PART I.
Caution Respecting Forward Looking Statements
Certain statements in this Form 10-KSB may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the word “estimate”, “project”, “intend,” “expect,” “believe,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled to” or “anticipates,” or variations of these terms or comparable language, or by discussions of strategy or intentions, when used in connection with our business, operations and management.
These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements with respect to our business, operations and management include, but are not limited to, the risks and uncertainties affecting our business.
Currency of Financial Information and Exchange Rate Table
We maintain our books of account in Canadian dollars and references to the dollar amounts herein are to the lawful currency of Canada unless otherwise designated.
Item 1. DESCRIPTION OF BUSINESS
OVERVIEW
Since 1998, ZooLink Communications Ltd. has traditionally been a provider of Internet access and networking services, more recently with an emphasis on high speed wireless connectivity within a wide area network. Our primary services include providing Internet access over telecommunications lines, and over fixed wireless networks. We also offer web-hosting, server co-location, and managed hosting services.
In 2002 we implemented a new and unique business strategy focusing on the acquisition and upgrade of data centers. These next generation data centers will each operate as a replicable business unit with upgraded and packaged services being offered to customers. We use the term Intelligent Data Centers to describe these business units, which will use our proprietary management software. These Intelligent Data Centers will serve as the platform for our Web based services including server co-location, web-hosting, dedicated hosting and related managed services. Our Intelligent Data Center strategy involves locating distressed data centers that can be acquired on favorable terms. The low acquisition costs provide us with a competitive advantage over other server co-location providers that incurred large expenses in developing a data center and related infrastructure. The primary focus for sales of services using our Intelligent Data Center platforms will be of server co-location services. Server co-location is a
growing segment of the internet services industry, which we believe can achieve margins that are greater than other internet services offered by us. We believe that based on current market conditions, this strategy will permit ZooLink to operate its data centers at break-even levels at approximately 10% of capacity for any particular data center unit. We plan to seek suitable data centers for acquisition in both the United States and Canada.
CORPORATE HISTORY
ZooLink began operations in 1998 as an Internet Service Provider (ISP). We were originally incorporated on August 31, 1998 under the British Columbia Company Act. In November 2000, we underwent a reorganization of our share capital prior to a financing and were continued under the Business Corporations Act (Canada).
In November of 2002, we completed a reverse merger with Netj.com Corp, a Nevada corporation, whereby our Canadian company became a wholly owned subsidiary of Netj.com. Netj.com was originally incorporated in the State of Texas on August 24, 1995, and was reincorporated in the State of Nevada on January 23, 1998, as Professional Recovery Systems, Ltd., with the intent of initiating an agency for the collection of past due accounts, in the medical profession particularly. On or about August 1, 1999, we determined that our original business plan was not viable. On July 16, 1999, we changed corporate name to NetBanx.com Corp., and on November 2, 1999, we changed our corporate name again to NetJ.com Corp. No change of control or management, acquisition, or agreement for acquisition, merger or combination accompanied either of these corporate situs or name changes. The second name change was occasioned by the discovery of a conflict with the name of another unrelated company. The transition from Texas to Nevada was occasioned by former management's determination that Nevada does not impose a corporate income tax, but only an annual fixed franchise fee.
Our head office and principal place of business is located at 1800-1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9. On August 1, 2001, ZooLink opened a second office located at 220 - 101 6th Ave SW, Calgary, Alberta, Canada, T2P 3P4. Our resident agent in the State of Nevada is Vegas Publications, 106-5160 South Valley View, Las Vegas, Nevada 89118.
INDUSTRY OVERVIEW
We compete in the Internet services market. Since the commercialization of the Internet in the early 1990s businesses have rapidly established corporate Internet sites and connectivity as a means to expand customer reach and improve communications efficiency. Internet access service is still a fast growing segment of the global telecommunications services market. According to International Data Corporation, the number of Internet users worldwide is forecasted to grow to over 600 million by the year 2003. Internet access services represent the means by which Internet service providers interconnect users to the Internet or to corporate intranets and extranets. Access services include dial-up access for mobile workers and ses and high-speed dedicated access used primarily by mid-sized and larger organizations. In addition to Internet access services, Internet services providers are increasingly providing a range of value-added services, including shared and dedicated web hosting and server co-location, security services, and advanced applications such as IP-based voice, fax and video services.
A description of the industry for each segment we compete in follows.
