphit Kropfmühl AG, Hautzenberg Member of the Supervisory Board of Albis Leasing AG, Hamburg Member of the Advisory Council of ODS Optical Disc Service GmbH, Dassow

The remuneration of the Supervisory Board totalled  18,000 in the fiscal year and is divided into 4/9 for the Chairman, 3/9 for the Deputy Chairman and 2/9 for the ordinary member in accordance with the statutes. In addition, a premium of  654 was paid for a directors’ and officers’ liability insurance for the Supervisory Board.

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F I NAN C IAL STATE M E NTS AG

E. I NVE STM E NTS

The shareholdings of SinnerSchrader Aktiengesellschaft are as follows: SHAR E in %

CU RR E NCY

NOM I NAL CAPITAL

EQU ITY CAPITAL

SinnerSchrader Deutschland GmbH, Hamburg1)

100.00

EUR

100,000 - 1,453,243 - 1,565,269

SinnerSchrader UK Ltd., London, UK2)

100.00

GBP

100,000

- 428,765

- 150,532

SinnerSchrader Benelux BV, Rotterdam, Netherlands3)6)

100.00

EUR

18,000

- 126,753

- 144,753

Netmatic Inc., Denver, USA4)

100.00

USD

5,000

- 199,220

- 156,252

24.94

EUR

53,250

na

na

COM PANY

LetMeShip GmbH, Hamburg5)

LAST AN N UAL R ESU LT

1) Partial fiscal year from 1 January to 31 August 2002 2) The business activities of the company were temporarily suspended in the previous year, the participation was completely written off as of last year’s balance date. The reported numbers refer to the period from 1 September 2001 to 31 August 2002.

3) The business activities of the company were terminated, the participation was completely written off as of 31 August 2002.

The reported numbers refer to the period from 1 February to 31 December 2002.

4) The participation is held indirectly through SinnerSchrader Deutschland GmbH as the legal successor of SinnerSchrader Netmatic GmbH. The operating activities of the company were terminated, the participation is completely written off as of 31 December 2001. The reported numbers refer to the period from 1 January to 30 November 2002.

5) The company filed for insolvency, current information regarding shareholders’ equity and earnings is not available. The participations was completely written off.

6) Shareholders’ equity as of 31 December 2001, net profit for 2001

Hamburg, November 2002

MAT TH IAS SCH RADE R

DETLE F W ICH MAN N

THOMAS DYCK HOF F

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F I NAN C IAL STATE M E NTS AG

ADDITIONAL I N F O R M AT I O N (U NAU DITE D)

additional information on the shares and share options held by board members of sinnerschrader ag (unaudited): The following table shows the ownership of shares of SinnerSchrader AG, which are held by the Members of the Management Board and the Supervisory Board, and the changes in ownership during the period under review from 1 September 2001 to 31 August 2002.

Management Board members: Oliver Sinner Matthias Schrader Detlef Wichmann Thomas Dyckhoff Total shares of the Management Board Supervisory Board members: Dr. Markus Conrad Reinhard Pöllath Frank Nörenberg 1) Fritz R. Seikowsky 2) Total shares of the Supervisory Board Total shares of the Board members

01.09.2001

ADDITIONS

DISPOSALS

31.08.2002

2,347,000 2,137,675 323,100 49,950 4,857,725

– – – – –

– – 208,100 – 208,100

2,347,000 2,137,675 115,000 49,950 4,649,625

187,500 – – 4,000 191,500

– – 1,000 – 1,000

60,000 – – 4,000 64,000

127,500 – 1,000 – 128,500

5,049,225

1,000

272,100

4,778,125

1) thereof 600 shares in his portfolio at his appointment to the Supervisory Board on 13 June 2002 and 400 shares from a purchase.

2) Resignation from the Supervisory Board on 31 May 2002

On 1 September 2001 and 31 August 2002, respectively, the members of the Management Board and of the Supervisory Board did not hold any options on shares in SinnerSchrader AG. In the period under review no additions or disposals of such options occurred.

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F I NAN C IAL STATE M E NTS AG

A U D I TO R S ’ O P I N I O N We have audited the financial statements including the accounting and the management report of SinnerSchrader Aktiengesellschaft for the financial year from 1 September 2001 to 31 August 2002. The legal representatives of the Company are responsible for the accounting and preparation of the financial statements and management report in compliance with German commercial law and the supplementary regulations in the articles of association. Our responsibility is to express an opinion, based on our audit, on the financial statements, including the accounting, and on the management report.

