Annual Report 2001

ANNUAL REPORT

2001

Annual Report 2001

HIGHLIGHTS

THE PARENT COMPANYAcotel Group S.p.A.

Headquarters Via della valle dei Fontanili 29

00168 Roma

Share capital Approved: Euro 1,144,000

Subscribed: Euro 1,084,200

Paid in: Euro 1,084,200

Companies' register no. 102569/2000 - Court of Rome

OPERATING PERFORMANCE

(thousands of euros) 2001 2000 1999Pro-forma Pro-forma

REVENUES 21,779 10,685 4,130 ADDED VALUE 13,799 6,643 2,243 EBITDA 9,135 5,203 1,884 EBIT 4,672 1,968 959 NET INCOME 5,194 1,382 248 FINANCIAL POSITION

(thousands of euros) 2001 2000 1999Pro-forma Pro-forma

INVESTED CAPITAL 79,766 69,347 5,450 NET WORKING CAPITAL 52,361 54,352 1,163 NET LIQUIDITY (DEBT) 37,695 50,965 (2,221)OPERATING CASH FLOW 9,708 4,553 2,381

Annual Report 2001

-

5.000

10.000

15.000

20.000

25.000

1999 2000 2001

+ 159%

+ 105%

-

1.000

2.000

3.000

4.000

5.000

6.000

1999 2000 2001

+ 457%

+ 276%

-

2.500

5.000

7.500

10.000

1999 2000 2001

+ 176%

+ 76%

REVENUES

EBITDA NET INCOME

MARGIN ANALYSIS

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

Valore aggiunto EBITDA EBIT Utile netto

1999

2000

2001

4,1

10,7

21,8

1,8

5,2

9,1 5,2

1,3 0,2

Annual Report 2001

1999

9,2%

NET WORKING CAPITAL

1999 2000 2001

REVENUES BY GEOGRAPHICAL AREA

75,3 %

3,6% 21,1 %

69,0 %

15,4%

6,4 %

66,2%

26,8%

2,4% 4,6 %

REVENUES BY BUSINESS SEGMENT

2000 2001

-

20.000

40.000

60.000

80.000

100.000

1999 2000 2001

-

10.000

20.000

30.000

40.000

50.000

60.000

1999 2000 2001

76,7 %

17,6 %

5,7 %

64,7 %

20,4%

8,8%

6,1%

55,2 %

35,2%

4,3%

3,9%

1,4 %

5,4

69,3

79,8

1,1

54,3 52,4

INVESTED CAPITAL

Annual Report 2001

-

2.000

4.000

6.000

8.000

10.000

12.000

Apparati ITC VAS NetworkOperator

VAS Corporate Sicurezza SviluppoSoftware

1999

2000

2001

REVENUES BY BUSINESS SEGMENT

Annual Report 2001

CONTENTS 1 Introduction 1.1 Corporate bodies 1.2 The Acotel Group 1.3 Incorporation 1.4 The global offering and stock market listing 1.5 Organizational structure 1.6 The Group’s business and products CONSOLIDATED FINANCIAL STATEMENTS 2 Directors’ Report on Operations 2.1 Operating review 2.2 Financial review 2.3 Subsequent events 2.4 Operating outlook 2.5 Related party transactions 2.6 Other information 2.7 Corporate Go vernance 3 Consolidated Balance Sheet and Income Statement 4 Notes to the Consolidated Financial Statements 4.1 Form and content 4.2 Accounting policies 4.3 Notes to the Balance Sheet 4.4 Notes to the Income Statement 4.5 Remuneration of Directors and Statutory Auditors Annexes to the Consolidated Financial Statements of Acotel Group S.p.A. PARENT COMPANY’S FINANCIAL STATEMENTS 5 Directors’ Report on Operations 5.1 Financial review 5.2 Related party transactions 5.3 Shareholders’ pacts 5.4 Stock option plan 5.5 Subsequent events 5.6 Operating outlook 5.7 Other information 5.8 Proposal for distribution of net income for the year 6 Balance Sheet and Income Statement 7 Notes to the Parent Company’s Financial Statements 7.1 Form and content 7.2 Accounting policies 7.3 Notes to the Balance Sheet 7.4 Notes to the Income Statement Annexes to the Financial Statements of Acotel Group S.p.A. Report of the Board of Statutory Auditors to the General Meeting of Shareholders Reports of the independent auditors Key data regarding subsidiaries

Annual Report 2001

INTRODUCTION

Annual Report 2001

1.1 CORPORATE BODIES BOARD OF DIRECTORS

Claudio Carnevale Chairman and Managing Director

Francesco Ago Director

Margherita Argenziano Director

Berardino Libonati Director

Andrea Morante Director

BOARD OF STATUTORY AUDITORS Antonio Mastrangelo

Chairman

Giovanni Galoppi Statutory auditor

Umberto Previti Flesca Statutory auditor

Gabriele Pernotti Alternate auditor

Paola Piscopello Alternate auditor

The Board of Directors is vested with the widest powers for the routine and extraordinary management of the Company and in particular has the power to carry out all the actions it deems necessary in order to achieve the corporate purposes, with the exception of actions that are, by law, the exclusive reserve of the General Meeting. By a resolution of the Board of Directors of May 10, 2000, Claudio Carnevale was appointed Managing Director and all the powers of routine and extraordinary administration to be delegated in accordance with the law and the articles of incorporation were conferred on him. The Board of Directors and the Board of Statutory Auditors shall remain in office for a period of three years from April 6, 2000. INDEPENDENT AUDITORS ARTHUR ANDERSEN S.P.A.

Annual Report 2001

1.2 THE ACOTEL GROUP The Acotel Group works as an Application Service Provider in the Information and Communication Technology (ICT) sector and is a leader in Italy in the provision in real time of customized information services (e.g. news bulletins, sports and financial information) through all the computerized communications media (“Information Services”). The Acotel Group offers information services by means of a multimedia technological platform, developed inside the Group, contributing to the process of convergence between the different means of communication: Internet, fixed and mobile telephony, satellite television. During 2001 the Group expanded its range of products and services. In addition to multimedia information services, we now supply high-technology platforms capable of meeting demand from telecommunications operators, public utilities, financial institutions and other businesses in general. Information on the Group led by Acotel Group S.p.A. Acotel Group S.p.A. was incorporated on April 6, 2000 and is the leader of a Group of companies that it took over for the purpose of operating in the ICT sector, implementing out a unitary entrepreneurial project. The main companies in the Acotel Group, in addition to Acotel Group S.p.A., which basically performs managerial functions and manages the Acotel Platform through which it operates directly on the market as Application Service Provider, are: - Acotel S.p.A., which markets the multimedia services for Italy; - Acomedia S.r.l., which acts as Content Provider, managing the processing of editorial content

for the information services; - A.E.M. S.p.A., which deals with the design and production of security systems; - Millenium Communication S.A., which works in the field of land and satellite

telecommunications; - Publimedia S.A., which collects advertising; - Acotel Participations S.A., which acts as a sub-holding and controls the foreign companies

Acotel Do Brasil Ltda, Acotel Chile S.A., Acotel Espana S.L. and Acotel Greece S.A., which operate in their respective countries.

- Jinny Software, acquired in 2001, deals with the design, production and development of high-technology ITC equipment.

The following diagram illustrates the composition of the Group as of December 31, 2001.

Annual Report 2001

1.3 INCORPORATION Acotel Group S.p.A. was incorporated on April 6, 2000 with share capital of Lit. 1,500,000,000, represented by 3,000,000 shares with a nominal value of Lit. 500 each, 60% of which subscribed by Clama S.r.l. and 40% by Clama S.A. Claudio Carnevale (Chairman of the Board of Directors and Managing Director of Acotel Group S.p.A.), Margherita Argenziano (Director Acotel Group S.p.A.), Cristian Carnevale and Davide Carnevale each hold 25% of the share capital of Clama S.r.l.; Claudio Carnevale also holds 320 shares, equal to about 100% of the share capital, in Clama S.A. By a resolution of April 28, 2000, ratified on May 22, 2000, the Extraordinary Shareholders’ Meeting decided to increase the share capital to Lit. 2,200,000,000, via the issue of 1,400,000 shares with a nominal value of Lit. 500 each with the same characteristics as those already issued. Subject to waiver of the right of option by the shareholders, these shares could be offered to third parties increased by a premium of at least Lit. 50,000 each. Part of the above mentioned capital increase, amounting to Lit. 166,500,000 (333,000 shares), was offered to Credit Suisse First Boston Guernsey Branch (“CSFB Guernsey”). The bank subscribed the part of the capital increase earmarked for it on May 30, 2000, paying in an amount equal to the nominal value of the shares increased by a premium of Lit. 59,560 for each share on May 31, 2000. Before the trading started (August 9, 2000) CSFB Guernsey had transferred 133,335 of its Acotel Group shares to some CSFB employees: one of the CSFB employees who acquired the shares from CSFB Guernsey is Andrea Morante, a member of the Board of Directors of Acotel Group, who became the holder of 43,167 shares.

Acotel Group S.p.A.

Acotel International S.A.

Acotel S.p.A. Acomedia S.r.l. Millenium Luxembourg S.A.

Millenium Communications S.A.

Acotel Espana S.L.

Acotel Chile S.A.

Acotel Greece S.A.

Publimedia S.A.

100%98% 100%

100%

100%

AEM S.p.A.

99%

1,92% 100%

100%

100%

Acotel Do Brasil Ltda

100%Jinny Software Ltd

MillenniumSoftware SAL

100%

100%

100%

Info2cell.com LLC

E-Seed S.p.A.

Voinoi S.p.A.

33%

50%

10%

Annual Report 2001

The share capital of Acotel Group S.p.A. was thus distributed as follows when trading started:

Acotel Group's shareholders before stock market listing

company no. of shares % interest

Clama S.r.l. 1,800,000 54.01%Clama S.A. 1,200,000 36.00%CSFB 199,665 5.99%Andrea Morante 43,167 1.30%Other CSFB employees 90,168 2.70%

Total 3,333,000 100.00%

In accordance with article 2.2.3 of the Regolamento del Nuovo Mercato Organizzato e Gestito dalla Borsa Italiana S.p.A., (Regulations of the New Market Organized and Managed by Borsa Italiana S.p.A.), the above-mentioned parties may not sell, offer, use as security or, in general, carry out operations related to a quantity equal to at least 80% of their respective holdings in Acotel Group S.p.A.

1.4 THE GLOBAL OFFERING AND STOCK MARKET LISTING The offering of 833,000 Acotel Group ordinary shares for the purpose of the Group’s listing on the Nuovo Mercato Organizzato e Gestito dalla Borsa Italiana S.p.A. was made up of: - a public offering (IPO) for subscription of a minimum of 166,600 shares, corresponding to 20%

of the global offering, made to the general public in Italy; - at the same time, a private placement of a maximum of 666,400 shares, corresponding to 80%

of the global offering, aimed at Italian and foreign institutional investors. The operation also provided for the shareholder, Clama S.A., to grant Credit Suisse First Boston (coordinator of the global offering) a greenshoe option to purchase, at the offering price of 54 euros, a maximum of 41,650 ordinary shares to be earmarked for private placement in the event of demand being higher than the offering and in any case to be used in order to maintain a stable price. The following table shows the distribution of the share capital after exercise of the greenshoe option by CSFB on August 11, 2000.

Annual Report 2001

Acotel Group's shareholders after stock market listing

company no. of shares % interest

Clama S.r.l. 1,800,000 43.21%Clama S.A. 1,158,350 27.80%CSFB 199,665 4.79%Andrea Morante 43,167 1.04%Other CSFB employees 90,168 2.16%Outstanding shares 874,650 21.00%

Total 4,166,000 100.00%

The global offering was 8.2 times oversubscribed, since applications for 6.8 million shares were received in response to an offering of 833,000. The Initial Public Offering attracted applications from 6,615 savers, being the equivalent, at the offering price, of 20.8 million euros (Lit. 40,200 million). The private offering drew total applications for over 6.4 million ordinary shares, equal to more than 9.6 times the number offered. In particular, applications were received for 4.3 million shares from 52 foreign institutional investors and for about 2 million shares from 24 Italian institutional investors. On closure of the global offering, the paid-up capital was Lit. 2,083,000,000, represented by 4,166,000 shares with a value of Lit. 500 each. On June 1, 2001, a further 4,000 new shares were issued in relation to the stock option plan for employees. The new shares have the same nominal value.

Annual Report 2001

1.5 ORGANIZATIONAL STRUCTURE The principles on which the Acotel Group has based its organizational structure are as follows:

• optimization of businesses processes with the aim of efficiently and effectively implementing decisions and controlling the degree of achievement of objectives; • great emphasis on team work, based on the sharing of problems at all levels; • involvement and motivation of staff, regarded as a major strategic factor for the attainment

of the company’s objectives; • organizational flexibility, in order to ensure a rapid response to market needs.

The organizational structure is based on the centralization of the basic functions of coordination of and support to all the business processes at Parent Company level, and the decentralization of front office functions at local level. The objectives of centralization are essentially strategic in nature and respond to the need to have a clear overview of development policies and technology. The organizational chart of the Acotel Group may be represented as follows:

W-VAS Development

Product Development

TLC Development

New Business Development

Customer care

Web Development

Content editing

VAS

Content Provision

Market Development

R & D

Multimedia platform

Services & contents

LAN

Operations Italy - W-VAS

Italy - Products

South America

Middle East

Advertising

BOARD OF DIRECTORS

Administration Finance & Control

Organization & Human Resources

Strategic Marketing

Technology Sales

Production

Annual Report 2001

The “Administration, Finance & Control” department manages all the administrative and accounting aspects, and financial reporting and internal control functions. It ensures constant monitoring of the operating performance in relation to the objectives set and handles all the financial management of the Group and relations with institutional investors. It also provides backup to strategic marketing, dealing with the evaluation of investment projects and business plans. “Organization & Human Resources” manages staff recruitment, hiring, training and development, in accordance with the Company’s needs, supervises the establishment of all internal procedures and the spread and respect of the values and policies established by top management. This department has the delicate task of managing the Group’s organizational development and deciding on the size of the structure to suit planned growth strategies. “Strategic Marketing”, in keeping with its nature, plays a key role in establishing the operational polices of the Group, identifying new markets, products or services, selecting the geographical areas with the best profit potential and keeping an eye on market preferences in terms of information requirements. For this purpose the department is divided into specific functions: - Wireless Value Added Service Development supervises the development and maintenance of

value-added information services, at present the main business; - Telecommunications Development handles the establishment of strategies in the field of

telecommunications services; - Market Development is dedicated to identifying national or international markets for the

expansion of the Company’s business; - New Business Development deals with potential new market openings, based on new products

or new needs; - New Products coordinates the development of new products related or potentially related to IT

services; - Content Provision handles analysis of the information requirements of users, in relation to the

information content that the market tends to demand. It directly oversees the function that manages, from the operational point of view, the processing of the editorial content of the information sent through the various multimedia channels.

“Technology” manages production, linked to the construction and development of the equipment ordered by customers. This area is also responsible for research and development connected to new products for sale and the updating of the Group’s own equipment, the operational management of the Technological Platform and the management of information systems and internal communications. The “Commercial” department is responsible for managing the business activities for the national and international markets where Acotel already operates. It also arranges the operational development of new markets, in line with the plans and strategies defined by Strategic Marketing and with the profit targets and product/service mixes established for the relevant market. The commercial function is further broken down into sub-functions reflecting the geographical spread of the Group. A specific unit manages advertising. The foregoing description refers to the specific departments set up in relation to the organization adopted by management, based on a concept of the Group as a single organized unit.

Annual Report 2001

1.6 THE GROUP’S BUSINESS AND PRODUCTS 1.6.1 BUSINESS The Acotel Group’s role of Service Provider The Acotel Group in the role of Service Provider is distinguished by: - the collection of contents from numerous sources, regardless of the filing methods used; - the ability to circulate the Contents by any communication medium, regardless of its protocol

and technological standard; - the ability to supply the Contents to the end receiver in accordance with the desired times and

methods, by means of selection done on the basis of preferences expressed by the latter by sending a request in SMS, sound or through an Internet site (e.g. general or specific information on certain subjects, such as the trend of certain stocks on the market).

Thanks to the development and particular characteristics of its Platform, the Acotel Group is capable of offering its customers a vast range of Information Services and various applications. The Acotel Platform The Acotel Platform (or computer node) constitutes the key factor for the work of the Group. It makes it possible to process all kinds and quantities of information coming from any source and transmit it to the end customer, according to the times and methods desired, through any means of communication. The architecture of the Platform is composed of hardware and software modules, which receive the information contents from the Content Providers and organize them into a databank, which is then used to generate the service itself. This databank interfaces with the one containing the personalized profiles of each user, established by the user, so as to determine how and when the type of information selected is to be delivered. The external connections of the Acotel Platform are made by means of analog and digital channels, on copper or fiber carriers and on satellite links. The main networks used are: PSTN and ISDN for audio and digital channels respectively, GSM for text messages and WAP channels, CDN and X.25 for direct data-transmission connections on domestic land networks, FR for direct data-transmission connections on international land networks and VSAT for direct data-transmission connections on international satellite networks. The main characteristics of the Platform are: - Modularity. Thanks to its modular structure, the Platform can be adapted to meet the

requirements of the market and of technological evolution. - Interface capability. Thanks to the variety of the modules used for both the reception of

contents and for transmission, the Platform is capable of interfacing with any operating standard and of adapting easily to the technologies of the markets in which the Group operates.

The Platform was developed entirely inside the Group and is managed by means of a dedicated department that handles its operation, development and technological upgrading. This gives the Group full functional and economic autonomy, since it does not have to pay royalties to third parties for the use of the related software.

Annual Report 2001

Exploitation of technological know-how The Group’s technological know-how, developed internally over many years, has great market potential, consisting in the design and production of hardware for installation at the premises of third parties, to whom the licenses for the software, indispensable for the operation of the entire equipment, may be sold. During 2001, Acotel Group decided to expand its range of products and services, via the start-up of production of equipment similar to the platform behind the development of the Group’s business. This has been done in response to changes in demand, no longer simply represented by the need to outsource added value services, but by the wish to purchase and directly manage in-house computer systems, with which a company can create its own services for its customers. In order to be in a better position to pursue such a strategy the Group acquired the Irish company, Jinny Software, during 2001. This new member of the Group is now responsible for the design, production and marketing of ITC equipment. 1.3.2 PRODUCTS The different types of products and services offered by the Acotel Group are briefly described below. Information Services - On Demand and Trigger information services in SMS. The service makes it possible to view

Content on the display of a mobile communication set (e.g. mobile phone or palmtop computer). The Content is supplied at the direct and instantaneous request of the end customer (information “on Demand”) or sent to the latter automatically on the basis of a pre-established schedule (“Trigger” information).