Value-added Internet services
Value-added services are required in order to establish a high quality, reliable Web site or to run a Web-based application on the Internet. Businesses with Web-centric operations must, among other things, procure and integrate sophisticated hardware and software, hire and retain an operations support staff or consultants, develop application specific technical skills, and have access to a secure, fault-tolerant physical location and redundant Internet connectivity. While it is possible for a business to assemble all of these elements in-house, many companies elect to outsource all or a portion of their Internet operations to companies offering hosting services. Hosting companies, in general, provide various infrastructure-related services, including secure, monitored data centers, uninterrupted power supply and high-speed network connectivity. These services can often be offered at a significant cost savings compared to maintaining them in-house. We categorize the market for outsourced Web hosting services into the following:
Shared Hosting: Customers share server hardware, software and bandwidth with other customers. Shared hosting provides a price competitive entry point for individuals and businesses desiring a simple Web site.
Dedicated Hosting: Customers are provided with a server including hardware, software and bandwidth, however the server is not shared with other users. This provides greater bandwidth and data storage ability to the customer.
Co-location Hosting: Customers own their hardware, software and network equipment, which is housed off-site at the hosting company's facilities. The customers retain responsibility for the installation, management, upgrading and security of their hardware and Web sites. While co-location requires the customer to assume the majority of the responsibilities for the operation of its Web site, co-location has been and remains an attractive option for Web-centric companies with advanced in-house Internet expertise.
Managed Hosting: Customers are provided a complete hosting solution. Unlike co-location, the service provider supplies the hardware, software, Network equipment and support necessary to run the Web site or application. Managed hosting today includes dedicated services as well as value-added services, such as firewall management, stress testing and consulting services. As Web-enabled IT solutions have become more complex, even large and technically astute businesses have found Internet technologies and applications a challenge to manage. For such companies, including many Fortune 2000 companies, managed hosting has become a preferred alternative.
A variety of companies, including other ISPs and large systems integrators, offer products and services that attempt to address Internet outsourcing needs. However, we believe the services offered by these companies fail to address certain elements required to ensure that customers' Internet operations are reliable, scalable and responsive. ISPs have traditionally focused on providing Internet access and many have not developed the technical expertise and physical resources to support mission-critical Web sites and applications. In addition, many large systems integrators focus primarily on large enterprises and traditional information technologies. As a result, we believe a significant opportunity exists for companies to provide a combination of complex hosting, outsourced applications management and professional consulting services that enable businesses to implement reliable, high-performance and cost effective Internet solutions.
Internet Connectivity Services
We also compete in the traditional telephone access and high-speed internet connectivity industry segment. We are seeking to establish ourselves as a leader in fixed wireless Internet connectivity. Fixed
wireless refers to establishing fixed points within an area that communicate through wireless communications. Each point can in turn be connected to a local area network. For example, within a city, wireless antennae can be mounted atop office and residential hi-rises. Those antennae will receive and transmit data for end users within the network connected to the antennae. Wireless connectivity competes with other high-speed Internet connections, such as co-axial cable, dedicated telephone lines, satellite wireless and fiber optic cable. The advantage of fixed wireless is the relatively low cost of installation, as no hard wires or able is required to be installed between buildings.
Recently, we have emphasized on the high-speed wireless market. According to research from International Data Corp. wireless Internet use is expected to grow rapidly through 2003. "Currently, there are about five million wireless Internet subscribers around the world. By 2003, there will be almost 330 million users, which would account for 55% of all users of the Internet, according to International Data Corp." [Source: Business Week, 5 June 2000, page EB16.]
We believe that the growing demand for access to information is shaping the future of wireless communications. To achieve the vision of truly mobile information, the next-generation of wireless services will provide higher voice quality, expanded coverage, seamless global roaming, high speed data, and a full range of broadband multimedia services, including full motion video, video conferencing, and Internet access. Additional services will include on-demand medical imaging, real-time road maps, and anytime, anywhere video conferencing. The design and deployment of such next generation systems will require new multimedia-capable networking, and specifications that ensure that the new wireless infrastructure is both specific enough to deliver planned services and flexible enough to provide services that have not been conceived.
The rapidly growing demand for high-speed communications capabilities is a global phenomenon. Even more so than in the United States and Canada, very few of the commercial office buildings in major cities abroad are directly connected to fiber or other broadband alternatives. At the same time, many countries are beginning to open up their communications markets to competition and to make available spectrum rights that are suited to broadband communications services. Therefore, we believe there is a significant first-to-market opportunity for us to obtain spectrum rights and sell our broadband communications services in selected markets abroad. We expect to use our experience in building and operating fixed wireless broadband networks to successfully compete in these overseas markets. For these reasons, we plan to acquire spectrum, build fixed wireless local networks and sell communications services and our other products and services in overseas markets.