We conducted our audit of the financial statements pursuant to Article 317 HGB and in compliance with the generally accepted auditing principles set down by the Institut der Wirtschaftsprüfer (IDW). These standards require that we plan and perform the audit to obtain reasonable assurance that inaccuracies and violations are recognised which significantly affect the presentation of the assets, liabilities, financial position and results of the Company as conveyed by the financial statements, in compliance with generally accepted accounting principles, and by the management report. The scope of the audit was planned taking into account our understanding of business operations, the Company´s economic and legal environment, and any potential errors anticipated. In the course of the audit, the effectiveness of the system of internal controls has been assessed and the disclosures made in the accounting, financial statements and management report have been verified, mainly on the basis of spot checks. The audit also includes assessing the accounting principles used and significant estimates made by the legal representatives, as well as evaluating the overall presentation of the financial statements and the management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit did not give any cause for qualification.

In our opinion, the financial statements are in compliance with generally accepted accounting principles and present a true and fair view of the assets, liabilities, financial position and results of the Company. In all material respects, the management report accurately presents the situation of the Company and the risks arising from future developments.

Hamburg, 5 November 2001 Arthur Andersen Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft mbH

SCH N E I DE R

N E N DZA

Wirtschaftsprüfer

Wirtschaftsprüfer

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S U P E RVI S O RY B OAR D R E P O RT

S U P E R V I S O RY B O A R D R E P O R T The Supervisory Board intensely monitored the business development of SinnerSchrader Aktiengesellschaft in the fiscal year 2001/2002. To this end it was kept informed by the Management Board inside and outside the ordinary meetings about the position and business development of the company as well as about major business transactions. On this basis the Supervisory Board fulfilled its tasks under law and the Articles of Association and supervised the conduct of business by the Management Board.

S U P E RVI SORY BOAR D M E ETI NG S

During the past business year the Supervisory Board met for five ordinary meetings and one conference call. In addition, urgent decisions were taken by round-robin resolutions. The Supervisory Board did not form any committees.

M E M B E RS OF TH E MANAG E M E NT AN D S U P E RVI SORY BOAR D

With effect from 31 May 2002 Fritz R. Seikowsky resigned from his position as Deputy Chairman of the Supervisory Board of SinnerSchrader Aktiengesellschaft. On request of the Board of Management, Frank Nörenberg, Attorney-at-Law in Hamburg, was appointed Member of the Supervisory Board by the Register Court on 13 June 2002. Reinhard Pöllath was appointed Deputy Chairman of the Supervisory Board.

At its meeting on 11 July 2002 the Supervisory Board decided upon the future members of the Management Board. Matthias Schrader, Detlef Wichmann and Thomas Dyckhoff were appointed to the Management Board again. On request of Oliver Sinner his term was not prolonged. He resigned from his position effective 31 August 2002. Mr. Sinner founded the company in 1996 together with Matthias Schrader, expanded the enterprise to a successful, reputable service provider and led the Company to its IPO in 1999. The Supervisory Board expresses its gratitude to Oliver Sinner for his work on the Management Board. Mr. Sinner will remain the largest individual shareholder.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A N D S TAT E M E N T A G

76

The accounting and annual financial statements of SinnerSchrader Aktiengesellschaft as well as the consolidated accounts drawn up under Article 292 a of the German Commercial Code (HGB) with discharging effect on the basis of the US generally accepted accounting standards (US-GAAP) including the joint Status Report for the Group and for SinnerSchrader Aktiengesellschaft were audited by Arthur Andersen Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft mbH, Hamburg, as appointed by the Supervisory Board, and received an unqualified audit opinion in November 2002.

At two meetings in November, the Supervisory Board discussed the annual financial statements and consolidated accounts in detail in the presence of the auditor and the Management Board. The Supervisory Board had no objections and endorsed the results of the audit. On the basis of the audit report, the Supervisory Board approved the annual financial statements drawn up by the Management Board after its own examination; they are thereby confirmed.

S U P E RVI S O RY B OAR D R E P O RT

B US I N E SS D E V E LO P M E N T

The past fiscal year 2001/2002 was characterised by a further deterioration in the general economic conditions and in the demand for IT and Internet services. The resulting steep decline in sales was responsible for considerable operating losses. In addition, the company accounted for the massive drop in market valuations for companies of the IT/Internet sector through extraordinary write-offs. The Management Board and the Supervisory Board intensively discussed the measures to be taken in the light of the business development. In addition to the termination of operating activities of the international subsidiaries, significant reductions in the workforce were the main outcome. It is the target of these measures to lead SinnerSchrader back to operating profitability in the fiscal year 2002/2003. The Supervisory Board will fully support its implementation by the Management Board.