- Audio information services on mobile and fixed networks. The audio information service is a service for voice transmission of Content over the fixed or mobile telephone network. The

Content Providers / CorporatesServizi

Informativigenerici

ServiziPersonalizzati

ServiziGeoreferenziati m-Commerce

GPRSUMTS

Digital VideoBroadcasting

Voice &SMS on

GSM & TDMA& CDMA

Internet(TCP/IP)

WAP

Wireline

ACOTELACOTELTechnologyTechnology

PlatformPlatform

Annual Report 2001

Content may be related to the location of the fixed or mobile telephone from which the call is made (“Georeferenced Service”) or be of the general information type.

- Information Services in WAP. The service enables the end customer to have access, by a mobile phone or other equipment using WAP (Wireless Application Protocol) technology, to Internet sites compatible with that technology.

Design, production and development of ITC equipment Based on its internally developed technological know-how, acquired during development of the Group’s proprietary computer platform, Acotel has begun to produce similar forms of multimedia equipment, thereby creating new lines of business. Jinny Software is the Group company with specific responsibility for such activity. The company builds platforms for the transmission of multimedia messages and software applications for the mobile telecommunications market. Based on open standards, its products are designed for next-generation SMS, WAP, GPRS and Wireless Networks. Founded in 1999, the company boasts extensive experience in the field of wireless communications, and operates internationally from its headquarters in Dublin and its commercial office in Dubai. The equipment supplied, such as Mobile Messaging Centers (SMS-C), WAP Gateways for transactional services and Streaming Voice E-mail Engines, allow customers wishing to have their own platform, rather than outsource such processes, to develop the related services in house. Customers for the equipment produced include fixed-line and mobile telecommunications operators, public utilities, financial institutions and service companies. The market, therefore, generally consists of businesses with very wide customer bases, where such businesses wish to develop added value customer care services internally, or to provide potential customers with a further means of accessing their services. M-commerce solutions M-commerce solutions enable the firms that use it to market their products by telephone (mobile or fixed). The service makes it possible to manage all the phases of the sale, charging the purchase price directly to the telephone subscription or to other predetermined means of payment (e.g. credit card, bank a/c, etc.) Industrial and domestic monitoring services The service make it possible to monitor and remotely control hospitals, big industrial complexes with important production cycles or dwellings 24 hours a day by means of computer, with the possibility of directly programming customized services to suit specific needs.

Annual Report 2001

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

Annual Report 2001

DIRECTORS’ REPORT ON OPERATIONS

Annual Report 2001

2.1 OPERATING REVIEW The Acotel Group’s operations during 2001 were marked by the events briefly described below. In January, renegotiation of the Group’s contract with Telecom Italia Mobile was completed, with the new agreement running from January 1, 2001 to December 31, 2003. The new contract provides for the supply by Acotel of Information Services via SMS, WAP and Voice channels through its own Technological Platform after processing the contents supplied by the various content providers. For the provision of the above-mentioned services TIM paid Acotel a monthly fee of 599 thousand euros during the first year of the contract. This represents the guaranteed minimum remuneration for a maximum annual traffic of 130 million text messages, 8 million minutes of voice services and 100 million WAP pages. On the basis of an agreement signed at the end of 2000, in February 2001 the Acotel Group finalized the acquisition of 33% of Info2cell, a company located in Dubai (United Arab Emirates). The company possesses excellent know-how and a strong brand as a content provider for mobile telecommunications throughout all Middle Eastern markets. Thanks to this agreement, the Acotel Group has positioned itself as the leading provider of wireless information services in one of the world’s fastest growing markets. The holding was acquired via the subscription of a specially arranged capital increase amounting to 4,000,000 US dollars. The Group has an option on a further 33% of Info2cell’s shares at a price variable in relation to the company’s earnings to December 31, 2002. Info2cell has also bought the technology and license enabling the use of the W-VAS services developed by the Acotel Group for a total sum of 2,500,000 US dollars, of which 1,000,000 falling due in 2001. During 2001, Info2cell negotiated contracts to supply value added services to operators in Jordan (Fastlink), the United Arab Emirates (Etisalat), Egypt (Mobinil), Oman (Omantel), Kuwait (Watania) and Qatar (Qtel). Acotel Do Brasil entered into agreement with Timnet.com, the TIM Group’s Brazilian affiliate set up to supply advanced, innovative and readily accessible services to three Brazilian mobile operators, Tele Celular Sud, Tele Nordeste Celular and Maxitel. This has involved the construction of a technological platform (“wireless portal”) for the distribution of content (general and financial information, extracts from the Bible, etc.) and already set up to execute business transactions (Mobile commerce). During 2001, the platform installed by the Acotel Group produced around 87 million messages, providing proof of the Brazilian market’s enormous potential. The acquisition, completed on April 9, 2001, of 100% of the Irish company, Jinny Software Ltd., one of the most important mobile Internet solution providers at international level, is important for two reasons. It has enabled the Acotel Group to achieve its goal of expanding the range of products and services on offer, via the acquisition of the new subsidiary’s technological know-how in the production of data communications equipment. It has also allowed the Group to reinforce its presence in the European market (particularly Britain), where it was already a player in Spain and Greece, in addition to Italy. Jinny Software creates platforms for broadcasting multimedia messages and applications software for the mobile telephony market. Based on open standards, Jinny’s products are designed for next-generation text messages, WAP, GPRS and wireless networks. Jinny’s customers include mobile operators and financial institutions in Europe and the Middle East. The company was set up in 1999 and is the fruit of 27 years of experience in the field of wireless communications. It operates at international level from its headquarters in Dublin and its commercial office in Dubai.

Annual Report 2001

The operation consisted in the subscription by Acotel Participations S.A. (formerly Acotel International S.A.) of an increase in the share capital of Jinny, totaling about 3 million US dollars, and the concomitant purchase of the shares held by the previous shareholders. This stake was acquired via the payment of 2 million US dollars in cash and the is sue, carried out by Acotel Participations S.A. on August 2, 2001, of bonds with a value of 9,000,000 US dollars to the previous owners of Jinny. The bonds are redeemable as a lump sum on maturity (April 9, 2003) and are subject to coupon interest of 1.5% per annum. As a result of this operation the Acotel Group has been able to complement its offer of multimedia information services with the supply of the advanced technological platforms developed by Jinny, such as Mobile Messaging Centers (SMS-C), the WAP Gateway for transactional services and Streaming Voice E-mail Engines. The Irish company also holds a 99.9% interest in Millennium Software S.a.l., a Lebanese company, which produces operating software for data communications equipment. On May 18, 2001 the Group signed an outline agreement with ACEA S.p.A. regarding the supply of a personalized technological platform to Voinoi S.p.A., the ACEA Group company established with the aim of offering consumers value added customer care services. The platform, which was be constructed by the subsidiary, Jinny Software, allows any form or type of information, deriving from various sources, to be processed and transmitted to end users, whenever and by whatever means required, via different forms of communication. Voinoi S.p.A. aims to provide end users – starting from ACEA’s customers in the Rome area (representing a customer base of over 3,500,000 inhabitants) – with access, via a sole provider, to payment services for utilities, emergency assistance, secure and easy access to e-commerce for the purchase of commercial services selected from the very best available on the market, personal and home security services and any other form of personalized service designed to meet the specific needs of the individual customer. The primary goals laid down in Voinoi S.p.A.’s business plan are as follows:

• the creation of more than 70 new multimedia services in 5 years; • the installation of over 230,000 home terminals; • over 500,000 customers in 5 years; • turnover of over 100 million euros in 5 years; • to reach break-even point by 2003; • stock market flotation in 2004; • duplication of the same model in at least 3 other cities.

The agreement provides for the payment of 7.7 million euros in return for the platform, to be specially designed for Voinoi. This sum was subject to a sworn appraisal by an expert appointed by the Court of Rome pursuant art. 2343-bis of the Italian Civil Code. The Group earned 4,749 thousand euros of the above amount in 2001. On December 21, 2001 Acotel Participations S.A. also subscribed an increase in the capital of Voinoi S.p.A., amounting to 2,582 thousand euros, giving it a 10% interest in the ACEA Group’s subsidiary. The agreement also covers Acotel’s supply of creative and technical support over the next 10 years, in relation to the development of the products and services to be offered by Voinoi S.p.A. The Group is to receive an overall fee of 5,500 thousand euros in return. Further revenues may derive from the production of content and the supply of the home terminals, which will allow end users to access a number of the services provided by Voinoi S.p.A., including via interactive use of televisions.

Annual Report 2001

The contract entered into with Sisal provides for the creation of a service that, from June 2001, enables players of Superenalotto to receive information on their own mobile phone, via text message, about the results of the bets made by them in any Sisal office: all they have to do is type a command on their mobile, entering the number of the coupon played and they automatically receive a reply informing them about their score and their winnings, if any, after the draw. Infosisal, is the name of the service, which is expected to come into operation before the end of next April; it will also make it possible to check on results obtained in previous draws, up to four months back. Later on, at a time depending solely on the issue of the ministerial decree authorizing the new ways of taking bets, it will also be possible, by buying a prepaid card in one of the 18,000 Sisal offices, to play Superenalotto at any time of the day, using one’s own mobile phone which informs the player of the result immediately after the draw. During the coming months Infosisal will be expanded: it is planned to use it for Totip and Formula 101 (which are pools respectively on horse races, and F1 championship) competitions also and to implement other services with statistics on the numbers and information on the jackpots and the draws. In conjunction with TIM, during the fall Acotel completed the development of EMS, Enhanced Messaging Services, which represent the next step on from SMS. The new service allows the owners of handsets using the new standard to exchange not only text but also graphic devices and ring tones. The know-how acquired during the development of the new standard alongside Italy’s leading mobile operator, which was the first mobile operator in the world to launch EMS at the beginning of 2002, will give the Acotel Group a dual advantage. On the one hand, it can sell itself as a preferred supplier to operators in countries where TIM is not present and, on the other, enter the market segment for messages sent directly from one mobile telephone to another. In December the Acotel Group, via Acotel Participations S.A., completed the purchase of a 50% holding in E-seed S.p.A., a subsidiary of the private equity fund, “Angel Ventures”, managed by Gianfilippo Cuneo. In its eighteen months in business prior to Acotel’s acquisition of a stake, E-seed developed substantial expertise in the Italian interactive television market. Between June and September, the company ran successful trials for Italy’s first ever interactive TV service, involving several hundred “PAN” families. The service experimented allowed users to fully interact with their televisions via a set-top-box, a special remote control and a cordless keyboard for writing text. PAN offered various interactive, multimedia and personalized services: EPG (an electronic TV program guide), providing information and comment on programs and the possibility to personalize the program schedule; enhanced-TV services enabling the user to interact with certain programs, playing games or expressing a point of view; interactive entertainment services, such as video games; or useful services, such as T-banking and interactive advertising. PAN also allows users to connect to the Internet. Content included a series of exclusive features on Health, Fashion, Art, Motor Vehicles, Music, Travel, Cinema and other topics of general interest, and news providing real- time, round-the-clock updates. The Spot&More area represented the first real example of interactive TV advertising in Italy. “PAN” users were able to directly select and watch adverts for products that interested them, thereby entering the relevant DAL (or Dedicated Advertising Location) in order obtain further details, request information, and interact with the brand, etc. Having, for example, seen an advert for an entertainment product (e.g. a video game) it was possible to order either the complete version or a free demo, thanks to just a simple click. Alternatively, using the same system, users could have perfume samples, or a leaflet describing the latest automobile to appear on the market, sent directly

Annual Report 2001

to their home, or, after seeing an advert for a particular cooking sauce, they could download a recipe and put theory into practice. From a financial viewpoint, the transaction involved the subscription of a special capital increase, including the payment of a share premium of 476 thousand euros. This enabled Acotel Participations to acquire 50% of E-seed, whilst Acotel is committed to investing a further 267 thousand euros in the company.

Annual Report 2001

2.2 FINANCIAL REVIEW In order to give a better picture of the Acotel Group’s results of operations and financial position, the following pages provide commentary on figures for 2001, providing a comparative analysis with the pro-forma accounts for 2000 (the Parent Company was incorporated on April 6, 2000). We believe that this provides a wider basis for analysis and assessment of the company’s performance. Where necessary, reclassifications have been applied in order to standardize and make comparable the data for the different periods. 2.2.1 RESULTS OF OPERATIONS RECLASSIFIED INCOME STATEMENT

(thousands of euros) 2001 2000 change % change

pro-forma

Total revenues 21,684 10,592 11,092 104.72%Materials and service costs 7,885 3,949 3,936 99.67%Gross margin 13,799 6,643 7,156 107.72%

Labor costs 4,664 1,440 3,224 223.89%EBITDA 9,135 5,203 3,932 75.57%

42.13% 49.12% 35.45% 72.17%

Depreciation 623 432 191 44.21%

Amortization 3,817 2,741 1,076 39.26%Provisions for doubtful accounts 23 62 (39) -62.90%EBIT 4,672 1,968 2,704 137.40%

21.55% 18.58% 24.38% 131.20%

Net financial (expense) income 1,927 685 1,242 181.31%

Adjustments to financial assets (837) - (837) - Income (loss) from ordinary activities 5,762 2,653 3,109 117.19%

26.57% 25.05% 28.03% 111.91%

Extraordinary income (loss), net 186 (22) 208 -945.45%Income (loss) before taxes 5,948 2,631 3,317 126.07%

27.43% 24.84% 29.90% 120.39%

Income taxes (757) (1,251) 494 -39.49%Net income (loss) for the period 5,191 1,380 3,811 276.16%

23.94% 13.03% 34.36% 263.71%

Minority interest in net income (loss) (3) (2) (1) 50.00%Group net income (loss) 5,194 1,382 3,812 275.83%

23.95% 13.05% 34.37% 263.40%

Note: The percentages below each figure refer to each amount as a percentage of total revenues

The results achieved by the Acotel Group during its second year of operation confirm the high rate of growth and profitability reported at the end of the previous year.

Annual Report 2001

The Group’s consolidated net income for 2001 amounted to 5,194 thousand euros, up 276% on the corresponding figure (pro-forma) for 2000 as a whole, when net income totaled 1,382 thousand euros. Sales amounted to 21,779 thousand euros, more than double the 10,685 thousand euros (pro-forma) of 2000. EBITDA of 9,135 thousand euros was 75% up on the previous year (pro-forma), representing an EBITDA margin of 42.1%, confirmation of the high margins provided by the business model adopted by the Acotel Group. EBIT of 4,672 thousand euros rose 137% compared with 2000, with the relevant margin also rising thanks to lower charges for amortization and depreciation. Treasury management, which benefited from the interest earned on investment of the Group’s liquidity, amounting to over 48 million euros in 2001, reports net income of 1,927 thousand euros. After extraordinary items, income before taxes amounted to 5,948 thousand euros, representing an increase of over 120% on the previous year (pro-forma). Consolidated net income of 5,194 thousand euros is 276% up on the pro-forma figure for the previous year. The consolidated net profit margin saw significant growth from 13.05% in 2000 (pro-forma) to 23.95% in 2001. The following table summarizes the general improvement in profitability versus the previous year.

Key profit margins

2001 2000 1999Pro-forma Pro-forma

Gross margin 63,36% 62,17% 54,31%EBITDA 42,13% 49,12% 45,71%EBIT 21,55% 18,58% 23,26%Pre-tax profit margin 27,43% 24,84% 16,22%Net profit margin 23,95% 13,03% 6,03%

Revenues Revenues amounted to 21,684 thousand euros in 2001, representing an increase of 105% on the corresponding figure (pro-forma) for 2000. Revenues from sales and services totaled 21,779 thousand euros compared with the 10,685 thousand euros of the previous year (pro-forma).

Annual Report 2001

The acquisition during the year of Jinny Software, an Irish company that produces high-technology ITC equipment, allowed the Group to move into new areas of the market, shifting the emphasis away from services towards the design and production of equipment for telecommunications operators and other businesses. This enabled Acotel to strengthen its technological know-how and reinforce its position in the international market for telephony and multimedia services in general. In 2001 the Irish subsidiary, which assumed responsibility for all platform production, contributed 9,973 thousand euros to the Group’s revenues. The Group’s entry into the Middle East continued. This had already begun towards the end of 2000 with the negotiation of a number of commercial agreements with the Arab company, Info2cell, which operates as an Application Service Provider in Dubai. The Group subsequently acquired 33% of the company in February, thereby forging a close technological and commercial partnership. Relations with Info2cell during 2001, represented by the ITC equipment supply contract signed in 2000, generated revenues of 1,093 thousand euros (the same contract generated revenues of 1,640 thousand euros in 2000, in relation to the concession of software licenses). The agreement with the ACEA Group, a Rome-based utility, proved particularly important from the point of view of earnings. Under this agreement, Acotel Participations acquired a 10% stake in Voinoi S.p.A., a newly created subsidiary of ACEA, which owns the remaining 90%. The new company manages customer care services marketed to the ACEA’s existing customers. The contract involves the supply of ITC equipment to be used by Voinoi S.p.A. in the provision of interactive customer care services. The supply of such equipment, carried out via the subsidiary, Jinny Software, generated revenues of 4,749 thousand euros in 2001, out of a total contract worth 7,747 thousand euros. The Acotel Group earned a further 303 thousand euros from the development of software applications. The alliance is of great importance for the Acotel Group for two reasons. Firstly, because it adds another dimension to Acotel’s presence in the Italian market where Telecom Italia Mobile has been the Group’s most important customer; and secondly, because its has opened up a new area of business, the utilities, which is different from the fixed- line and mobile telephony market. The following table provides information by business segment for the three years 1999-2001. Business segment analysis

(thousands of euros) 2001 % 2000 % 1999 %Pro-forma Pro-forma

VAS SERVICES TO NETWORK OPERATORS 7,660 35.2% 6,913 64.7% 3,166 76.7%CORPORATE VAS SERVICES 949 4.3% 647 6.1% 236 5.7%DESIGN OF ITC EQUIPMENT 12,017 55.2% 2,181 20.4% - - DEVELOPMENT OF SW APPLICATIONS 303 1.4% - - - -

SECURITY SYSTEMS 847 3.9% 943 8.8% 727 17.6%OTHER 3 0.0% 1 0.0% 1 0.0%

21,779 100% 10,685 100% 4,130 100%

Annual Report 2001

The above table shows how the importance of the design of ITC or Information and Telecommunications technology equipment has grown, above all in 2001, when revenues totaled 12,017 thousand euros, representing over 55% of total revenues. This is linked to the Acotel Group’s decision to commercially exploit its technological know-how developed internally over the last twenty years. Such know-how refers to both remote-controlled security equipment, and the provision of value added services, involving the construction of the Group’s own multimedia ITC platform, which represents the jewel in the Group’s crown, and which since 1995 has supplied information services to the customers of major Italian fixed- line and mobile telecommunications operators. The acquisition of Jinny Software has enabled the Group to further increase its potential in the rapidly growing market for ITC equipment. May firms have embarked on strategies in which such equipment forms the basis for the offer of value added, interactive telecommunications services, including both the provision of information and the processing of transactions (e.g. remote payment systems), to their end users. The Acotel Group is able to offer a complete equipment package, put together on the basis of the customer’s specific requirements, and including development of the necessary software. In addition to selling the equipment and the relevant licenses, the Group also supplies ongoing technical assistance and technological upgrading of the equipment, either off or on site, in return for payment of an annual fee. Revenues from the sale of ITC equipment and the related licenses derive from the activities of Jinny Software, which had sales of 9,973 thousand euros in 2001. The majority of such revenues were earned in Ireland, Kuwait, Jordan, the United Arab Emirates, Egypt, Oman and on sales to the Italian company, Voinoi. The remaining portion regards the contract with Info2cell, which generated revenues of 1,093 thousand euros, and the agreement between Acotel Do Brasil and Timnet, a local Application Service Provider, which accounted for 951 thousand euros. Value added services provided to Network Operators generated revenues of 7,660 thousand euros, representing 35% of the total. Although such revenues decreased as a percentage of total revenues, this sector grew 10% with respect to 2000. This was a positive performance given the greater competition in the sector. The Telecom Italia Group remains the Acotel Group’s largest customer, buying a range of services for both fixed- line and mobile telephony. The Scriptim by Acotel service, representing the most important product sold to Telecom Italia Mobile, and targeted at GSM users, reported revenues of 4,028 thousand euros, and an annual traffic volume of 158 million messages, compared with around 100 million throughout 2000. Revenues from the Waptim service, aimed at users of WAP standard telephones, amounted to 2,582 thousand euros, compared with the 929 thousand euros of 2000. The volume of traffic was also significant, in view of the fact that this operating standard is not yet widely used. The search for greater quality, via the enhancement of content, extension of the range of information categories provided, the speed and accuracy with which information is supplied, is the key to maintaining traffic growth. As a result of the new contract entered into with Telecom Italia Mobile at the beginning of 2001, based on a guaranteed minimum, and an additional, variable portion on reaching certain pre-established volumes of traffic, the increase in revenues generated by the services supplied to TIM, equal to 32%, is not in proportion to the growth in traffic volumes.