The effect of the dot-com era
In the 1990's, many new Internet businesses were founded and funding was readily available to permit these businesses to grow prior to achieving significant revenues or earnings. Many of these companies were ahead of their time in the services offered, or simply had a business model that could not be sustained without incurring expenses that exceeded revenues due to lack of demand or too much supply of similar services from competitors. This phenomena is commonly referred to as the Internet or technology bubble, and in the public markets was characterized by companies with unsustainable price to earnings ratios. The bubble burst, resulting in the loss of funding for many of these companies, who subsequently were forced to cease their existing Internet business. This burst represents a contradictory phase in the Internet services industry, where companies without funding or significant revenues are disappearing, or being acquired by their competitors at low valuations.
The contraction in the Internet services industry has presented opportunities for consolidation amongst service providers. Of particular interest to ZooLink is the contraction in co-location and hosting services.
One aspect of this opportunity is a result of the significant number of data centers that were developed during the dot-com era at high cost. The high costs of these data centers meant that companies had to maintain operations of the data center at near full capacity in order to break even. As too many data centers were built, excess capacity in the market has meant many companies failing or disposing of their Internet businesses. This has resulted, and continues to result, in the liquidation or sale of their data centers. Accordingly over-all capacity in the market is decreasing as data-centers are liquidated or consolidated into other operations.
We believe that fundamentally the Internet services industry is a growing industry. Hosting and managed services continue to become a recognized alternative to in-house solutions for many businesses in North America, and worldwide. These factors when combined suggest a unique opportunity now exists in the market to acquire and establish operations at data centers, at minimal cost. Based on current market pricing and availability, these salvaged data centers can operate at break-even at approximately 10% capacity. We believe this opportunity will last through the contraction phase of the Internet services industry.
A second opportunity that arises as a result of the contraction in the Internet services industry is the ability to consolidate operations among businesses in order to reduce excess capacity of data-centers, and increase earnings from operations of those data-centers.
OUR SERVICES
Co-Location
We are implementing a business strategy that focuses on server co-location services. Co-location will be offered from our upgraded Intelligent Data Center platforms.
Our Intelligent Data Centers enable our customers to house their business-critical Internet servers in a state of the art data center, providing them a high level of security, bandwidth management and reliable redundant connectivity. Our co-location service is also targeted to Web-centric businesses, such as Internet Service Providers, Applications Service Providers, Content Providers and Carriers.
Our Intelligent Data Centers are designed to be robust and technologically current as necessary to ensure a company's mission critical applications are running uninterrupted 24 hours a day, 7 days a week. Security is one of our top priorities to protect against cyber terrorism. Our facilities are fully monitored around the clock and include biometric palm readers, motion sensors, security cameras, mantraps and other features including network security to prevent unauthorized intrusions. Our facilities also feature climate control and fire suppression systems.
The following are some of the benefits associated with our co-location services:
– Access to carrier grade space available in major metropolitan cities across Canada allowing customers to locate as close to their end users as possible;
– Wide range of connectivity options available at up to 60% discount;
– 24 hour per day unescorted access to customer’s equipment;
– 24 hour per day manned security on premise;
– 24 hour per day video surveillance and monitoring;
– 24 hour technical support and systems administration support;
– Redundant power backup systems;
– Redundant environmental control systems;
– Redundant connectivity, peering and network architecture; and
– Fire suppression systems.
We have also developed a family of proprietary software technologies to enhance our co-location services. In early 2002 we launched ControlSysTM, a web based control system that allows customers to administer certain aspects of their Internet infrastructure online through a standard Web browser.
We are also developing a proprietary software technology called RADSysTM. RADSysTM provides continuous diagnostic feedback to our customers, including reporting, analyzing, and diagnosing their Internet infrastructure. RADSysTM has been under development since January 2002 and will be available in Beta version commencing November 2002 with plans to launch a finalized version of the software in the first quarter of 2003. Our newly acquired data center in Calgary, Alberta will be the first facility to employ RADSysTM.
Co-Location Space
Customers may select options to accommodate their space needs, including single or multiple server co-locations on shared racks, or may request a secured cage for their servers exclusively.
ZooLink provides great flexibility in connectivity for its Co-location clients. Bandwidth is available on a flat rate or usage basis. ZooLink also provides Ultra-line, a service for those customers wanting to build redundancy into their networks. All bandwidth services are monitored and reports are made available online daily.