The Supervisory Board expresses its thanks to the Management Board and all the staff for their commitment and efforts.

Hamburg, November 2002

DR. MAR KUS CON RAD

Chairman of the Supervisory Board

77

B OAR D S

management board and supervisory board of sinnerschrader aktiengesellschaft

M AT T H I A S SCH RADE R

DETLE F WICH MAN N

THOMAS DYC K H O F F

78

Matthias Schrader studied Computer Science and History and worked as an editor for several trade journals during his studies. Together with Oliver Sinner he founded sinner+schrader GbR in 1996, which was later converted to SinnerSchrader Interactive Marketing GmbH. In 1999, SinnerSchrader AG was founded.It was jointly headed by Matthias Schrader and Oliver Sinner as CEOs and went public in November 1999. Since 1 September 2002 Matthias Schrader has been the sole CEO and responsible among others for the segments Strategy, Business Development, Sales and Corporate Communications, etc.

Detlef Wichmann is Chief Operating Officer. Following his studies of Technical Computer Science he worked as a software developer for Sun and Adobe and then went on to head the Professional Services department at Intershop Communications AG. As COO Detlef Wichmann is responsible for the sectororiented Solution Center, the Business Management Services, as well as Research & Development, Quality Assurance and System Administration.

Thomas Dyckhoff studied Computer Science in Karlsruhe and earned an MBA degree in Washington DC, USA. From 1991-1998 he worked for Daimler-Benz AG in Stuttgart in the Group Treasury, Risk Management, Group Controlling departments and was Head of Group Reporting before he moved to debis Systemhaus GmbH as senior manager Acquisitions.

As CFO Thomas Dyckhoff is responsible for the Finance, Controlling and Human Resources segments.

DR. MAR KUS CON RAD

After completing his studies of Business Administration and receiving a Dr. rer. pol. title, Dr. Markus Conrad graduated with an MBA from the renowned INSEAD in Fontainebleau in France.

After working for the consulting company Bain & Company for five years, Dr. Markus Conrad was appointed Managing Partner of Georg Lingenbrink GmbH & Co. in Hamburg.

R E I N HAR D P Ö L L AT H

Reinhard Pöllath has been working as an Attorney-at-Law for 25 years after finishing his Law studies. From 1980-93 he was a partner in a German law firm, before working as a consultant for an international law firm and as a general manager for a real estate and hotel company from 1993-97. In 1997 Reinhard Pöllath founded P + P Pöllath + Partner with offices in Berlin, Frankfurt and Munich. Reinhard Pöllath works as an advisor for family-owned enterprises and high net worth individuals, mergers & acquisitions, company successions as well as foundations and trusts.

FRAN K NÖR E N B E RG

After his Law studies in Hamburg and a simultaneous apprenticeship at a Hamburg-based private bank, he became self-employed as a founding partner of the law firm Nörenberg, Schröder & Partner, Rechtsanwälte + Wirtschaftsprüfer (Attorneys + Auditors), in Hamburg in 1978. Since the mid-1980s his professional focus has been M & A, company law, industrial property rights, company structures and the law of succession. In addition, he pursues direct and indirect business activities through participations in several larger mediumsized companies in Germany and abroad.

management board

supervisory board

M AT T H I A S S C H R A D E R

DR. MAR KUS CON RAD

C H I E F E X E C UTIVE O F F I C E R

C HAI R MAN

DETLE F W ICH MAN N

R E I N H A R D P Ö L L AT H

C H I E F O P E RATI N G O F F I C E R

D E P UTY C HAI R MAN

FRAN K NÖR E N B E RG T H O M A S DYC K H O F F

M E M B E R O F TH E

C H I E F F I NAN C IAL O F F I C E R

S U P E RVI S O RY B OAR D

I N V E S TO R R E L AT I O N S

SinnerSchrader Aktiengesellschaft Investor Relations Julia Kretschmann GasstraĂ&#x;e 8â&#x20AC;&#x201C;16 22761 Hamburg Germany

Phone: +49 (0)40 39 88 55-0 Fax: +49 (0)40 39 88 55-55 eMail: ir@sinnerschrader.com www.sinnerschrader.com