Annual Report 2001

The supply of value added services to the Corporate market, which is similar in nature to the above sector, but differentiated by the wider variety of customer served, generated revenues of 949 thousand euros in 2001, up 47% on the previous year. The Group’s major customers in this sector are companies with large customer bases, to which information or interactive services are supplied via fixed- line or mobile telephone. The services supplied include mobile banking (e.g. Diners, Unicredit, CSE and Numera), general or specific information (eg. Borsa Italiana, Autostrade, Turin University) and interactive (e.g. mobile ticketing and tele-check in for Alitalia). The following table shows major customers in terms of revenues.

Breakdown of "Corporate" customers in 2001 - (thousands of euros)

customer revenues in 2001% of total

corporate rev.

SMS AFFARI 164 17.28% DINERS 115 12.12% BORSA ITALIANA 112 11.80% NUMERA 81 8.54%ALITALIA 62 6.53%

OTHER 415 43.73%

TOTAL CORPORATE 949 100%

The potential in this market is significant, as the growth trend for the period 1999-2001 shows. It should be remembered that the services involved are marketed to end users by the Corporate customers concerned, which therefore determines the degree of take up by such end users and the Group’s rela ted traffic volumes. Revenues from the development of software applications regard the contract with Voinoi. Revenues from the sale of security systems amounted to 847 thousand euros in 2001. This essentially refers to the supply and maintenance of remote-alarm equipment to Telecom Italia, by our subsidiary, AEM S.p.A. Such equipment is installed in Italian police stations. A geographical breakdown of the Group’s revenues is as follows:

Annual Report 2001

Revenues by geographical area

(thousands of euros) 2001 % 2000 % 1999 %Pro-forma Pro-forma

ITALY 14,430 66.2% 7,377 69.0% 3,111 75.3%

EUROPE 516 2.4% 987 9.2% 873 21.1%

MIDDLE-EAST 5,837 26.8% 1,643 15.4% - 0.0%

LATIN AMERICA 996 4.6% 678 6.4% 146 3.6%

21,779 100% 10,685 100% 4,130 100%

The trend for the period 1999-2001 shows growing overseas expansion, with particular regard to the Middle East, thanks to the agreements with Info2cell (Dubai) and Jinny Software. Materials and service costs The details of such costs are set out below:

(thousands of euros) 2001 2000 % changepro-forma

Raw and ancillary materials and consumables 1,471 392 275.3% Services 5,482 3,045 80.0%Lease expense 781 255 206.3%Other operating expenses 151 257 -41.2%

Total 7,885 3,949 99.7%

The cost of raw materials totaled 1,471 thousand euros. The increase was due to the production strategy adopted by the Group in 2001. A large part of such costs were incurred by the subsidiary, Jinny Software, and regard the materials used by this company in producing ITC equipment. The rise in service costs reflects the increase in the Group’s turnover. The most important items are those directly related to the Group’s role as Service Provider, which, as mentioned above, saw significant growth. This item includes the cost of land and satellite telecommunications connections, linked to the reception and transmission of information, totaling 1,033 thousand euros. It also covers the cost of the services purchased from external content providers, totaling 522 thousand euros, regarding the acquisition of editorial and information content used in the services supplied. Such costs are significantly down on the previous year (56%), thanks to the substantial contribution of the Group’s own content provider, the subsidiary Acomedia. Consultants’ fees totaled 1,175 thousand euros and regard the fees paid to management, accounting and legal consultants. Such costs are essentially linked to the Group’s expansion and the various business deals negotiated, as well as administrative costs relating to overseas companies, where management is outsourced to local consulting firms.

Annual Report 2001

The fees paid to the directors and statutory auditors of Group companies amounted to 638 thousand euros. Lease expense primarily refers to rent on the offices from which the Group’s companies operate. Other operating expenses primarily include 91 thousand euros of non-deductible taxes and contributions incurred by the subsidiary, Acotel Do Brasil.

Annual Report 2001

Labor costs

Labor costs(thousands of euros)

2001 2000 % changepro-forma

Labor costs 4,664 1,440 223.9%

Headcount

Managers 11 2 Supervisors 4 1 White-collar 71 18 Blue-collar - -

Headcount (annual average) 86 21 309.5%

Average unit cost 54.2 68.6 -20.9%

There was a sizeable increase in the number of personnel employed by Group companies in 2001. This growth, which was due to both the recruitment of new staff and the acquisition of Jinny Software, a company with its own independent structure, was very carefully managed with an eye to maintaining overall performance. This is borne out by the 21% reduction in the unit cost of labor. Amortization and depreciation Amortization of intangible assets rose to 3,817 thousand euros. The increase was due to amortization of the goodwill arising from consolidation of the Group’s equity investments, which totaled 1,061 thousand euros in 2001. The residual part primarily regards amortization of capitalized incorporation costs, which include the costs incurred for the stock market listing. Depreciation of tangible assets totaled 623 thousand euros. Financial management Once again in 2001 financial management resulted in net income, primarily due to the short-term investment of the liquidity raised by the global offering of August 2000. Net income from financial assets amounted to 1,778 thousand euros, which was in addition to net foreign currency gains of 149 thousand euros.

Adjustments to financial assets Write-downs of 837 thousand euros include write-downs of the equity investments in the associated companies, Info2cell and E-seed, carried out on the basis of the equity method.

Annual Report 2001

2.2.2 FINANCIAL POSITION In order to facilitate an analysis of the financial position the Balance Sheet as of December 31, 2001 is compared with that as of December 31, 2000. It should be remembered that the two schedules are not entirely comparable as the Balance Sheet for 2000 regards the period April 6 – December 31. The lack of consistency between the two statements only relates to some shareholders’ equity items, including net income, which on a pro-forma basis, for the whole of 2000, would have amounted to 1,382 thousand euros, inclusive of the results reported by subsidiaries for the period of 2000 prior to the incorporation of Acotel Group S.p.A. The increase in net income would have resulted in a reduction in the consolidation reserve. The comparative analysis shown on the following page shows that changes in the financial position were also due to the Group’s expansion. The factors that have had most impact on the Balance Sheet during 2001 were as follows: - The acquisitions strategy put into practice by the Group, using a part of the funds raised by the

IPO in 2000, included the purchase of a 100% stake in Jinny Software, the holdings in Info2cell (33% of the share capital) and E-seed (50%) and the minority interest in Voinoi (10%). This led to a significant increase in fixed assets.

- The recourse to medium-term debt in order to part finance the above acquisitions, which means

that net working capital remains substantially unchanged with respect to the previous year at 52,361 thousand euros.

Fixed assets Fixed assets rose by 18,233 thousand euros. Intangible assets increased by 9,994 thousand reflecting the value of goodwill arising from consolidation, based on the difference between the price paid for the holding in Jinny Software and the actual value of the company’s shareholders’ equity at the time of the acquisition. The value of this item, after charges for amortization for 2001, totals 12,426 thousand euros. Tangible assets rose by 1,457 thousand euros, partly due to the entry into the Group of Jinny Software, whose net plant amounts to 868 thousand euros. The remainder of the increase is represented by the value of the ITC platform constructed by Acotel Do Brasil in 2001 (net value of 572 thousand euros), and which the company uses to serve local operators, and the investment carried out by other Group companies.

Annual Report 2001

RECLASSIFIED CONSOLIDATED BALANCE SHEET

(thousands of euros) December 31, 2001 December 31, 2000 change % change

ASSETS

Fixed assets 22.367 4.144 18.223 439,74%

Intangible assets 13.374 3.380 9.994 295,68%

Tangible assets 2.221 764 1.457 190,71%

Long-term financial assets 6.772 - 6.772 -

Current assets 57.492 60.099 (2.607) -4,34%

Inventories 268 448 (180) -40,18%

Accounts receivable 8.715 7.820 895 11,45%

Marketable securities 4.200 4.209 (9) -0,21%

Cash at bank and on hand 44.309 47.622 (3.313) -6,96%

Accrued income and prepaid expenses 107 104 3 2,88%

Total Assets 79.966 64.347 15.619 24,27%

LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders' Equity 63.136 57.785 5.351 9,26%

Group interest in shareholders' equity 63.097 57.747 5.350 9,26%

Share capital 1.084 1.076 8 0,74%

Share premium reserve 55.106 54.934 172 0,31%

Legal reserve 61 - 61 -

Other reserves 855 879 (24) -2,73%

Retained earnings (accumulated losses) 797 - 797 -

Group interest in net income (loss) for theperiod 5.194 858 4.336 505,36%

Minority interest in shareholders' equity 39 38 1 2,63%

Allowances for risks and charges - 55 55- -100,00%

Employee severance indemnities 248 150 98 65,33%

Accounts payable 15.697 6.356 9.341 146,96%

bonds 10.212 - 10.212 -

debt - payable within 12 months 99 361 (262) -72,58%

- payable beyond 12 months 503 506 (3) -0,59%

advances 620 1.754 (1.134) -64,65%

trade 2.472 2.105 367 17,43%

taxes 381 1.254 (873) -69,62%

social security agencies 265 140 125 89,29%

other 1.145 236 909 385,17%

Accrued expenses and deferred income 885 1 884 -

Total Liabilities and Shareholders' Equity 79.966 64.347 15.619 24,27%

Annual Report 2001

Long-term financial assets amount to 6,772 thousand euros and include the previously described equity investments in the associated companies, E-seed and Info2cell, and the minority holding in Voinoi, all acquired during 2001. Current assets The main changes in this category regard cash at bank and on hand, which decreased by 3,313 thousand euros due to the investment carried out, and the value of inventories, which declined as a result of adjustments applied to reflect the estimated realizable value of stocks. The increase in trade receivables was due to the increase in the Group’s turnover. Accounts payable The issue of bonds represents the other significant change in 2001. The value of this item amounts to 10,212 thousand euros and regards the bonds issued to the previous owners in order to finance the acquisition of Jinny Software. The bonds are redeemable as a lump sum on maturity (April 9, 2003). For further information reference should be made to the following notes to the Balance Sheet. Taxes due declined with respect to 2000 given that certain Group companies reported tax credits for the year, due to the advances paid during 2001. Such credits are posted under assets. The substantial increase in other payables is due to the greater amount owed to employees (428 thousand euros) in the form of salaries, accrued vacation and extra month’s pay. This item also includes increased amounts due to management bodies (248 thousand euros), principally regarding fees for 2001, the unsecured loan forming part of the price paid for the holding in E-Seed (267 thousand euros), and accrued interest (63 thousand euros) on the above-mentioned bonds, for which annual coupon interest accrued on April 9, 2002. Other Balance Sheet items Advances and accrued expenses and deferred income also merit attention, as they have reached significant amounts, 620 thousand euros the former and 885 thousand euros the latter. Both items relate to the subsidiary, Jinny Software and refer to advances received from customers for services to be supplied and annual fees for technical assistance in progress.

Annual Report 2001

2.2.3 CASH FLOW In order to facilitate an analysis of the cash flows shown in the Consolidated Statement of cash Flows amounts for 2001 have again been compared with the pro-forma data for 2000 as a whole. An annex to the notes shows the Statement of Cash Flows compared with the effective figures for 2000, relating to the period April 6 – December 31, 2001.

A. NET CASH AT THE BEGINNING OF THE PERIOD 51,470 (23)

B. CASH FLOWS FROM OPERATING ACTIVITIES 9,237 1,122

Cash flows from operating activities before changes in working capital 9,677 4,553 - Net income for the period 5,194 1,382 - Amortization and depreciation 4,440 3,173 - Net change in employee severance indemnities 98 (57) - Net change in the allowance for risks and charges (55) 55

(Increase) / decrease in accounts receivable (895) (5,053)

(Increase) / decrease in inventories 180 299

Increase / (decrease) in accounts payable 528 336

Changes in other items of working capital (253) 987

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (22,663) (5,691)

(Investments in)/disposal of fixed assets:

- Intangibles (13,811) (5,086)

- Tangibles (2,080) (605)

- Financial (6,772) -

D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES 10,366 56,062

Increase / (decrease) in long-term debt 10,209 (55)

Increase in share capital 1 301

Increase in share premium reserve 179 54,934

Other changes in shareholders' equity (23) 882

E. CASH FLOW FOR THE PERIOD (B+C+D) (3,060) 51,493

F. NET CASH AT THE END OF THE PERIOD (A+E) 48,410 51,470

Annual Report 2001

The following table analyses consolidated net debt as of December 31, 2001:

ANALYSIS OF CONSOLIDATED NET DEBT AS OF 12-31-2001

(thousands of euros)

12.31.2001 12.31.2000

Short-term investments 4,200 50,481

Cash and cash equivalents 44,309 1,350

Short-term bank debt and current portions of long-term bank debt (99) (361)

Cash and cash equivalents (short-term indebtedness), net (A) 48,410 51,470

Bonds maturing beyond 12 months (10,212) -

Medium- to long-term portion of debt and other loans (503) (505)

Medium- to long-term indebtedness (B) (10,715) (505)

Net liquidity (A)+(B) 37,695 50,965

The acquisition of the equity investments was largely financed by medium-term debt (the bonds paying annual interest of 1.5% issued by Acotel Participations) and self- financed from operating cash flows. The Group has thus been able to conserve a significant amount of cash to be used for further investment and/or acquisitions, should it believe such actions necessary in order to strengthen its market position or further develop the business.

Annual Report 2001

2.3 SUBSEQUENT EVENTS The first two months of 2002 saw the launch of the Group’s www.acoweb.ie portal in Ireland, the introduction of its “Wap Push” service for Telecom Italia Mobile, and its participation in the bidding process for the privatization of sports betting. In January 2002, Jinny Software launched the www.acoweb.ie portal from its headquarters in Dublin. The new service aims to offer multimedia messaging services to both consumers and corporate customers. Customers can access the services provided by Jinny’s portal, including Lottery results, sports news, mobile banking, ticket purchases and financial news, via SMS, WAP and telephone. The portal is already able to offer consumers value added information services and the chance to download tabs and dial tones for mobile phones. It will also be one of the first portals in Ireland to offer Premium SMS, namely the possibility to receive services and content in general paying for them as part of the bill sent by the operator. The services are to be rapidly extended to corporate customers, who will have access to personalized applications based not only on value added SMS, providing high standards of quality and ease of use, but also EMS (Enhanced Picture Messaging) and MMS (Multimedia Messaging Services). In February, TIM took advantage of Acotel’s technological expertise to be the first operator in the world to launch a “Wap Push” service. The service is extremely easy to use: the customer receives an SMS providing a summary of the news item and refers to the possibility of receiving further content. If the customer wishes to find out more all she has to do is press a key on the her handset and, via a hypertext link, she will be given direct access to a WAP page showing greater details and commentary. In order to make use of the service, all customers need is a handset enabled for m-services, whilst it is not necessary to carry out any form of configuration of the mobile phone. Acotel offers TIM’s WAP customers real-time news in push mode (with continuous real-time updates). The news is divided into categories covering “General”, “Politics”, “The Economy” and “Sport”, stock quotes, horoscopes and Soccer. The latter service gives users real-time access to match results and details of important events. Acotel Group S.p.A. pre-qualified, as part of a consortium of companies together with Sisal S.p.A., Banca di Roma S.p.A. and Telemacon S.p.A. (Confcommercio), for the competition organized by the Italian Olympic Committee that aims to sell 49% of a new company that will be granted a 15-year concession to manage Totocalcio, Totogol, Totosei and Totobingol. The bid, which must be submitted by March 25, 2002, must contain a detailed business plan for the re- launch of the above betting services and the price offered for a stake in the new company. The specific expertise offered by Acotel will allow bets to be placed via innovative channels (mobile telephone, interactive TV, etc.), which may eventually include the possibility of betting during matches themselves so that users can act on impulse.

Annual Report 2001

2.4 OPERATING OUTLOOK During 2002 the Acotel Group intends to proceed in the direction followed in previous years, which has led to a significant increase in revenues and high rates of profitability. The Group’s primary goals for the year are:

• to create and supply value added services to Italian and overseas businesses and fixed- line and mobile operators;

• to supply network hardware to telephone operators and businesses wishing to equip themselves with their own independent technological platforms in order to connect with the customers and/or staff;

• to experiment with new technologies and communication standards; • to add to and exploit the minority equity interests acquired; • to establish the mode of participation in further joint ventures, to which the Group can

contribute its technological expertise; • to penetrate high-potential overseas markets; • to seek out opportunities to expand the core business to include related areas.

Annual Report 2001

2.5 RELATED PARTY TRANSACTIONS As required by articles 78 and 79 of CONSOB Resolution no. 11971 of 05/14/1998 and CONSOB communications no. 97001574 of 02/20/1999 and no. 98015375 of 02/27/1998, the most significant transactions with related parties occurring during the business year are set out below. Shares held by Directors and Statutory Auditors

NAME COMPANY INVESTED IN NO. OF SHARES AT BEGINNING OF YEAR

NO. OF SHARES PURCHASED

NO. OF SHARES SOLD NO. OF SHARES HELD

AT END OF 2001

Claudio Carnevale (a) Acotel Group S.p.A. 1,158,350 - 466,620 691,730 Andrea Morante Acotel Group S.p.A. 43,167 66,660 - 109,827 Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 Claudio Carnevale AEM S.p.A. 16,500 - - 16,500

(a) Ownership is exercised via Clama S.A., which is 99.9% owned by Claudio Carnevale.

Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which, in turn, holds 1,800,000 shares in Acotel Group S.p.A. Purchase of shares by shareholders During 2001 no shares were traded between Acotel Group companies and their shareholders. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during 2001: - 428,526 euros as Chairman and Managing Director of Acotel Group S.p.A.; - 51,646 euros as Chairman and Managing Director of Acotel S.p.A.; - 51,646 euros as Chairman of the Board of Directors of AEM S.p.A. The fees paid to Claudio Carnevale for 2001, as Chairman and Managing Director of Acotel Group S.p.A., by the company’s Board of Directors, consist of a fixed portion of 206,584 euros and a variable portion of 221,942 euros. The latter sum amounts to 2% of the increase in the Group’s consolidated revenues for 2001 with respect to 2000. Margherita Argenziano earned fees of 41,317 euros as Managing Director of AEM S.p.A. As of December 31, 2001, 240,651 euros of the above remuneration had yet to be paid. The other Directors do not receive any form of remuneration.

Annual Report 2001

2.6 OTHER INFORMATION As of December 31, 2001 Acotel Group S.p.A. did not own any treasury shares, or shares or holdings in a Parent Company, either directly or through a trust company or proxy. During 2001, Acotel Group S.p.A. did not purchase any treasury shares, or shares or holdings in a Parent Company, either directly or through a trust company or proxy. As of December 31, 2001 no branch offices of the Company had been set up. 2.6.1 THE EURO In December the Group’s Italian companies converted their share capital into euros, applying the simplified procedure established by article 17 of Legislative Decree no. 213 of June 24, 1998. The same conversion was carried out, in accordance with the relevant local regulations, by other Group companies registered in countries adopting the European single currency. On converting the accounting systems to deal with the euro, the Group also installed new administrative-management software which, after a trial period involving all the Group’s Italian companies, is due to be adopted by all the other subsidiaries.

Annual Report 2001

2.7 CORPORATE GOVERNANCE The Group’s system of Corporate Governance, which is in the process of being implemented, is based on the recommendations made by the Committee for the Corporate Governance of listed companies. Such recommendations identified the maximization of shareholder value, over the medium- to long-term, as the principal goal of good Corporate Governance. 2.7.1 THE BOARD OF DIRECTORS The Board of Directors of Acotel Group is the body responsible for establishing strategic and organizational guidelines, and for ensuring that the requisite controls are in place in order to monitor the performances of Group companies. In particular, the Board of Directors:

• examines and approves the strategic, business and financial plans drawn up by Group companies and their organizational structures;

• attributes and withdraws the powers granted to executive directors, defining the relevant limits and the mode in which such powers are to be exercised, and the frequency, at least quarterly, with which such directors must report to the Board regarding the activities carried out in the exercise of their powers;

• determines, having examined the proposals of the relevant committee and consulted the Board of Statutory Auditors, the remuneration to be paid to executive directors;

• monitors the overall operating performance, with particular attention to conflicts of interest, and taking into account the information received from the Executive Committee (when appointed), from Executive Directors and from the Internal Audit Committee, and periodically comparing the results achieved with the annual budget;

• examines and approves transactions with a significant impact on the financial position or results of operations, with particular reference to related party transactions;

• verifies the adequacy of the Company’s and the Group’s general organizational and administrative structure;

• reports to the shareholders at general meetings. Board of Directors’ resolutions are only valid when a majority of the serving Directors is in attendance and when passed by a majority of those present: in the event of an equal number of votes the chair of the meeting shall have the casting vote. It is the individual responsibility of each Director to accept their nomination only when they hold that they can devote sufficient time to their role, and act and resolve with the necessary authority and independence. The Board of Directors is currently composed of five members, as follows:

Executive: • Claudio Carnevale: relative majority shareholder, Chairman and Managing Director; • Margherita Argenziano: shareholder and Managing Director of a subsidiary;

Annual Report 2001

Non-executive : • Andrea Morante: shareholder; • Berardino Libonati; • Francesco Ago.

The number and authority of the Non-executive Directors are such as to ensure that their judgments carry significant weight during discussion of Director’s resolutions, to which they contribute with specialist knowledge and experience that is complementary to that of the Executive Directors. Independent Directors As a shareholder in the Company, Andrea Morante cannot be considered independent in accordance with the definition established by the “Voluntary Code of Best Practice for Listed Companies”. Berardino Libonati and Francesco Ago are members of the Remuneration Committee and the Internal Audit Committee, and ensure that cases where there is a conflict between the interests of the Company and those of the Directors/shareholders are resolved with adequate impartiality of judgment. Chairman of the Board of Directors The Chairman:

• calls Board meetings, drawing up the relevant agenda beforehand; • ensures that each member receives, reasonably in advance of the meeting, except in the

event of urgency, the necessary documentation and information in order to express an informed opinion;

• coordinates the activities of the Board of Directors and oversees the proceedings of meetings.

At its meeting of May 10, 2000, the Board of Directors saw fit to grant the Chairman, Claudio Carnevale, all powers of ordinary and extraordinary administration that may be delegated in compliance with the law and the Company’s articles of incorporation. Secretary to the Board of Directors For each meeting the Board of Directors appoints a Secretary, not necessarily from among the Directors. NOTICE Information of the Board of Directors On the occasion of meetings of the Board of Directors, informal meetings with Directors and Statutory Auditors and audits carried out by members of the Internal Audit Committee, the

Annual Report 2001

Chairman shall supply ample information regarding the activities carried out in the exercise of his powers. The Chairman is aware that particular attention must be paid to transactions of an exceptional or unusual nature, and those involving related parties, approval for which must be obtained via explicit, collective consent of the Board of Directors. The information supplied to the Board of Statutory Auditors shall be identical to that supplied to the Directors. Treatment of confidential information The Directors are aware of the importance of price sensitive information and of the regulations governing the diffusion of such information. For this purpose, a procedure for regulating the diffusion of documents and information regarding the Company is being introduced, in accordance with the recommendations in CONSOB Ruling no. 11971. COMMITTEES Directors’ Nomination Committee In view of its small number of members and the high degree of concentration of ownership of the Company, the Board of Directors believes it is not necessary to establish a Directors’ Nomination Committee. It is, however, the Board of Directors’ intention to make shareholders aware, including via this Report, of the importance of the fact that, as required by the articles of incorporation in the case of the Board of Statutory Auditors, the nomination of the Board of Directors should take place via the presentation of lists, including the professional profile of each candidate for the position of Director. Remuneration Committee At the Board meeting of October 12, 2000, it was decided to establish a Remuneration Committee, to which the “independent” Directors, Berardino Libonati and Francesco Ago, are currently appointed. At the proposal of this Committee, the Board of Directors, with the consent of the Board of Statutory Auditors, obtained in accordance with art. 2389, paragraph 2 of the Italian Civil Code, has decided to pay the Company’s Chairman and Managing Director the following annual fees for 2001: a fixed portion of 206,583 euros and a variable portion equal to 2% of the increase in the Group’s consolidated revenues for 2001 with respect to 2000. The Remuneration Committee has not so far been involved in determining the remuneration of personnel, which has been decided on by the Chairman and Managing Director in accordance with the powers attributed to him.

Annual Report 2001

2.7.2 INTERNAL CONTROL The Company’s organizational structure includes the figure of the Director of Organization and Human Resources. This position includes, among other things, responsibility for drawing up internal procedures, of both an operational and administrative nature, and for verifying that such procedures are effectively complied with. The aim is to ensure sound and efficient management and as far as possible identify, prevent and manage financial and operating risks and the risk of damage to the Company due to fraud. Director of Organization and Human Resources reports directly to the Chairman and Managing Director, the Internal Audit Committee and the Board of Statutory Auditors, and has the sufficient means and independence to carry out his responsibilities in an effective manner. Internal Audit Committee In response to the specific recommendation of the Voluntary Code of Best Practice, on June 30, 2000 the Board of Directors established the Internal Audit Committee, to which the “independent” Directors, Berardino Libonati and Francesco Ago, are currently appointed. The Committee’s principal activities are:

• to verify the adequacy of internal control procedures; • to assess the work schedule drawn up by the head of internal control and receive his

periodic reports; • to assess proposals put forward by independent auditors with a view to their engagement,

and the work schedule prepared for the audit and the results contained in the auditors’ report and the letter of recommendations;

• to report to the Board, on at least a six-monthly basis, at the time of approval of the interim financial statements and six-month report, on the activities carried out and on the adequacy of internal control procedures;

• to work in coordination with the Board of Statutory Auditors in carrying out their respective responsibilities;

• to carry out further responsibilities assigned by the Board of Directors. The Chairman of the Board of Statutory Auditors and the Managing Director may take part in meetings of the Internal Audit Committee. 2.7.3 INVESTOR RELATIONS In order to ensure adequate communication between the Company and its shareholders and institutional investors, the role of Investor Relator has been created. This post is currently occupied by the Director of Administration, Finance and Control. The Company organizes meetings, on at least a six-monthly basis, with representatives of the financial community and the press, in order to present current and future strategy and the

Annual Report 2001

Company’s financial results. All requests for bilateral meetings with representatives of institutional investors are also accepted. The communication of information to external parties takes place in compliance with the regulations and through the channels specifically recommended by the CONSOB and the Italian Stock Exchange. 2.7.4 GENERAL MEETINGS OF SHAREHOLDERS The Directors are aware that they must:

• aid shareholders in participating at general meetings, which includes organizing such meetings at locations, on dates and at times that facilitate attendance;

• be physically present during general meetings so that shareholders can put direct questions regarding their activities, in particular to Executive Directors;

• comply with the Company’s obligation to not communicate price sensitive information to shareholders, without communicating such information to the market at the same time.

The Board of Directors is preparing regulations governing the orderly and functional carrying out of the Company’s ordinary and extraordinary general meetings, and guaranteeing the right of each shareholder to speak on items on the agenda. Such regulations will specify, among other things, the maximum duration of individual speeches, their order, the method of voting, and the powers of the chairman regarding the settlement or prevention of conflicts within the meeting. 2.7.5 STATUTORY AUDITORS The existing articles of incorporation require the appointment of the Board of Statutory Auditors to be carried out on the basis of lists submitted by shareholders holding, either singly or together with others, shares representing 3% of the share capital. Such lists, which must be deposited at the company’s headquarters at lest ten days prior to the date of the relevant general meeting, must include the personal and professional profiles of the candidates. This is so that shareholders can make an informed judgment before exercising their right to vote. The Statutory Auditors are aware that they must:

• act autonomously and independently even in relation to the shareholders by whom they were elected;

• operate solely in the interests of the Company and in order to create value for shareholders as a whole;

• safeguard the confidentiality of the documents and information acquired in the exercise of their responsibilities;

• comply with existing regulations and established procedures governing the communication of price sensitive documents and information to external parties;

• control the Board of Directors’ management of the Company; • to work in coordination with the Internal Audit Committee and the independent auditors in

carrying out their respective responsibilities.

Annual Report 2001

CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT

Annual Report 2001

CONSOLIDATED BALANCE SHEET

ASSETS(thousands of euros) December 31, 2001 December 31, 2000

Unpaid, called-up share capital due from shareholders - - Fixed assets:Intangible assets:- incorporation and expansion costs 41 2,379- research, development and advertising costs 136 347- industrial patents and intellectual property rights 179 131- concessions, licences, trademarks and similar rights 53 55- goodwill arising from consolidation 12,850 432- intangibles in process and advances 84 5- other 31 31Total 13,374 3,380Tangible assets:- plant and machinery 811 262- industrial and commercial equipment 1,244 344- other 166 139- work in progress and advances - 19Total 2,221 764Long-term financial assets:- equity investments in: . associated companies 4,190 - . other companies 2,582 - Total 6,772 - Total fixed assets 22,367 4,144Current assets:Inventories:- raw and ancillary materials and consumables 180 126- work in progress and semi-finished goods 55 247- finished goods and goods for resale 33 75Total 268 448Accounts receivable:- trade: .. receivable within 12 months 7,622 6,975- other: .. receivable within 12 months 1,024 47,094 .. receivable beyond 12 months 69 23Total 8,715 54,092Marketable securities:- other securities 4,200 4,209Total 4,200 4,209Cash at bank and on hand:- bank and post office deposits 44,271 1,342- cash and notes on hand 38 8Total 44,309 1,350Total current assets 57,492 60,099Accrued income and prepaid expenses- other 107 104TOTAL ASSETS 79,966 64,347

Annual Report 2001

CONSOLIDATED BALANCE SHEET

LIABILITIES AND SHAREHOLDERS' EQUITY(thousands of euros) December 31, 2001 December 31, 2000

Shareholders' equity:Share capital 1,084 1,076Share premium reserve 55,106 54,934Revaluation reserves - - Legal reserve 61 - Reserve for treasury stock - - Statutory reserves - - Other reserves- Consolidation reserve 909 909- Reserve for exchange rate differences (54) (30)Retained earnings (accumulated losses) 797 - Net income (loss) for the period 5,194 858Total 63,097 57,747Minority interest:Minority interest in shareholders' equity 42 40Minority interest in net income (loss) for the period (3) (2)Total 39 38Total shareholders' equity 63,136 57,785Allowances for risks and charges:other - 55Total - 55Employee severance indemnities 248 150Accounts payable:- bonds 10,212 - - banks payable within 12 months 99 361 payable beyond 12 months 202 265- other lenders payable within 12 months 301 241#N/D- advances payable within 12 months 620 1,754- trade payable within 12 months 2,472 2,105- taxes payable within 12 months 381 1,254- social security agencies payable within 12 months 265 137 payable beyond 12 months - 3- other payable within 12 months 1,145 236Total 15,697 6,356Accrued expenses and deferred income- other 885 1TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 79,966 64,347

Annual Report 2001

MEMORANDUM ACCOUNTS

(thousands of euros) December 31, 2001 December 31. 2000

General guarantees granted- Guarantees in favor of others 141 102Commitments- To purchase equity interests - 4,308Other memorandum accounts - Third party assets held by the Company 5,197 37TOTAL MEMORANDUM ACCOUNTS 5,338 4,447

Annual Report 2001

CONSOLIDATED INCOME STATEMENT

(thousands of euros) 2001 2000(a)

Total revenues:- revenues from the sale of goods and services 21,779 8,085'- change in work in progress, semi-finished goods and finished goods (128) (89)- other revenues and income 33 209Total 21,684 8,205

Operating costs:- raw and ancillary materials and consumables 1,420 157- service costs 5,482 2,319- lease expense 781 162- labor costs: 4,664 1,129 wages and salaries 3,750 807 social security contributions 666 266 employee severance indemnities 129 56 other 119 - - amortization, depreciation and write-downs 4,463 3,004 amortization of intangible fixed assets 3,817 2,640 depreciation of tangible fixed assets 623 314 provisions for doubtful accounts 23 50 - change in raw and ancillary materials, consumables and goods for resale 51 205- other expenses 151 205Total 17,012 7,181

Operating income 4,672 1,024Financial income and expense:- income from marketable securities 196 25 other: from others 2,252 896- expense other (521) (254)Financial income (expense), net 1,927 667Adjustments to financial assets:- write-downs of equity investments (837) - Adjustments to financial assets (837) - Extraordinary income and expense:- income 307 10- expense (121) (11)Extraordinary income (expense), net 186 (1)

Income (loss) before taxes 5,948 1,690

- income taxes (757) (834)Net income (loss) before minority interest 5,191 856

Minority interest (3) (2)

Group net income (loss) 5,194 858

(a) Acotel Group S.p.A. was incorporated on April 6, 2000 and the comparative amounts therefore refer to such date.

Annual Report 2001

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Annual Report 2001

4.1 FORM AND CONTENT The consolidated financial statements as of December 31, 2001 were drawn up in accordance with the regulations laid down in Legislative Decree no. 127/1991, integrated by the accounting principles established by the Italian Accounting Profession. All the supplementary information deemed necessary to give a true and fair picture is also supplied, even if not required by specific provisions of the law. The consolidated financial statements aim to show financial position, results of operations and changes in the financial position of Acotel Group S.p.A. (the Parent Company) and the companies directly or indirectly controlled by it. The financial statements of consolidated companies were drawn up on the basis of the accounting principles and policies established by art. 2423 of the Italian Civil Code and subsequent, in line with those laid down by the Italian Accounting Profession. Such principles and policies are applied in accordance with those adopted by the Parent Company. As of December 31, 2001, in addition to Acotel Group S.p.A., the Parent Company, the following directly or indirectly controlled subsidiaries of the Acotel Group were consolidated:

Company Date of

acquisition (1) Group’s

interest (%) Registered

office Share capital

Acotel S.p.A. April 28, 2000 99.9% (2) Rome EURO 13,000,000

AEM Advanced Electronic Microsystems S.p.A. April 28, 2000 99% Rome EURO 858,000

Acomedia S.r.l. April 28, 2000 100% Rome EURO 15,600

Acotel Participations S.A. April 28, 2000 100% Luxembourg EURO 1,200,000

Acotel Chile S.A. April 28, 2000 100% (3) Chile USD 50,000

Acotel Espana S.L. April 28, 2000 100% (3) Spain EURO 3,000

Acotel Greece S.A. April 28, 2000 100% (3) Greece GRD 61,855

Acotel Do Brasil LTDA August 8, 2000 100% (3) Brazil BRL 50,000

Jinny Software Ltd. April 9, 2001 100% (3) Euro EURO 2,927

Millennium Software SAL April 9, 2001 99.9% (5) Lebanon LPD 30,000,000

Millenium Luxembourg S.A. April 28, 2000 100% Luxembourg EURO 38,850

Millenium Communications S.A. April 28, 2000 100% (4) Luxembourg EURO 199,800

Publimedia S.A. April 28, 2000 100% Luxembourg EURO 38,850

(1) All the subsidiaries were acquired on April 28, 2000. They already existed, with exception of Acotel Do Brasil acquired on August 8, 2000, the

date of its incorporation. (2) AEM owns 1.92% of the share capital. (3) Owned via Acotel Participations S.A. (4) Owned via Millenium Luxembourg S.A. (5) Owned via Jinny Software Ltd.

All Group companies located in Euro zone countries converted their share capital into euros by December 31, 2001, in accordance with the relevant local laws. The subsidiary, Acotel International S.A. changed its name to Acotel Participations S.A. on December 13, 2001.

Annual Report 2001

Consolidation was based on the balance sheets and income statements of the Parent Company and all subsidiaries as of December 31, 2001, with the exception of Jinny Software Ltd., which was consolidated with effect from the date on which the Parent Company acquired control. As the company was acquired on April 9, 2001, its income statement was consolidated with effect from April 1, 2001, given that no accounts as of the date of acquisition were available. All the financial statements of Group companies had already been approved by their respective management bodies at the time of consolidation.