Managed Services
We have developed a new and unique innovative package of managed services. Our managed services provides customers with a broad and flexible set of packaged services, including industry leading systems and hardware solutions to network services and security. We have selected a number of manufacturers to offer its customers the best in dependable and reliable dedicated server solutions. Our system solutions enable customers to rent bundled server packages for 12 or 24 months allowing companies to conserve valuable capital.
We realize that managing a network can be a difficult task. We have introduced a number of network services to help customer’s set-up and manage their network. We have also partnered with major hardware and software vendors to offer clients support services for their network.
We also offer our customers a full suite of information backup and restoration services to prevent data loss.
Security is another major concern for our customers and has become one of the most critical components of their business on the Internet. ZooLink's security specialists can assist clients in evaluating and minimizing their security risks through security audits, server hardening, firewalls and consulting services.
Managed Hosting
We have built a technically innovative Web hosting service platform. Our Web hosting services are fully automated and are accessible via the Internet, allowing us to offer hosting services to business customers nationally and internationally. Our extensive array of Web hosting solutions, including fully managed Web hosting services, are designed based on four main cornerstone features: performance, reliability, convenience and security.
Our network has been designed for maximum performance from world-class peering arrangements with global carriers to highly available Storage Area Network servers. ZooLink's servers are separated into specialized pools of services that are load balanced to ensure reliable service during periods of high demand loads.
Our Web hosting servers are housed at our secure Intelligent Data Centers. Customer Web-sites are backed up daily and archives are kept in safe offsite locations. Our network is designed for security with redundant backbone links and banks of redundant servers incorporated into a network designed to avoid a single point of failure.
Wired & Wireless Connectivity
We provide reliable, flexible and fast broadband Internet access services to businesses. To offer these services, we have built a technically innovative self-healing network engineered from the ground up to deliver speed and reliability with redundant connectivity to multiple carriers. We have also created several peering arrangements to ensure the fastest route for customer Internet traffic. We offer both wired and wireless Internet connections on our network. These are described below.
Wired Connectivity
To facilitate wired connectivity between ZooLink's network and its customers, we typically purchases "local loops” from telecommunications companies. These "local loops” are typically copper wire, the remnants of telecommunications companies legacy networks, or expensive fiber-optic cable, the construction of which has slowed substantially in recent years due to the high cost of build out. We lease these third-party connections and offer them to customers seeking traditional and high-speed services.
Wireless Connectivity
We also offer fixed wireless Internet connectivity. Wireless Internet service is far more economical and robust than landlines. We offer wireless services for dedicated wireless Internet connectivity with speeds starting from 10 Mbps up to 1 Gbps for those customers that have high bandwidth requirements.
We believe fixed wireless infrastructure provides an optimal solution for delivering broadband capacity across the last mile. In contrast to fiber optic cable, the majority of the cost associated with establishing fixed wireless connections is related to technology and equipment, the cost of which has decreased over time. As such, we are able to connect customer buildings at substantially lower cost than a fiber optic network. This cost advantage enables us to economically deliver broadband capacity,
services and applications to a larger addressable market than would otherwise be possible with fiber-optic cable.
Our typical customer is serviced by placing a 12-inch digital microwave antenna on the roof of the customer's building. The customer's data traffic travels from the customer's premises over the building's internal wiring to this rooftop antenna. The traffic is then routed via wireless transmission to another antenna on a nearby hub site building, which has a direct line of site to the antenna on the customer's building. Hub sites serve as aggregation points for the reception and distribution of its customer's data traffic. Hub sites are connected to each other via high-speed wireless links in a concentric arrangement for redundancy.
We offer several wireless connectivity options including shared connectivity delivered over our proprietary AirDSL service. AirDSL is a competitive offering to wired ADSL service. Both ADSL and AirDSL are offered by us at very similar future sets and price structure. AirDSL is essentially a point to point wireless connection that is then distributed to certain customer suites throughout a connected building by wired or wireless means. AirDSL is a fully managed service where we control bandwidth, billing and customer usage through an intelligent distribution switch placed in each building. AirDSL essentially allows us to spread the cost of wireless connectivity amongst several customers enabling us to offer them lower price points.
Most of our wireless services fall under the microwave portion of the electro-magnetic spectrum between 2.4 GHz and 38 GHz. ZooLink's products generally fall under two main categories, "License-exempt" and "Licensed." Generally, Licensed products require regulatory approval before deployment while License-exempt products can be deployed without any regulatory approval. Roughly 80% of ZooLink's wireless services utilize license-exempt frequencies.