4.2 ACCOUNTING POLICIES Principles of consolidation The assets and liabilities of consolidated companies are recorded on a line-by- line basis, eliminating the book value of the shareholdings consolidated in relation to the shareho lders’ equity of subsidiaries. The difference between the cost of acquisition and the fair value of the shareholders’ equity of subsidiaries on the date of acquisition is recorded as “Goodwill arising from consolidation” under intangible assets and amortized, or under shareholders’ equity at “Consolidation reserve”, if the cost of acquisition is lower than the value of the adjusted value of shareholders’ equity. The Consolidated Balance Sheet and Income Statement also reflect the elimination of all inter-company payables, receivables, costs and revenues. The minority interest in shareholders’ equity and in net income for the period is shown under the specific items in the Consolidated Balance Sheet and Income Statement. Intangible assets These are stated at purchase price or production cost, including incidental expenses. They are systematically amortized over their estimated useful lives. In the event of a permanent impairment in value, the asset is written down accordingly, regardless of the amortization already charged. The incorporation and expansion costs of the companies and the related subsequent expenses, concessions, licenses and trademarks and similar rights are amortized on a straight- line basis over five years, while capitalized costs directly related to the stock market listing of the Parent Company, Acotel Group S.p.A., are amortized over two years. Research and development costs are capitalized, if identifiable and measurable, after assessing their recoverability as a result of the economic benefits expected from the projects to which they refer and which are expected to be completed. These costs are amortized in five years. Industrial patents and intellectual property rights, related to software acquired or developed by the Company, are capitalized after assessing their recoverability as a result of the economic benefits

Annual Report 2001

expected from the projects to which they refer and which are expected to be completed. These costs are amortized over three years, in view of the rapid technological deterioration to which they can be subject. Leasehold improvements are amortized on the basis of the duration of the related rental contracts. Goodwill arising from consolidation is amortized on a straight- line basis over a period of 10 years, taking into account future cash flows from the investment. Tangible assets These are stated at purchase price or production cost, including incidental expenses. They are systematically depreciated on a straight- line basis at a rate reflecting the estimated useful life of the relevant asset. Depreciation starts when the asset comes into operation and is reduced to half for the first year, in accordance with Italian law. Ordinary maintenance and repair costs are expensed as incurred. No monetary or economic revaluations or capitalization of interest expense was carried out. The rates of depreciation applied for the different categories of asset are as follows:

Specific plant 10-20%

Technological platform 50%

Other plant and machinery 15-20%

Computers 20%

Other equipment 15-25%

Vehicles 25%

Furniture, fixtures and fittings 12%

In the event of a permanent impairment in value, the asset is written down accordingly, regardless of the depreciation already charged. If, in subsequent periods, the reasons for the write down are no longer valid, the original value is reinstated. Long-term financial assets Equity investments in associated companies are valued according to the equity method. Equity investments in other companies are valued at cost, where appropriate written down in order to reflect a permanent impairment in value.

Annual Report 2001

Inventories Inventories are stated at the lower of purchase or production cost using the LIFO method and the estimated realizable value based on market prices.

Accounts receivable Accounts receivable are entered at nominal value, reduced by provisions for doubtful accounts in order to reflect their estimated realizable value. Marketable securities Such assets are stated at the lower of purchase cost and market value. Cash at bank and on hand Such items are stated at nominal value as calculated at year end. Accruals and deferrals Accruals and deferrals include the portion of revenues and expenses covering two or more periods, allocated on an accruals basis. Employee severance indemnities Severance indemnities are stated in accordance with the provisions of the national collective labor contract for the category, with supplementary company agreements and in compliance with the regulations in force. It corresponds to the effective commitment to each employee at December 31,

2000, net of any advances paid. Taxes Income taxes are recorded on the basis of estimated taxable income in accordance with Italian law, taking into account applicable exemptions and tax credits due. In addition, deferred tax assets and liabilities are recognized on the basis of temporary differences between the carrying value of assets or liabilities and their tax base. Deferred tax assets are recorded subject to verification of their recoverability. Accounts payable These are stated at nominal value.

Annual Report 2001

Receivables and payables expressed in foreign currency Receivables and payables denominated in foreign currency are translated into lire at exchange rates on the date of the original transaction. They are adjusted on the basis of the exchange rates at the end of 2001. The exchange rate differences resulting from the conversion are charged to the Income Statement. Revenues These are recognized in accordance with the prudence and matching principles. Revenue relating to the services rendered to Network Operators and Corporate Customers is recognized on the basis of the services effectively performed during the period. Revenue relating to the sale of software licenses is recognized at the moment the transfer of title takes place, which generally coincides with shipping. Revenue relating to the design, production and installation of electronic equipment is recognized at the moment the service is supplied or at the time of delivery, subject to acceptance by the customer. Memorandum accounts These are stated at nominal value, including the existing commitments and risks at the end of the period.

Annual Report 2001

4.3 NOTES TO THE BALANCE SHEET 4.3.1 ASSETS ASSETS Intangible assets Details of intangible assets as of December 31, 2001 are as follows: (thousands of euros)

Historical costAllowance for amortization

Net valueat 12-31-2001

Net valueat 12-31-2000

Incorporation and expansion costs 4,769 (4,728) 41 2,379 Research, development and advertising costs 1,057 (921) 136 347

Industrial patents and intellectual property rights

486 (307) 179 131

Concessions, licences, trademarks and similar rights 60 (7) 53 55

Goodwill arising from consolidation 13,944 (1,094) 12,850 432 Intangibles in process and advances

84 - 84 5

Other 127 (96) 31 31 Total 20,527 (7,153) 13,374 3,380

The item “Incorporation and expansion costs” includes the incorporation cost of Acotel Group S.p.A., costs related to amendments to subsidiaries’ articles of association and the charges incurred in relation to the Parent Company’s listing on the Italian Stock Exchange’s New Issue Market, completed on August 9, 2000. The latter costs, of which 4,699 thousand euros were capitalized, were completely amortized by the Parent Company over two years (2000 and 2001), in accordance with the decision taken by the Board of Directors of Acotel Group S.p.A. at their meeting held to establish the accounting principles to be followed in the preparation of the annual report for 2000. The costs of research and development include the costs incurred by AEM for two different research projects, currently at the trial stage, aimed at the development of a domestic automation system (called ARGO) and the creation of a remote automatic monitoring system. The subsidiary has financed the above projects with the help of subsidized loans duly posted among liabilities.

Industrial patents and intellectual property rights consist of the specific software purchased from third parties, and used by the Group in the provision of computerized services and for the internal information system used by Group companies.

Annual Report 2001

The item “Concessions, licenses, trademarks and similar rights” essentially includes the license held by the subsidiary Millenium Communication S.A. for operating fixed telephony services. The item “Goodwill arising from consolidation” is composed of the difference arising between the price paid by the Parent Company for the purchase of the shareholdings in AEM S.p.A. and Jinny Software Ltd. and the corresponding value of the subsidiaries’ shareholders’ equity on the date of acquisition. The two amounts, before amortization, total 463 thousand euros and 13,433 thousand euros, respectively. The item also includes the goodwill already posted in the accounts of Jinny Software, amounting to 48 thousand euros, as a result of the consolidation of its Lebanese subsidiary Millennium Software SAL . “Leasehold improvements” consist of the costs incurred during recent years in order to renovate the building located in Rome, which is rented from third parties and used for several years as the registered office and operational headquarters of the Group’s Italian companies. The contract was renewed in November 2000 for a period of 6 years. Intangibles in process include the value of a software module used in the new information system, which had yet to enter service at December 31, 2001. Movements in intangible assets during the year are shown in an annex. Tangible assets Details of tangible assets are as follows: (thousands of euros)

Historical costAllowance fordepreciation

Net valueat 12-31-2001

Net valueat 12-31-2000

Plant and machinery 1,151 (408) 743 173 Computer node 419 (351) 68 89 Industrial equipment 2,155 (911) 1,244 344

Vehicles 116 (68) 48 72

Furniture, fixtures and fittings 177 (59) 118 67

Other 129 (129) - -

Total 4,147 (1,926) 2,221 745

During the year no tangible asset was the subject of revaluations or write-downs. Movements in tangible assets during the year are shown in an annex.

Annual Report 2001

Long-term financial assets Details of equity investments in associated companies are as follows:

in thousands of euros Shareholders' equity 12/31/2001 [pursuant to art.2426 CC, 4, (3) ]

name registered office notesshare capital

total amountGroup's interest

total amountGroup's interest

Group's interest

Book value

(A) (B)

Info2cell.com LLC Dubai Internet City (1) 5,673 3,483 1,149 (2,191) (723) 33% 3,555

E-seed S.p.A.Rome - Via della Valle dei Fontanili 29

(2) 207 227 114 (4,855) (2,428) 50% 635

4,190

(1) Data taken from draft Accounts for 2001, to be submitted for approval by the company's Board of Directors to be held on March 6, 2001.

(2) As of February 28, 2002, the company had not yet approved its Annual Report for 2001. The data therefore refer to the last approved report dated 11-30-2001, prepared at the time of its acquisition by the Acotel Group.

Net income (loss)2001

Equity investments in associated companies reflect the adjustments made in compliance with the equity method, and included in the Income Statement. Equity investments in other companies, amounting to 2,582 thousand euros, regard the 10% holding in Voinoi. All the above investments are held by the subsidiary Acotel Participations S.A. . CURRENT ASSETS Inventories The following table shows a breakdown of inventories and the related provisions made in order to reflect estimated realizable values at the time of preparation of the financial statements as of December 31, 2001: (thousands of euros)

Gross value Write-downsBook value

at 12-31-2001Book value

at 12-31-2000Raw materials, ancillary materials and consumables 240 (60) 180 126 Work-in-progress and semi-finished goods 290 (235) 55 247 Finished goods and goods for resale 180 (147) 33 75

Total 710 (442) 268 448

Annual Report 2001

Trade receivables This item reports trade receivables after deducting provisions for doubtful accounts in order to reflect their estimated realizable value. This item breaks down as follows: (thousands of euros)

12-31-2001 12-31-2000Trade receivables 7,732 7,052 Provisions for doubtful accounts (110) (77)

Total 7,622 6,975

21% of trade receivables are due from the Telecom Italia Group. All trade receivable fall due within 12 months. Other receivables The following table shows the main items making up the balance: (thousands of euros)

12-31-2001 12-31-2000Banks for repurchase agreements - 46,272

VAT credits 42 457

Income tax credits 628 60

Deferred tax assets 224 195

Advances to suppliers 90 64

Other 40 46 Total other receivables

falling due within 12 months1,024 47,094

Guarantee deposits paid to suppliers receivable beyond 12months

69 23

Total other receivables 1,093 47,117

Income tax credits include the balance of IRPEG and IRAP credits due to Acotel Group and AEM, reflecting the fact that the advances paid during the year exceeded the income tax effectively due. Deferred tax assets derive from temporary differences between the book values of assets and liabilities and their tax bases, resulting from the elimination of intercompany profits during consolidation. The part receivable beyond 12 months, amounting to 69 thousand euros, includes guarantee deposits given to third parties in relation to rental and utility contracts entered into by Group companies.

Annual Report 2001

Marketable securities This item, amounting to 4,200 thousand euros at the end of 2001, compared with 4,209 thousand euros at the end of the previous year, refers to short-term investments in bonds issued by Banca Nazionale del Lavoro, falling due in 2003, and providing a rate of return of 5.25%. The securities are held by Acotel Group S.p.A. (2,065 thousand euros) and Acotel S.p.A. (2,135 thousand euros). Cash at bank and on hand This item includes bank deposits of 44,271 thousand euros and cash and notes on hand totaling 38 thousand euros. At the end of the previous year the above items amounted to 1,342 and 8 thousand euros, respectively. Bank deposits represent the balances of current accounts as of December 31, 2001. ACCRUED INCOME AND PREPAID EXPENSES This item breaks down as follows: (thousands of euros)

12-31-2001 12-31-2000Accrued income 23 75 Prepaid expenses 84 29

Total 107 104

The balance as of December 31, 2001 includes 23 thousand euros regarding accrued income represented by interest due on short-term investments held on December 31, 2001, and 84 thousand euros regarding prepayments on insurance, periodic rentals and other expenses pertaining to the next year.

Annual Report 2001

4.3.2 LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY Group interest As of December 31, 2001 the paid-up share capital of Acotel Group S.p.A. consisted of 4,170,000 ordinary shares with a nominal value of 0.26 euros each. In application of the stock option plan approved by the General Meeting of Acotel Group S.p.A.’s shareholders on April 28, 2000, a total of 4,000 new ordinary shares were issued on June 1, 2001. This led to a 179 thousand euro increase in the share premium reserve reflecting the positive difference between the exercise price of the options and the nominal value of the shares. On December 20, 2001 the Company converted its share capital into euro, in accordance with the relevant legislation. The nominal value of each share was thus converted from Lit. 500 to 0.26 euros. Following the conversion, the value of the share capital amounts to 1,084,200 euros, representing an increase of 7,389 euros with respect to the previous value expressed in Italian lire. This increase was entirely financed through a release from the share premium reserve, which was therefore reduced by the same amount to 55,106 thousand euros as of December 31, 2001. The consolidation reserve, equal to 909 thousand euros, is the result of the difference between the book value of subsidiaries as stated in the Parent Company’s Balance Sheet and the corresponding interest in shareholders’ equity on the date of acquisition. The reserve for exchange rate differences is 41 thousand euros in deficit following conversion of the accounts of foreign subsidiaries expressed in non-euro currencies, carried out in accordance with Italian accounting standards. The statement of movements in shareholders’ equity during the year is attached. Minority interest As of December 31, 2001, this is the share of shareholders’ equity attributable to minority shareholders in subsidiaries. Reconciliation of the Parent Company’s net income and shareholders’ equity with consolidated net income and shareholders’ equity The reconciliation between the shareholders’ equity, including net income, of Acotel Group S.p.A. as stated at December 31, 2001, and the corresponding consolidated items is as follows:

Annual Report 2001

(thousands of euros)Shareholders' equity Result for the period

positive/(negative) net income / (loss)

Parent Company's shareholders' equity and result for the period

59,342 1,936

Effect of consolidation of Group companies 4,915 5,111

Consolidation reserve 909 -

Reserve for exchange rate differences (54) -

Valuation of associated companies according to the equity method (837) (837)

Amortization of goodwill arising from consolidation (1,085) (1,054)

Reinstatement of intercompany transfers of tangible assets (47) 84

Elimination of intercompany profits (46) (46)

Group shareholders' equity and result for the period 63,097 5,194

Minority interest in shareholders' equity and result for the period 39 (3)

Consolidated shareholders' equity and result for the period 63,136 5,191

EMPLOYEE SEVERANCE INDEMNITIES As of December 31, 2001 this item amounts to 248 thousand euros and includes the amounts due as severance indemnities, calculated in accordance with established regulations, net of advances already paid to employees. The following table shows movements during the year:

(thousands of euros) 2001 2000

Opening balance 150 -

Provisions 179 150

Releases (81) -

Closing balance 248 150

Annual Report 2001

ACCOUNTS PAYABLE Bonds This item, totaling 10,212 thousand euros, includes the bonds issued by Acotel Participations on August 2, 2001 in relation to the commitments assumed at the time of the acquisition of Jinny Software. Such bonds were subscribed by the previous owners of the Irish company. The nominal value of the loan is 9 million US dollars, and the bonds pay annual coupon interest of 1.5%. The bonds are redeemable as a lump sum on maturity on April 9, 2003. Banks Bank debt breaks down as follows: (thousands of euros)

12-31-2001 12-31-2000Banks due within 12 months 99 361 Banks due beyond 12 months 202 265

Total 301 626

Both categories refer to part of the medium/long-term loans granted by S.Paolo-IMI and the Industry Ministry to the subsidiary, AEM S.p.A., to finance the research and development costs incurred by the company for two products aimed at creating remote surveillance and household automation systems. The above loan is subject to interest at 3.7%, is not secured by any form of guarantee and will be wound up at the end of 2005. Other lenders The part of the loan described above given by the Industry Ministry, which amounts to 301 thousand euros, is classified under this item. This amount increased by 60 thousand euros during the year after disbursement by the Ministry of the final tranche in February. This followed final approval of the project for which the loan was granted. The repayment schedule established by the contract starts in 2003 and will be completed by the end of 2012. This loan is subject to interest at 3.625% and is not secured by any form of guarantee. The portion falling due beyond 5 years totals 163 thousand euros. Advances This item includes amounts invoiced to customers in excess of revenues pertaining to the period. It is basically the part of services invoiced but not yet performed related to ITC supply contracts

Annual Report 2001

entered into by the subsidiaries, Acotel Do Brasil and Jinny Software. The value posted as of December 31, 2001 amounts to 620 thousand euros, compared to the 1,754 thousand euros of the previous year. Trade This item, which amounts to 2,472 thousand euros, compared with 2,105 thousand euros at the end of 2000, is entirely made up of trade payables due within 12 months. Taxes The item is made up as follows: (thousands of euros)

12-31-2001 12-31-2000

Income tax payables 190 995 VAT payable 100 86 Employee witholding taxes 91 65 Other - 108

Total 381 1,254

The item includes amounts payable for income taxes, net of advances paid, and amounts payable for VAT by Acotel Group companies, as well as amounts due for taxes withheld from employees and freelances in the capacity of withholding agent and payable to tax authorities. No Group company is in dispute with the tax authorities, nor are tax audits in progress. Social security agencies As of December 31, 2001, this item amounts to 265 thousand euros (140 thousand euros as of December 31, 2000) and includes social security contributions to be paid. Other

The item is made up as follows: (thousands of euros)

12-31-2001 12-31-2000

Due to employees 428 153 Due to Directors 248 - Other 469 83

Total 1,145 236

Annual Report 2001

Amounts payable to employees total 428 thousand euros and basically relate to wages and salaries, bonuses and outstanding vacation pay. Amounts due to Directors regard fees accrued during the year and yet to be paid. The other payables include 267 thousand euros relating to the unsecured loan granted to E-Seed, as part of the acquisition price paid for 50% of the company’s share capital. A further 63 thousand euros regards the interest accrued on the bonds issued by Acotel Participation in relation to the acquisition of Jinny Software, with the first annual coupon interest maturing on April 9, 2002. ACCRUED EXPENSES AND DEFERRED INCOME Deferred income, amounting to 885 thousand euros, primarily rega rds the subsidiary, Jinny Software, and relates to annual fees due in return for technical assistance for the ITC equipment sold, on the basis of existing contracts. At the end of the previous year this item amounted to zero. 4.3.3 MEMORANDUM ACCOUNTS At year end the memorandum accounts were made up as follows: (thousands of euros)

12-31-2001 12-31-2000General guarantees granted Guarantees granted in favor of others 102 102 Commitments To purchase equity investments - 4,308 Other memorandum accounts: Third party assets held by the Company 5,197 37

Total 5,299 4,447

The guarantees granted basically relate to the guarantee given to the owner of the building rented by the Parent Company, where all the Italian companies of the Group have their headquarters. Third party assets include 5,165 thousand euros relating to the ITC equipment supplied to Voinoi, but which the customer has requested initially to install on the premises of Acotel Group S.p.A., whilst the customer’s own facilities designed to house the equipment are being prepared. The residual amount, totaling 32 thousand euros, regards equipment granted free of charge to Acotel S.p.A. by various providers (Reuters, Sole 24 ore, etc.) for connection to their information networks.

Annual Report 2001

4.4 NOTES TO THE INCOME STATEMENT TOTAL REVENUES The Acotel Group’s total revenues amounted to 21,684 thousand euros in 2001 and break down as follows. (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Revenues from sales and services 21,779 8,085Change in inventories of semi-finished and finished goods (128) (89)Other revenues and income 33 209

Total 21,684 8,205

Revenues from goods sold and services rendered are broken down as follows by segment: (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Value added services to network operators 7,660 4,779

Value added services to corporate customers 949 474Design, production and development of ITC equipment 12,017 2,180Development of software applications 303 - Design, production and development of security equipment 847 650

Other 3 2Total 21,779 8,085

The value added services provided to network operators consist of information services supplied, for the most part by the subsidiary, Acotel S.p.A., to Italian and foreign fixed- line and mobile telephony operators. A large part of these revenues derive from Telecom Italia Mobile via the provision of the Scriptim (GSM), Voicetim (voice) and Waptim (WAP) services. This segment generated revenues of 7,660 thousand euros in 2001, maintaining a significant rate of growth in terms of both turnover and traffic volumes. The revenues from services provided to corporate customers, that is firms that buy customized information services, designed and created on the basis of their specific requirements, came to 949 thousand euros. The main customers in terms of turnover were SMS Affari, Diners and Borsa Italiana. The design, production and development of ITC equipment aims to meet demand from telecommunications operators and companies wishing to acquire their own plant and equipment

Annual Report 2001

capable of supplying their customers with value added information services, via fixed- line and mobile telephony and the Internet. The acquisition of Jinny Software was instrumental in pursuing this goal, as it reinforced the Group’s technological know-how in a rapidly growing sector, such as the supply of ITC equipment. In terms of turnover, Jinny Software contributed 9,973 thousand euros to the Group, amounting to 81% of revenues from this segment. The residual portion was contributed by existing contracts with Info2cell (Dubai) and Timnet (Brazil), entered into by Acotel Group S.p.A. and Acotel Do Brasil. This segment also includes revenues generated by the sale of licenses for use of the software developed by Acotel. The relevant contracts provide for further payments on exceeding certain thresholds for the number of users. During 2001 the sale of such licenses, which relate primarily to the existing contract between the subsidiary, Acotel Do Brasil and the local service provider, Timnet, generated revenues of 300 thousand euros. Revenues from the development of software applications regard the existing contract with Voinoi. Revenues from the design and production of security systems regarded the activities of the subsidiary, AEM, which during 2001 was limited to maintenance of the remote surveillance systems installed in Italian police stations. In order to re- launch the subsidiary’s business, in December the company recruited several new personnel capable of contributing to a review of its strategic position in the market, and to the acquisition of more independence in marketing its products to potential customers. A breakdown of margins by business segment is not provided as there are no great differences between the various activities of the Group in terms of personnel employed. Most of the costs incurred regarded, without distinction, all the activities carried out and therefore the revenues generated. In particula r, labor costs, consultants’ fees and technological resources were used for the joint development of all the Group’s businesses. The geographical distribution of revenues is as follows: (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Italy 14,430 5,192

Europe 516 598

Middle East 5,837 652

Latin America 996 1,643

Total 21,779 8,085

The table shows that the Group’s overseas revenues represented 34% of the total. Change in semi-finished and finished goods This item is negative (128 thousand euros), whilst it was negative to the amount of 89 thousand euros in 2000. It is mainly affected by the adjustment of inventories to reflect their estimated realizable value at year end.

Annual Report 2001

Other revenues and income Other revenues, amounting to 33 thousand euros, include rentals charged to third parties. In 2000 this item totaled 209 thousand euros. OPERATING COSTS Materials, service costs and lease expense This item includes the following costs: (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

raw and ancillary materials and consumables 1,420 157

service costs 5,482 2,319

lease expense 781 162Total 7,683 2,638

The costs of raw and ancillary materials and consumables mainly relate to the purchase of the materials used in the construction of telecommunications and electronic equipment.

Service costs include, among other things, the cost of connection to land-based and satellite transmission networks, amounting to 1,033 thousand euros, and the cost of the editorial content provided by content providers, totaling 522 thousand euros. Both items are direct components of the services supplied by the Group to its customers. The Group’s most important content providers include ANSA, Il Sole 24 ore and Reuters. Consultants’ fees amounted to 1,175 thousand euros and regard the fees paid to management, accounting and legal consultants. Such costs are essentially linked to the Group’s expansion and the various business deals negotiated, as well as administrative costs relating to overseas companies, where management is outsourced to local consulting firms. Technical services and consultancy used in the design of equipment cost a total of 131 thousand euros. This category also includes Directors’ fees totaling 573 thousand euros and those paid to Statutory Auditors, amounting to 65 thousand euros. For further information regarding the fees paid to corporate officers reference should be made to the specific table at the end of these notes.

Lease expense includes rental costs related to the buildings in which Group companies operate.

Labor costs Labor costs break down as follows:

Annual Report 2001

(thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Wages and salaries 3,750 807Social security contributions 666 266Employee severance indemnities 129 56Other costs 119 -

Total 4,664 1,129

The following table shows the number of staff by category on December 31, 2001.

12-31-2001 Average 2001 Average 2000

Managers 14 11 2 Supervisors 7 4 1

Clerks 91 71 18 Total 112 86 21

Amortization, depreciation and write-downs Amortization, depreciation and write-downs relate to: (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Amortization of intangible assets 3,817 2,640Depreciation of tangible assets 623 314

Provisions for doubtful accounts 23 50Total 4,463 3,004

The amortization of intangible assets mainly relate to the costs of modifying and expanding the Company’s organizational structure and include the direct costs incurred for Acotel Group’s stock market listing in 2000 (amortization for the period amounted to 2,350 thousand euros). The item also relates to amortization of goodwill arising from consolidation of the subsidiaries, Jinny Software and AEM, with the relevant charges amounting to 1,007 and 46 thousand euros, respectively. The residual part relates to the research and development costs incurred by AEM for activities connected with household automation and remote surveillance. Depreciation of tangible assets mainly relates to telecommunications equipment, as well as to infrastructure and equipment used by Group companies.

Annual Report 2001

Change in raw and ancillary materials and consumables Inventories decreased by 51 thousand euros. This reduction is mainly due to their adjustment to reflect their estimated realizable value calculated at the end of the year. Other operating costs This item includes non-deductible taxes and costs incurred by the subsidiary, Acotel Do Brasil, amounting to 91 thousand euros, and relating to consultants’ fees and other general overhead.

FINANCIAL INCOME AND EXPENSE The net balance of 1,927 thousand euros breaks down as follows: (thousands of euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Interest income on financial investments 1,648 864 Bank interest 287 55 Profits on foreign exchange transactions 512 - Other interest income 1 2

Total financial income 2,448 921

Interest expense and bank charges (153) (199) Losses on foreign exchange transactions (363) (54) Other interest expense (5) (1)

Total financial expense (521) (254)Financial income (expense), net 1,927 667

Financial investments regard short-term investment of the Group’s liquidity in repurchase agreements and bonds. The average rate of interest earned on such investments was around 4%. ADJUSTMENTS TO FINANCIAL ASSETS This item includes write-downs of the equity investments in the associated companies, Info2cell and E-seed, totaling 837 thousand euros. The write-downs were carried out to ad just the value of the holdings in accordance with application of the equity method. In 2000 this item amounted to zero. EXTRAORDINARY INCOME AND EXPENSE Extraordinary income totaled 307 thousand euros and expense 121 thousand euros. Extraordinary income included gains on the disposal of assets totaling 21 thousand euros, whilst other extraordinary income and expense regards non-recurring revenues and liabilities.

Annual Report 2001

TAXES Taxes for the year 2001 are made up as follows:

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Income taxes for the period 780 877 Deferred tax liabilities (assets) (23) (43)

Total 757 834

The reduction in taxes (tax rate 13.1%) was due to both the fact that Acotel Group benefited from the tax relief introduced by Dual Income Tax (DIT) legislation, and the lower rate of taxation paid by the Irish subsidiary, Jinny Software. Deferred tax assets and liabilities are calculated on the basis of the temporary differences between the book values of assets and liabilities and their tax bases, subject to verification of their recoverability. The latter refer to the elimination of intercompany profits during consolidation and non-deductible provisions made by the subsidiaries, AEM and Acotel.

Annual Report 2001

4.5 REMUNERATION OF DIRECTORS AND STATUTORY AUDITORS The following tables give the information required by CONSOB resolution no. 11971 of May 14, 1999. (amounts in euros)

ACOTEL GROUP S.p.A.Directors Statutory Auditors

name position annual fee name position annual fee

Claudio Carnevale Chairman and CEO 428,526 Antonio Mastrangelo Chairman 14,750 Francesco Ago Director - Umberto Previti Flesca Statutory Auditor 9,482 Margherita Argenziano Director - Giovanni Galoppi Statutory Auditor 9,482 Berardino Libonati Director -Andrea Morante Director -

ACOTEL S.p.A.Directors Statutory Auditors

name position annual fee name position annual fee

Claudio Carnevale Chairman 51,646 Antonio Mastrangelo Chairman 7,901 Umberto Previti Flesca Statutory Auditor 5,268 Giovanni Galoppi Statutory Auditor 5,268

AEM S.p.A.Directors Statutory Auditors

name position annual fee name position annual fee

Claudio Carnevale Chairman 51,646 Antonio Mastrangelo Chairman 5,268 Margherita Argenziano Managing Director 41,317 Umberto Previti Flesca Statutory Auditor 3,687

Giovanni Galoppi Statutory Auditor 3,687

The above amounts refer to the emoluments affectively accruing to corporate officers in relation to the position held. No other sums were paid to the persons concerned for any reason.

Annual Report 2001

ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Annual Report 2001

ANNEX 1 CONSOLIDATED STATEMENT OF CASH FLOWS

(thousands of euros) 2001 2000

(a)

A. NET CASH AT THE BEGINNING OF THE PERIOD 51,470 -

B. CASH FLOWS FROM OPERATING ACTIVITIES 9,237 1,136

Cash flows from operating activities before changes in working capital 9,677 4,017 - Net income for the period 5,194 858 - Amortization and depreciation 4,440 2,954 - Net change in employee severance indemnities 98 150 - Net change in the allowance for risks and charges (55) 55

(Increase) / decrease in accounts receivable (895) (7,820)

(Increase) / decrease in inventories 180 (448)

Increase / (decrease) in accounts payable 528 3,736

Changes in other items of working capital (253) 1,651

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (22,663) (7,098)

(Investments in)/disposal of fixed assets:

- Intangibles (13,811) (6,020)

- Tangibles (2,080) (1,078)

- Financial (6,772) -

D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES 10,366 57,432

Increase / (decrease) in long-term debt 10,209 506

Increase in share capital 1 1,076

Increase in share premium reserve 179

Other changes in shareholders' equity (23) 55,850

E. CASH FLOW FOR THE PERIOD (B+C+D) (3,060) 51,470

F. NET CASH AT THE END OF THE PERIOD (A+E) 48,410 51,470

(a) Acotel Group S.p.A., the Parent Company, was incorporated on April 6, 2000, and the comparative data

therefore refers to such date.

Annual Report 2001

Annual Report 2001

Annual Report 2001

Annual Report 2001

PARENT COMPANY’S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

Annual Report 2001

DIRECTORS’ REPORT ON OPERATIONS

Annual Report 2001

5.1 FINANCIAL REVIEW The financial review pertaining to Acotel Group S.p.A., the Group’s Parent Company, is of necessity limited to an analysis of the most significant items, given that its is not possible to effect a like-for- like comparison with the data for 2000, which refer to a period of around 9 months (the Company was founded on April 6, 2000). It should also be noted that the Company is part of a Group in which each company plays a role in implementing the Group’s overall objectives and strategy, in the pursuit of common goals rather than individual results. Reclassified Income Statement

(in euros) 2001 2000

(Apr. 6 - Dec. 31)

Total revenues 7,978,531 4,860,888

Materials and service costs 2,912,217 564,804Gross margin 5,066,314 4,296,084Labor costs 1,637,299 405,865EBITDA 3,429,015 3,890,219

42.98% 80.03%

Depreciation 269,989 113,560Amortization 2,374,802 2,357,996

Provisions for doubtful accounts 34,680 29,096EBIT 749,544 1,389,566

9.39% 28.59%

Net financial (expense) income 2,569,009 664,227

Adjustments to financial assets (1,122,085) - Income (loss) from ordinary activities 2,196,468 2,053,793

27.53% 42.25%

Extraordinary income (loss), net 51,396 196Income (loss) before taxes 2,247,864 2,053,989

28.17% 42.26%

Income taxes (311,304) (838,426)

Net income (loss) for the period 1,936,560 1,215,56324.27% 25.01%

The activities of Acotel Group S.p.A. during 2001 focused on management of the Group’s expansion, continuing to carry out its role as provider of centralized strategic planning, administration, organization and control. The organizational model adopted ascribes specific functions to each Group company, with the aim of maximizing operating synergies and the efficiency of decision-making, operating and control procedures, thanks to the rapid circulation of information flows within the Group.

Annual Report 2001

The Company also operated directly in the market, where business and strategic opportunities presented themselves. Total revenues amounted to around 8 million euros and fully reflect the dual role fulfilled by Acotel Group S.p.A.. Revenues break down as follows:

Business segment analysis

(thousands of euros) 2001 % 2000 %Apr. 6 - Dec. 31

DESIGN OF ITC EQUIPMENT 1,093 13.7% 3,081 63.4%

DEVELOPMENT OF SOFTWAREAPPLICATIONS 303 3.8% - -

SERVICES TO SERVICE PROVIDERS 5,767 72.3% 1,643 33.8%

ADMINISTRATIVE SERVICES FOR THEGROUP 784 9.8% 137 2.8%

OTHER 32 0.4% - -

7,979 100% 4,861 100%

The reduction in revenues deriving from the design and development of ITC equipment was due to the acquisition of Jinny Software and the decision to concentrate all activities linked to the production of such equipment in the new subsidiary. Revenues for 2001 regard the platform constructed for Info2cell in accordance with the contract dated December 2000. The Company had already posted the sum of 1,000,000 US dollars in 2000 as payment for the concession of software licenses for the operating system. The services provided to service providers represent the Parent Company’s most profitable area of business during 2001. Such services regard the acquisition, processing, management and transmission of data using Acotel’s proprietary ITC platform on behalf of Acotel S.p.A., the Group’s service provider. Revenues from the development of software applications regard the existing contract with Voinoi. Revenues from services provided to other Group companies include 516 thousand euros regarding the commission charged to Jinny Software for technical, legal, commercial and operating assistance linked to the supply of the platform to Voinoi. A further 268 thousand euros regards charges billed to the Group’s other Italian companies for their share of administrative costs, lease expense and related expenses. The following table shows a breakdown of the cost of materials and external services:

Annual Report 2001

(thousands of euros) 2001 2000 % changeApr. 6 - Dec. 31

Raw and ancillary materials and consumables 524 1 - Services 1,968 489 302.5%Lease expense 413 69 498.6%Other operating expenses 7 6 16.7%

Total 2,912 565 415.4%

The cost of raw materials primarily regards the components used in the production of the platform ordered by Info2cell. A large part of the service costs and lease expense relates to the role of Parent Company carried out by Acotel Group. The most important items include 573 thousand euros in fees paid to management, accounting and legal consultants, essentially linked to the Group’s expansion and the various business deals negotiated. Advertising and promotional expenditure designed to increase the Group’s visibility in its Italian and international markets amounted to 202 thousand euros. Lease expense and the running costs of the building in which the Group’s Italian companies operate totaled 720 thousand euros, a portion of which is charged to the various companies in the Group. Finally, Directors’ fees amounted to 462 thousand euros. Depreciation and amortization represent a significant amount and regards amortization of the costs incurred for Acotel Group’s stock market listing in 2000, of which over 4.7 million euros have been capitalized. Amortization of this item was completed on December 31, 2001, with the charge for the year amounting to 2,352 thousand euros. Depreciation of tangible assets regards the technological platform and other capital assets. The increase in personnel, details of which are provided in the notes, and the recruitment of qualified professionals led to a rise in labor costs. The new stag hired during the year were assigned to all the Company’s operating divisions and above all to the technology division, with the aim of contributing to the quantitative and qualitative development of the services supplied. Financial management was positively affected by returns on the short-term investment of liquidity raised through the stock market listing. Interest income on investments in repurchase agreements and bonds amounted to about 1,575 thousand euros. Interest income received from subsidiaries, in relation to the loans granted in their favor, totaled 243 thousand euros. The equity investment in the subsidiary, Acotel Participations S.A, was written down by 1,122 thousand euros to reflect a permanent impairment in value. This sum represents the value of the company’s shareholders’ equity as of December 31, 2001. For further information reference should be made to the notes. As a result of the above, Acotel Group’s net income for 2001 amounted to 1.9 million euros, representing an after-tax profit margin of 24%.

Annual Report 2001

The Balance Sheet as of December 31, 2001 shows substantial stability with respect to the previous year and confirms the Company’s solid financial position and the correct balance between liabilities and assets reported in the previous year’s accounts. RECLASSIFIED BALANCE SHEET

(in euros) December 31, 2001 December 31, 2000 % change

ASSETS

Fixed assets 25,479,323 17,297,897 47.30%Intangible assets 143,446 2,372,755 -93.95%Tangible assets 431,779 424,086 1.81%Long-term financial assets 24,904,098 14,501,056 - Current assets 44,675,614 51,841,657 -13.82%Accounts receivable from subsidiaries 7,652,105 3,495,462 118.92%Accounts receivable 838,595 3,159,672 -73.46%Marketable securities 2,065,000 2,069,196 -0.20%Cash at bank and on hand 34,119,914 43,117,327 -20.87%Accrued income and prepaid expenses 16,691 71,032 -76.50%Total Assets 70,171,628 69,210,586 1.39%

LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders' Equity 59,342,336 57,225,776 3.70%Share capital 1,084,200 1,075,780 0.78%Share premium reserve 55,106,013 54,934,433 0.31%Legal reserve 60,778 - - Retained earnings (accumulated losses) 1,154,785 - - Net income (loss) for the period 1,936,560 1,215,563 59.31%Allowances for risks and charges - 52,119 - Employee severance indemnities 78,221 13,154 494.66%Accounts payable 10,751,071 11,919,537 -9.80%advances - 1,093,339 -100.00%subsidiaries 8,901,912 8,834,735 0.76%trade 1,043,547 1,039,368 0.40%taxes 144,059 828,430 -82.61%social security agencies 159,070 46,724 240.45%other 502,483 76,941 553.08%Accrued expenses and deferred income - - - Total Liabilities and Shareholders' Equity 70,171,628 69,210,586 1.39%

The most significant changes include the increase in long-term financial assets, primarily due to loans granted to the subsidiary, Acotel Participations, totaling 10.3 million euros, and used to finance the acquisition of equity stakes in Jinny Software, Info2cell, Voinoi and E-seed.