MARKET
The market for the services offered through our Intelligent Data Centers is primarily Web-centric businesses, such as Internet Service Providers (ISPs), Applications Service Providers (ASPs), Content Providers and Carriers. Our customers primarily use its services to maintain complex computer equipment in a secure, fault-tolerant environment with connectivity to a high-speed, high-capacity, direct link to the Internet and to support complex Internet applications. ZooLink currently offers its services from its Intelligent Data Center facilities in the cities of Vancouver and Calgary, Canada. ZooLink plans to acquire and develop additional data centers in Canada and the US.
ZooLink has also created a comprehensive set of Managed Internet services to provide its our customers the ability to outsource the technical administration of their Internet infrastructure, which is becoming too complex to manage and protect easily. Through these services ZooLink is able to help protect enterprises from downtime and other problems caused by security breaches, catastrophic events, business spikes, or even routine, planned outages. ZooLink's IT experts help deploy Internet-based systems and provide the ongoing monitoring and management of the Internet access, hosted Web sites, security devices, and storage facilities upon which these systems are built.
Our wired and wireless Internet connectivity and related consulting services are currently offered in Vancouver and Calgary only.
MARKETING
We are currently implementing a number of traditional and innovative sales and marketing initiatives as follows:
Strategic Alliances - We have implemented a number of strategic alliances and relationships including various marketing and technology sharing programs that have promoted the adoption of our services and technology with customers. We are continuously seeking additional relationships among industry leaders in areas that support our efforts in the co-location, hosting, and managed services industries, especially in the further development and deployment of innovative managed services.
Advertising - We have developed a marketing plan that includes print advertising, direct mail, trade shows and Internet links to spotlight our co-location, web site hosting and managed services. We also utilize traditional mediums like the Yellow Pages, newsprint and brochures to specifically target customers. We also have sales and customer support representatives that meet directly with these businesses to offer our services and answer any questions the customer may have.
Telemarketing Campaigns - We will utilize telemarketing companies to carry out telemarketing campaigns geared to identify qualified leads, follow-up on sales progress to the qualified leads, and offer assurance that new potential contact lists are current and accurate.
Direct Sales - We utilize direct sales that uses various methods for reaching potential customers to generate interest, answer questions, follow up telemarketing leads and close the sales cycle.
Product Licensing & Rebranding - We will also seek to access target markets through product licensing and rebranded offerings to market aggregators, or industry, or occupation-related organizations possessing established affiliations with the target market. Likely candidates for product licensing and rebranded offerings include ISPs, ASPs, Telecom companies and others.
Referral Program - We are implementing a comprehensive referral program that compensates customers and others that refer business to us. Our referral program will be primarily targeted at ADSL and Web Hosting services that are more suited to this type of sales medium.
Channel Partnerships - We will engage in strategic partnerships with consulting and systems integration firms that provide IT expertise, goods, services and other resources to our target market segment. Partnerships provide access to large customer bases, in exchange for financial or in-kind considerations.
COMPETITION
The markets that we serve are intensely competitive. The main barrier to entry is the significant investment required to create a state-of-the-art data center and supporting infrastructure and personnel. The principal competitive factors in this market include:
– Quality of service delivery and scalability of infrastructure;
– Quality of customer service and support;
– Multiple levels of services offered;
– Network capacity, reliability, security and adaptability to new technologies;
– Internet system engineering expertise;
– Technical expertise with multiple platforms, protocols and industry standards;
– Relationships with technology partners and vendors;
– Number and geographic presence of sales and technical support personnel;
– Price;
– Financial resources; and
– Brand name.
Our focus is on our core competency of Co-location and managed hosting. We believe our technical team, focus, and experience distinguishes it from its competition and enables it to provide quality, managed hosting solutions.
Our current and potential competitors include:
Internet Service Providers: Internet service providers with a significant regional, national or global presence targeting business customers. Many of these companies primary focus is providing Internet access services but many have established hosting or co-location offerings.
Telecommunications Carriers: Many large carriers, including AT&T Corp., Cable & Wireless plc, Telus Communications, Bell Canada and Sprint Corporation, offer data networking and Internet access services. They compete with us by bundling various services such as local and long distance voice, data transmission and video services to their business customers. We believe that there is a move toward horizontal integration by telecommunications companies through acquisitions of or joint ventures with Internet service providers to meet the Internet access and data networking requirements of business customers. Accordingly, we expect to experience increased competition from these telecommunications carriers.
Managed Hosting Competitors: There are more limited competitors in the managed hosting market. Carriers and Internet service providers are also entering the managed hosting market, including AT&T, Sprint and Qwest.
EMPLOYEES
ZooLink employs eleven full and part-time staff at its facilities in Vancouver, British Columbia and Calgary, Alberta.