Annual Report 2001

Intercompany receivables included under current assets also rose to 7.6 million euros, more than doubling compared to the previous year. The receivables in question are both trade and financial in nature, and confirm the supporting role played by the Company with regard to its subsidiaries. Intercompany payables were, on the other hand, stable. These essentially regard unpaid, called-up share capital due to the subsidiary, Acotel S.p.A. (8,880 thousand euros). As a result of the loans disbursed to subsidiaries, cash at bank and on hand decreased, although it remained above 34 million euros as of December 31, 2001. The increase in social security and other payables was due to the greater number of staff employed. The latter item includes salaries, accrued vacation and extra month’s pay and bonuses.

Annual Report 2001

5.2 RELATED PARTY TRANSACTIONS As required by articles 78 and 79 of CONSOB Resolution no. 11971 of 05/14/1998 and CONSOB communications no. 97001574 of 02/20/1999 and no. 98015375 of 02/27/1998, the most significant transactions with related parties occurring during the business year are set out below. Shares held by Directors and Statutory Auditors

NAME COMPANY INVESTED IN NO. OF SHARES AT BEGINNING OF YEAR

NO. OF SHARES PURCHASED

NO. OF SHARES SOLD NO. OF SHARES HELD

AT END OF 2001

Claudio Carnevale (a) Acotel Group S.p.A. 1,158,350 - 466,620 691,730 Andrea Morante Acotel Group S.p.A. 43,167 66,660 - 109,827 Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 Claudio Carnevale AEM S.p.A. 16,500 - - 16,500

(a) Ownership is exercised via Clama S.A., which is 99.9% owned by Claudio Carnevale.

Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which, in turn, holds 1,800,000 shares in Acotel Group S.p.A. Purchase of shares by shareholders During 2001 no shares were traded between Acotel Group companies and their shareholders. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during 2001: - 428,526 euros as Chairman and Managing Director of Acotel Group S.p.A.; - 51,646 euros as Chairman and Managing Director of Acotel S.p.A.; - 51,646 euros as Chairman of the Board of Directors of AEM S.p.A.. The fees paid to Claudio Carnevale for 2001, as Chairman and Managing Director of Acotel Group S.p.A., by the company’s Board of Directors, consist of a fixed portion of 206,584 euros and a variable portion of 221,942 euros. The latter sum amounts to 2% of the increase in the Group’s consolidated revenues for 2001 with respect to 2000. Margherita Argenziano earned fees of 41,317 euros as Managing Director of AEM S.p.A. As of December 31, 2001, 240,651 euros of the above remuneration had yet to be paid. The other Directors do not receive any form of remuneration. Intercompany transactions

Annual Report 2001

The following table shows transactions between Acotel Group S.p.A. and its subsidiaries:

RELATIONS WITH OTHER GROUP COMPANIES(in euros)

company accounts receivable accounts payable costs revenues

AEM S.p.a. 136,112 10,605 50,897 136,112Acotel S.p.A. 5,854,258 8,891,125 5,853,742Acomedia S.r.l. 45,080 44,801Acotel Participations S.A. 10,525,733 603,185Millenium Communication S.A. 657,622 91 1,974 23,366Millenium Luxembourg S.A. 91Acotel Do Brasil Ltda 209,069 1,679Acotel Espana S.L. 1,162Jinny Software Ltd 541,250 516,457

Amounts due from AEM and Acomedia represent the subsidiaries’ share of administrative costs, lease expense and running costs relating to the building used as the companies’ headquarters. Amounts due from Acotel regard trade receivables and, in addition to the company’s share of the above overhead, the subsidiary’s use of the technological platform in its role as service provider. Amounts due from Acotel Participations regard the loan granted in order to finance the acquisitions made. The portion disbursed to finance the acquisition of equity stakes is classified among long-term financial assets and amounts to 10,318,181 euros. Amounts due from Millenium Communication are of a financial nature and regard advances granted to cover temporary need for liquidity. Amounts due from Acotel Do Brasil regard charges for labor costs relating to personnel seconded to the Brazilian company during its start-up. Amounts due from Jinny Software regard commissions due in return for commercial assistance supplied during the negotiation of contracts with Italian customers. Financial receivables earn interest charged at market rates. Amounts due to AEM regard charges for the security services provided at the Group’s headquarters. Amounts due to Acotel refer to the 8,779,762 euros of called-up share capital still to be paid in to the subsidiary. The remaining amount regards trade payables and relate to services received. The costs charged to AEM regard the running costs for the building from which the Group’s Italian companies operate. The costs relating to the overseas companies, Publimedia and Acotel Do Brasil, regard losses on the conversion of a number of balance sheet items expressed in foreign currency. Revenues earned from Acotel include 5,767,274 relating to the amount charged in return for the data processing services supplied via the ITC platform. The remaining part regards reimbursement of the administrative costs, lease expense and running costs incurred by the Parent Company. The revenues earned from the subsidiaries, AEM and Acomedia, are of the same nature.

Annual Report 2001

Revenues from Jinny Software regard the commission charged for legal, contractual and commercial assistance supplied in relation to the agreement with Voinoi, regarding the provision of ITC equipment worth 7.7 million euros. Revenues earned from Acotel Participations and Millenium Communications are of a financial nature, linked to interest, amounting to 231,075 and 124,816 euros, on the loans granted. The residual part regards profits resulting from the conversion of substantial foreign currency receivables as of December 31, 2001. 5.3 SHAREHOLDERS’ PACTS Acotel Group S.p.A., Clama S.r.l., Clama S.A. and Credit Suisse First Boston Guernsey Branch signed an agreement, subsequently amended on July 25, 2000, on the basis of which: - CSFB Guernsey has the right, for three years with effect from May 30, 2000, and subsequently

for a maximum period of three years from the date of the start of trading, if the owner of at least 3% of Acotel Group S.p.A.’s share capital, to appoint one member of the Board of Directors, who shall also be a member of the executive committee, if established. The member of the Board of Directors nominated by CSFB Guernsey is Andrea Morante;

- CSFB Guernsey may not, for a maximum period of three years from the date of the start of

trading, sell any of its Acotel Group shares to third parties who, either directly or indirectly, carry out computerized multimedia activities, and shall see that this obligation is also complied with by any third-party purchaser of those shares, without prejudice to the fact that there shall be no obstacles to CSFB Guernsey and its successors in title carrying out transactions related to the Acotel Group’s shares on the stock market;

- For a maximum period of three years from the date of listing, if Clama S.r.l. and Clama S.A.

decide to sell an amount equal to or greater than 5% of the share capital of Acotel Group S.p.A. privately to third parties, must give CSFB Guernsey, or its successors in title, the option of purchasing such shares in proportion to the percentage of the share capital held by them.

Clama S.A. has given the companies, Progress Serviços de Consultoria Comercial S.U., Funchal (Madeira) and Medial Project S.A., Funchal (Madeira), headed by Andrea Morante and Antonio Lefebvre D’Ovidio, respectively, a call option for the purchase at a unit price of 31.02 euros of 133,320 and 399,960 of its Acotel Group shares, corresponding to 3.2% and 9.6% of the share capital, respectively. During the third quarter of 2001 Medial Project S.A. fully exercised its call option, whilst Progress Serviços de Consultoria Comercial S.A. only exercised 50% of the options held. The reduction in the number of shares owned by Claudio Carnevale via Clama S.A. is due entirely to the sale of shares following the exercise of the options granted to Medial Project S.A. and Progress Serviços de Consultoria Comercial S.A. prior to the stock market listing. The companies enjoying the option rights have agreed to offer a pre-emptive right to Clama S.A. on the shares purchased by them if they should subsequently resell them.

Annual Report 2001

In accordance with article 123 of Legislative Decree 58 of February 24, 1998, the fixed-term pacts between shareholders referred to above have a duration of three years. On the contrary, parties have the right to withdraw from open-ended pacts giving six months notice. The above-mentioned pacts involve no commitment or agreement regarding the exercise of voting rights at shareholder’s meetings of Acotel Group S.p.A.

5.4 STOCK OPTION PLAN With a resolution of April 28, 2000, the General Meeting Acotel Group S.p.A.’s shareholders earmarked a portion of the approved capital increase from 1,680,000 euros (Lit. 1,500 million)1 to 2,464,000 euros (Lit. 2,200 million)1 for a stock option plan in favor of the employees of Acotel Group S.p.A. and its subsidiaries. The portion in question has a nominal value of 60,840 euros (Lit. 117 million at the date of the resolution)1 and represents 5.31% of the approved capital increase. On the basis of general criteria approved by the Board of Directors, the Chairman of the Board of Directors, is charged with identifying the beneficiaries, determining the number of shares to be allocated to each of them and the period of duration of the options. The price is 45 euros for options allocated before the price for the stock market listing was fixed, while it is not less than the arithmetical average of the listed prices achieved by the Acotel Group’s shares during the month preceding allocation, for options assigned after the date of listing. On December 31, 2000, 61,300 options had been allocated, equal to 26.2% of the total amount earmarked for the incentive plan. The price is 45 euros for 57,300 shares and 116 euros for 4,000. 8,500 of these options will become exercisable after the General Meeting called to approve the 2000 Financial Statements, 13,200 after the General Meeting for the 2001 Financia l Statements, 13,200 in 2003, 13,200 in 2004 and 13,200 in 2005. Based on the arithmetical average of the reference prices achieved by Acotel Group stock during the month of February 2001 (108.25 euros), the total latent benefit in favor of the beneficiaries comes to about Lit. 6,957 million. Each employee beneficiary of the plan loses all rights, if his employment is terminated by voluntary resignation or dismissal for justified cause or grounds, with the result that all the options allocated to him and not yet exercised shall be considered immediately and automatically cancelled. Such employee will have no entitlement to any kind of indemnity or compensation.

1 Amounts were converted into euros on the basis of the nominal value of the shares, which was converted from Lit. 500 to 0.26 euros.

Annual Report 2001

5.5 SUBSEQUENT EVENTS

In early 2002, Acotel Group S.p.A. pre-qualified, as part of a consortium of companies together with Sisal S.p.A., Banca di Roma S.p.A. and Telemacon S.p.A. (Confcommercio), for the competition organized by the Italian Olympic Committee that aims to sell 49% of a new company that will be granted a 15-year concession to manage Totocalcio, Totogol, Totosei and Totobingol. The bid, which must be submitted by March 25, 2002, must contain a detailed business plan for the re- launch of the above betting services and the price offered for a stake in the new company. The specific expertise offered by Acotel will allow bets to be placed via innovative channels (mobile telephone, interactive TV, etc.), which may eventually include the possibility of betting during matches themselves so that users can act on impulse. 5.6 OPERATING OUTLOOK In 2002 Acotel Group S.p.A. will continue to carry out its management role within the Group, concentrating its energies on the establishment of strategic guidelines, aimed at maintaining the rates of expansion and earnings growth achieved by the Group so far.

Annual Report 2001

5.7 OTHER INFORMATION As of December 31, 2001 Acotel Group S.p.A. did not own any treasury shares, or shares or holdings in a Parent Company, either directly or through a trust company or proxy. During 2001, Acotel Group S.p.A. did not purchase any treasury shares, or shares or holdings in a Parent Company, either directly or through a trust company or proxy. As of December 31, 2001 no branch offices of the Company had been set up. 5.7.1 THE EURO In December the Company converted its share capital into euros, applying the simplified procedure established by article 17 of Legislative Decree no. 213 of June 24, 1998.

Annual Report 2001

5.8 PROPOSAL FOR DISTRIBUTION OF NET INCOME FOR THE YEAR Having assessed the financial posit ion of the Company and the Group for which it is the holding company, and having taken account of the financial resources required to implement the development plan, the Board of Directors proposes to distribute net income for the year of 1,936,560 euros as follows:

to the legal reserve 96,828

to shareholders 1,668,000

to the distributable reserve for retained earnings 171,732

Net income for the year 1,936,560

The distribution of 1,668,000 euros to shareholders represents a gross dividend of 0.40 euros per share (based on the 4,170,000 shares in issue). Distribution of the above dividend will lead to the attribution to shareholders of a full tax credit equal to 56.25% of 0.34 euros and a limited tax credit equal to 56.25% of 0.06 euros. The dividend is to be paid on May 16, 2002 (ex dividend date May 13, 2002).

Annual Report 2001

BALANCE SHEET

AND INCOME STATEMENT

Annual Report 2001

BALANCE SHEET

ASSETS(in euros) December 31, 2001 December 31, 2000

Unpaid, called-up share capital due from shareholders - - Fixed assets:Intangible assets:- incorporation and expansion costs 9,595 2,362,426- industrial patents and intellectual property rights 28,126 10,329- intangibles in process and advances 79,105 - - other 26,620 - Total 143,446 2,372,755Tangible assets:- plant and machinery 184,335 308,107- industrial and commercial equipment 160,109 54,737- other 87,335 42,363- work in progress and advances - 18,879Total 431,779 424,086Long-term financial assets:- equity investments in: subsidiaries 14,585,917 14,501,056- accounts receivable: subsidiaries: falling due beyond 12 months 10,318,181 - Total 24,904,098 14,501,056Total fixed assets 25,479,323 17,297,897Current assets:Accounts receivable:- trade: falling due within 12 months 320,626 2,709,463- subsidiaries: loans: falling due within 12 months 865,114 414,735 other: falling due within 12 months 6,786,991 3,080,727- other: falling due within 12 months 516,521 43,209,959 falling due beyond 12 months 1,448 1,344Total 8,490,700 49,416,228Marketable securities:- other securities 2,065,000 2,069,196Total 2,065,000 2,069,196Cash at bank and on hand:- bank and post office deposits 34,115,554 353,143- cash and notes on hand 4,360 3,090Total 34,119,914 356,233Total current assets 44,675,614 51,841,657Accrued income and prepaid expenses- other 16,691 71,032TOTAL ASSETS 70,171,628 69,210,586

Annual Report 2001

BALANCE SHEET

LIABILITIES AND SHAREHOLDERS' EQUITY(in euros) December 31, 2001 December 31, 2000

Shareholders' equity:Share capital 1,084,200 1,075,780Share premium reserve 55,106,013 54,934,433Revaluation reserves - - Legal reserve 60,778 - Reserve for treasury stock - - Statutory reserves - - Retained earnings (accumulated losses) 1,154,785 - Net income (loss) for the period 1,936,560 1,215,563Total 59,342,336 57,225,776

Allowances for risks and charges:other - 52,119

Total - 52,119Employee severance indemnities 78,221 13,154Accounts payable:- advances payable within 12 months - 1,093,339- trade payable within 12 months 1,043,547 1,039,368- subsidiaries payable within 12 months 8,901,912 8,834,735- taxes payable within 12 months 144,059 828,430- social security agencies payable within 12 months 159,070 46,724- other payable within 12 months 502,483 76,941Total 10,751,071 11,919,537Accrued expenses and deferred income - -

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 70,171,628 69,210,586

Annual Report 2001

MEMORANDUM ACCOUNTS

(in euros) December 31, 2001 December 31, 2000

General guarantees granted- Guarantees in favor of others 141,107 102,310Commitments- To purchase equity interests - 4,308,023

Other memorandum accounts - Third party assets held by the Company 5,164,569 - TOTAL MEMORANDUM ACCOUNTS 5,305,676 4,410,333

Annual Report 2001

INCOME STATEMENT

(in euros) Jan. 1 - Dec. 31, 2001

Apr. 6 - Dec. 31, 2000

Total revenues:- revenues from sales and services 7,163,413 4,723,550- other revenues and income 815,118 137,338

Total 7,978,531 4,860,888

Operating costs:- raw and ancillary materials and consumables 524,186 1,300- service costs 1,968,681 488,482- lease expense 412,667 68,994

- labor costs: 1,637,299 405,865 wages and salaries 1,117,181 279,907 social security contributions 417,591 108,115 employee severance indemnities 70,049 17,843 other 32,478 -

- amortization, depreciation and write-downs 2,679,471 2,500,652 amortization of intangible fixed assets 2,374,802 2,357,996 depreciation of tangible fixed assets 269,989 113,560 provisions for doubtful accounts 34,680 29,096

- othe expenses 6,683 6,028

Total 7,228,987 3,471,321

Operating income 749,544 1,389,566

Financial income and expense:- other financial income: from long-term receivables: subsidiaries 230,896 -

from marketable securities 96,595 12,427 other: from subsidiaries 11,862 454 from others 2,263,601 766,882

- expense other (33,945) (115,536)

Financial income (expense), net 2,569,009 664,227

Adjustments to financial assets:- write-downs of equity investments (1,122,085) -

Adjustments to financial assets (1,122,085) -

Extraordinary income and expense:- income 74,399 212- expense (23,003) (16)

Extraordinary income (expense), net 51,396 196

Income (loss) before taxes 2,247,864 2,053,989

- income taxes (311,304) (838,426)

Net income (loss) for the period 1,936,560 1,215,563

Annual Report 2001

NOTES TO THE PARENT COMPANY’S

FINANCIAL STATEMENTS

Annual Report 2001

7.1 FORM AND CONTENT The financial statements as of December 31, 2001 were drawn up in accordance with the regulations laid down in Legislative Decree no. 127/1991, integrated by the accounting principles established by the Italian Accounting Profession. The Balance Sheet and Income Statement are based on the formats established by articles 2424 and 2425 of the Italian Civil Code. All the supplementary information deemed necessary to give a true and fair picture is also supplied, even if not required by specific provisions of the law.

7.2 ACCOUNTING POLICIES These are stated at purchase price or production cost, including incidental expenses. They are systematically amortized over their estimated useful lives. In the event of a permanent impairment in value, the asset is written down accordingly, regardless of the amortization already charged. The incorporation and expansion costs are amortized on a straight- line basis over five years, while capitalized costs directly related to the stock market listing are amortized over two years. Industrial patents and intellectual property rights, related to software acquired or developed by the Company, are capitalized after assessing their recoverability as a result of the economic benefits expected. These costs are amortized over three years, in view of the rapid technological deterioration to which they can be subject. Tangible assets These are stated at purchase price or production cost, including incidental expenses. They are systematically depreciated on a straight- line basis at a rate reflecting the estimated useful life of the relevant asset. Depreciation starts when the asset comes into operation and is reduced to half for the first year, in accordance with Italian law. Ordinary maintenance and repair costs are expensed as incurred. No monetary or economic revaluations or capitalization of interest expense was carried out. The rates of depreciation applied for the different categories of asset are as follows:

Annual Report 2001

Specific plant 10-20%

Technological platform 50%

Other plant and machinery 20%

Computers 20%

Vehicles 25%

Furniture, fixtures and fittings 12%

In the event of a permanent impairment in value, the asset is written down accordingly, regardless of the depreciation already charged. If, in subsequent periods, the reasons for the write down are no longer valid, the original value is reinstated. Long-term financial assets Investments are stated at cost, the value stated in the financial statements is determined on the basis of the purchase or subscription cost. This cost is reduced in the event of any permanent impairment in value, when the investments have sustained losses and no profit is forecast for the immediate future that might absorb the losses incurred. The original value is reinstated in future periods, should the reasons for the write-down no longer apply. Long-term accounts receivable are entered at their estimated realizable value. Accounts receivable Accounts receivable are entered at nominal value, reduced by provisions for doubtful accounts in order to reflect their estimated realizable value. Marketable securities Such assets are stated at the lower of purchase cost and market value. Cash at bank and on hand Such items are stated at nominal value as calculated at year end. Accruals and deferrals Accruals and deferrals include the portion of revenues and expenses covering two or more periods, allocated on an accruals basis.

Annual Report 2001

Employee severance indemnities Severance indemnities are stated in accordance with the provisions of the national collective labor contract for the category, and in compliance with the regulations in force. It corresponds to the effective commitment to each employee at December 31, 2000, net of any advances paid. Taxes Income taxes are recorded on the basis of estimated taxable income in accordance with Italian law, taking into account applicable exemptions and tax credits due. In addition, deferred tax assets and liabilities are recognized on the basis of temporary differences between the carrying value of assets or liabilities and their tax base. Deferred tax assets are recorded subject to verification of their recoverability. Accounts payable These are stated at nominal value. Receivables and payables in foreign currency Receivables and payables denominated in foreign currency are translated into lire at exchange rates on the date of the original transaction. They are adjusted on the basis of the exchange rates at the end of 2000. The exchange rate differences resulting from the adjustment are charged to the Income Statement. Revenues These are recognized in accordance with the prudence and matching principles. Revenue relating to the services rendered is recognized on the basis of the services effectively performed during the period. Revenue relating to the sale of software licenses is recognized at the moment the transfer of title takes place, which generally coincides with shipping. Revenue relating to the design, production and installation of electronic equipment is recognized at the moment of completion or at the time of delivery. Memorandum accounts These are stated at nominal value, including the existing commitments and risks at the end of the period.

Annual Report 2001

7.3 NOTES TO THE BALANCE SHEET 7.3.1 ASSETS FIXED ASSETS Intangible assets Details of the intangible assets as of December 31, 2001 are as follows: (in euros)

Historical costAllowance for amortization

Net valueat 12-31-2001

Net valueat 12-31-2000

incorporation and expansion costs 4,715,257 (4,705,662) 9,595 2,362,426

industrial patents and intellectual property rights 49,936 (21,810) 28,126 10,329

intangibles in process and advances 79,105 - 79,105 - other 31,946 (5,326) 26,620 -

Total 4,876,244 (4,732,798) 143,446 2,372,755

The item “Incorporation and expansion costs” includes the incorporation cost of Acotel Group S.p.A., and the costs incurred for the listing completed on August 9, 2000. These costs, of which 4,699,265 euros was capitalized, were completely amortized as of December 31, 2001. Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Group in the provision of computerized services and for its internal information system. Intangibles in process include software for the Company’s new accounting system, which came on stream on January 1, 2002. Tangible assets Details of tangible assets are as follows:

Annual Report 2001

(in euros)

Historical costAllowance fordepreciation

Net valueat 12-31-2001

Net valueat 12-31-2000

Plant and machinery 43,898 (4,390) 39,508 - Computer node 466,975 (322,148) 144,827 308,107 Industrial equipment 191,415 (31,306) 160,109 54,737

Vehicles 9,239 (3,465) 5,774 8,084

Furniture, fixtures and fittings 91,422 (9,861) 81,561 34,279

Other 12,378 (12,378) 0 18,879

Total 815,327 (383,548) 431,779 424,086

During the year no tangible asset was the subject of disposal, revaluation or write-down. Long-term financial assets As of December 31, 2001 the Company owned equity investments in subsidiaries amounting to 14,585,917 euros. At the end of 2000 the comparable figure was 14,501,056 euros. The following table gives the information required by articles 2426 and 2427 of the Italian Civil Code.

in thousands of euros Shareholders' equity 12/31/2001 [pursuant to art.2426 CC, 4, (3) ]

name registered officeshare capital

total amountCompany's

interesttotal amount

Company's interest

Group's interest

Book value Difference

(A) (B) (A) - (B)

Acotel S.p.A.Rome - Via della Valle dei Fontanili 29

13,000 13,867 13,853 484 484 99.9% 12,653 1,200

(a)

AEM-Advanced Electronic Microsystems S.p.A.

Rome - Via della Valle dei Fontanili 29/37

858 1,456 1,441 (369) (365) 99% 1,549 (108)

Acomedia S.r.l.Rome - Via della Valle dei Fontanili 29

16 31 31 19 19 100% 29 2

Acotel Participations S.A.

Luxembourg -8 Bolulevard Royal

1,200 78 78 (1,091) (1,091) 100% 78 -

Millenium Luxembourg S.A.

Luxembourg -8 Bolulevard Royal

39 215 215 (6) (6) 100% 238 (23)

Publimedia S.A.Luxembourg -8 Bolulevard Royal

39 21 21 (8) (8) 100% 39 (18)

14,586

(a) This percentage is obtained by adding the 98% of the share capital held directly by Acotel Group S.p.A. and the 1.92% held via the subsidiary, AEM S.p.A

Net income (loss)2001

Annual Report 2001

On December 31, 2001, Acotel International S.A. changed its name to Acotel Participations S.A.. The book value of this investment was written down and adjusted to reflect the corresponding value of shareholders’ equity. This was due to a permanent impairment in value, given that the subsidiary is not expected to earn sufficient income over the short term to cover the losses accumulated. This Luxembourg-based company operates as a sub-holding responsible for managing the Group’s equity investments in overseas operating companies. No other write-downs of equity investments in subsidiaries were carried out, as the negative differences between the book value and the corresponding interest in shareholders’ equity are due to temporary operating losses. All the subsidiaries closed their fiscal year on December 31, 2001 and the respective accounts had been approved by the various boards of directors at the time of preparation of the financial statements of Acotel Group S.p.A.. Financial receivables due from subsidiaries include the portion of the loan granted to Acotel Participations used to acquire equity stakes in associated companies. Given the use to which the finance was put, and the fact that the loan is not expected to be repaid in the short term, it was considered appropriate to cla ssify the relevant sum among long-term financial assets. CURRENT ASSETS Trade receivables (in euros)

12-31-2001 12-31-2000Trade receivables 384,403 2,738,559 Provisions for doubtful accounts (63,777) (29,096)

Total 320,626 2,709,463

Provisions for doubtful accounts are made in order to reflect the estimated realizable value. All trade receivable fall due within 12 months. Receivables due from subsidiaries This item breaks down as follows: (in euros)

12-31-2001 12-31-2000Financial receivables 865,114 414,735 Other 6,786,991 3,080,727

Total 7,652,105 3,495,462

Annual Report 2001

Financial receivables refer to short-term loans granted to certain overseas subsidiaries in order to finance operations. The loans granted are subject to interest indexed to the 3-month EURIBOR or LIBOR, depending on whether they were issued in Italian lire/euros or Dollars, as reported at the beginning of each solar quarter. Other amounts due from subsidiaries primarily include 5,767,274 euros due from Acotel S.p.A. in return for use of the platform and the related assistance and technical services, necessary to the subsidiary in its role as service provider. The item also regards 516,457 euros due from Jinny Software as the commission charged for legal and commercial assistance relating to the contract with Voinoi. The remainder refers to charges for costs linked to management of the Group’s operations. A table showing details of intercompany transactions is included in the Directors’ Report on Operations. Other receivables The following table shows the main items making up the balance: (in euros)

12-31-2001 12-31-2000Banks for repurchase agreements - 42,761,094

VAT credits - 447,678

Income tax credits 511,396 -

Other 5,125 1,187 Total other receivables

falling due within 12 months516,521 43,209,959

Guarantee deposits paid to suppliers receivable beyond 12months

1,448 1,344

Total other receivables 517,969 43,211,303

Income taxes credits reflect the fact that IRPEG and IRAP advances paid exceeded the income tax effectively due. This was positively influenced by the relief provided by Dual Income Tax legislation. Marketable securities This item, amounting to 2,065,000 euros, is substantially unchanged with respect to the previous year (2,069,196 euros), and includes short-term investments of liquidity in bonds issued by Banca Nazionale del Lavoro, falling due in 2003, and paying interest of 5.25% via quarterly coupons.

Cash at bank and on hand This item includes bank deposits of 34,115,554 euros and cash and notes on hand totaling 4,360 euros. Bank deposits represent the balances of current accounts as of December 31, 2001. At the end of the previous year the above items amounted to 353,143 and 3,090 euros, respectively.

Annual Report 2001

ACCRUED INCOME AND PREPAID EXPENSES (in euros)

12-31-2001 12-31-2000Accrued income 11,603 62,147 Prepaid expenses 5,088 8,885

Total 16,691 71,032

Accrued income regards the coupon interest maturing on the securities held by the Company as of December 31, 2001. Prepaid expenses include prepayments of insurance, stamp duty and other expenses pertaining to the next year. 7.3.2 LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY Shareholders’ equity As of December 31, 2001 the paid-up share capital of Acotel Group S.p.A. consisted of 4,170,000 ordinary shares with a nominal value of 0.26 euros each. In application of the stock option plan approved by the General Meeting of Acotel Group S.p.A.’s shareholders on April 28, 2000, a total of 4,000 new ordinary shares were issued on June 1, 2001. This led to a 178,968-euro increase in the share premium reserve reflecting the positive difference between the exercise price of the options and the nominal value of the shares. On December 20, 2001 the Company converted its share capital into euro, using the procedure established by art. 17 of the Legislative Decree dated June 24, 1998. The nominal value of each share was thus converted from Lit. 500 to 0.26 euros. Following the conversion, the value of the share capital amounts to 1,084,200 euros, representing an increase of 7,388 euros with respect to the previous value expressed in Italian lire. This increase was entirely financed through a release from the share premium reserve, which was therefore reduced by the same amount to 55,106,013 euros as of December 31, 2001. The statement of movements in shareholders’ equity during the year is attached.

Annual Report 2001

EMPLOYEE SEVERANCE INDEMNITIES The total balance includes the amounts due as severance indemnities, net of advances already paid to employees.

(in euros) 2001 2000

Opening balance 13,154 -

Provisions 70,049 13,154

Releases (4,982) -

Closing balance 78,221 13,154

ACCOUNTS PAYABLE Payables due to subsidiaries Amounts due to subsidiaries total 8,901,912 euros (as of December 31, 2000 the figure was 8,834,735 euros). A large part of this item, amounting to 8,779,767 euros, relates to the payable due to Acotel S.p.A. as unpaid, called-up share capital for the capital increase, which enabled Acotel Group S.p.A. to acquire 98% of the subsidiary in 2000. The amounts due to Publimedia and Millenium Luxembourg are of the same nature and both total 91 euros. Such amounts are linked to the capital increases carried out by the two subsidiaries in order to account for the adjustments rendered necessary by the introduction of the euro. The remaining amount regards trade payables, primarily represented by charges for administrative costs. A table showing details of intercompany transactions is included in the Directors’ Report on Operations. Trade This item, which amounts to 1,043,547 euros, compared with 1,039,368 euros at the end of 2000, is entirely made up of trade payables due within 12 months. Taxes The item is made up as follows:

Annual Report 2001

(in euros)

12-31-2001 12-31-2000

Income tax payables - 813,255 VAT payable 98,956 - Employee witholding taxes 45,103 15,175

Total 144,059 828,430

Employee withholding taxes refer to amounts due for taxes withheld from employees and consultants in the capacity of withholding agent and payable to tax authorities. Social security agencies As of December 31, 2001, this item amounted to 159,170 euros and regards social security contributions to be paid on wages and salaries paid to employees and consultants. The same item totaled 46,724 euros at the end of 2000. Other The item is made up as follows: (in euros)

12-31-2001 12-31-2000Due to employees 259,032 66,500

Due to Directors 233,753 -

Other 9,698 10,441

Total 502,483 76,941

Amounts payable to employees relate to wages and salaries, bonuses and outstanding vacation pay, whilst amounts due to Directors regard fees accrued during 2001. 7.3.3 MEMORANDUM ACCOUNTS The memorandum accounts consist of: - general guarantees, amounting to 141,107 euros, include 102,310 euros granted in favor of the

owner of the building where the Company operates, and a sum granted in favor of the subsidiary, Millenium Communication S.A., guaranteeing a supply contract signed by the subsidiary;

Annual Report 2001

- third party assets include 5,164,569 euros relating to the ITC equipment supplied to Voinoi, but which the customer has requested initially to install on the premises of Acotel Group S.p.A., whilst the customer’s own facilities designed to house the equipment are being prepared.

7.4 NOTES TO THE INCOME STATEMENT TOTAL REVENUES Total revenues for the period under consideration were 7,978,531. Such amount breaks down as follows: (in euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

Revenues from the sale of goods and services 7,163,413 4,723,550Other revenues and income 815,118 137,338

Totale 7,978,531 4,860,888

Revenues from sales of goods and services include income deriving from the provision of the data management service effected via the ITC platform to the subsidiary, Acotel S.p.A. in relation to its activity as an application service provider. Such revenues also include income from design and development of the ITC platform for Info2cell, and income generated by the development of software applications.

Business segment analysis

(thousands of euros) 2001 % 2000 %Apr. 6 - Dec. 31

DESIGN OF ITC EQUIPMENT 1,093 15.3% 1,643 34.8%DEVELOPMENT OF SOFTWAREAPPLICATIONS 303 4.2% - -

SERVICES TO SERVICE PROVIDERS 5,767 80.5% 3,081 65.2%

7,163 100% 4,724 100%

Margins by business segment are not given as there were no important differences between the activities carried out by the Company. In fact, a large part of the costs incurred concerned, without distinction, the services rendered, and therefore the revenues generated. In particular, labor costs, consultants’ fees and technological resources were used for the joint development of all the various businesses. The geographical distribution of revenues is as follows:

Annual Report 2001

Geographical distribution of revenues

(thousands of euros) 2001 % 2000 %Apr. 6 - Dec. 31

ITALY 6,070 84.7% 3,081 65.2%

MIDDLE EAST 1,093 15.3% 1,643 34.8%

7,163 100% 4,724 100%

Other revenues and income totaled 815,118 euros. This item includes the commission charged to the subsidiary, Jinny Software, for legal, commercial and contractual assistance supplied in relation to the agreement with Voinoi, amounting to 516,457 euros. The residual sum primarily regards charges to Group companies for the administrative services supplied and their share of lease expense and building running costs incurred. The same item amounted to 137,338 euros in 2000. OPERATING COSTS Materials, service costs and lease expense This item includes the following costs: (in euros)

Jan. 1 - Dec. 31, 2001 Apr. 6 - Dec. 31, 2000

raw and ancillary materials and consumables 524,186 1,300

service costs 1,968,681 488,482

lease expense 412,667 68,994Total 2,905,534 558,776

The costs of raw and ancillary materials and consumables mainly relate to the purchase of the materials and components used in the construction of ITC equipment.

Service costs mainly include:

- consultants’ fees, totaling 573,985 euros, which include professional and legal advice, notaries’ fees and administrative assistance linked to implementation of the Group’s organization, ordinary administration and technical consultancy related to continuous updating of the Company’s proprietary ITC platform and back-up;

- promotional and advertising expenditure, amounting to 202,707 euros, is linked to initiatives aimed at promoting the Group’s activities and enhancing the visibility of the Group’s image and its products and services in the markets in which it operates;

- building running costs, covering utilities, security and maintenance, totaling 300,771 euros;

- Directors’ and Statutory Auditors’ fees of 462,240 euros, as follows:

Annual Report 2001

Name Position Remuneration

Claudio Carnevale Chairman of Acotel Group S.p.A. 428,526

Antonio Mastrangelo Chairman of Board of Statutory Auditors 14,750

Umberto Previti Flesca Statutory Auditor 9,482 Giovanni Galoppi Statutory Auditor 9,482

Lease expense includes rental costs related to the building in which the Group’s Italian companies operate. The share of such costs relating to other companies in the Group is charged to them.

Labor costs Labor costs relate to: (in euros)

1 gen - 31 dic 2001 6 apr- 31 dic 2000

Wages and salaries 1,117,181 279,907Social security contributions 417,591 108,115Employee severance indemnities 70,049 17,843Other costs 32,478 -

Total 1,637,299 405,865

The following table shows the number of staff, by category:

12-31-2001 Average 2001 Average 2000

Managers 7 5 1.5 Supervisors 5 3 0.5

Clerks 15 10 5 Total 27 18 7

It is clear that the Company continued to expand during the year, via the recruitment of new personnel. The majority of new recruits are technical staff required to support the growth in the services offered and maintain their quality. Amortization, depreciation and write-downs Amortization of intangible assets amounted to 2,374,802 euros (2,357,996 euros in 2000) and primarily refers to the costs of modifying and expanding the Company’s organizational structure, including the direct costs incurred for the stock market listing. Amortization for the year amounted to 2,351,961 euros.

Annual Report 2001

Depreciation of tangible assets mainly regards the technological platform, which was depreciated by 219,446 euros (113,560 euros in 2000). The residual amount regards computers, furniture and fittings and vehicles. Provisions for doubtful accounts amounted to 34,680 euros and reflect the estimated realizable value of trade receivables. Such provisions totaled 29,096 euros in 2000. Other operating costs These amounted to 6,683 euros (6,028 euros in 2000) and include general and administrative costs not falling within the above categories. FINANCIAL INCOME AND EXPENSE Net financial income amounted to 2,569,009 euros (664,227 euros in 2000) and derives mainly from the short-term investment of liquidity. Interest income on the investments made totaled 1,574,555 euros, whilst bank charges amounted to only 29,686 euros. The Company also earned interest on the loans granted to subsidiaries, totaling 242,758 euros, and profits on foreign exchange transactions totaling 781,382 euros. Such profits are primarily generated by the year-end conversion of Balance Sheet items expressed in foreign currency. ADJUSTMENTS TO FINANCIAL ASSETS Write-downs of 1,122,085 euros reflect the write-down of the equity investment in Acotel Participations S.A., carried out in order to bring the book value into line with the Company’s interest in shareholders’ equity, given a permanent impairment in value. This item amounted to zero in 2000. EXTRAORDINARY INCOME Net extraordinary income amounted to 51,396 euros, compared with 196 euros in 2000. This sum primarily regards excess provisions made in 2000. TAXES Income taxes for 2001 amounted to 188,907 euros for IRPEG and 122,397 euros for IRAP. The Company obtained significant benefits from application of the relief introduced by Dual Income Tax (DIT) legislation. Tax expense for 2000 was in fact 847,518 euros for IRPEG and 83,870 euros for IRAP.

Annual Report 2001

ANNEXES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS

Annual Report 2001

ANNEX 1 STATEMENT OF CASH FLOWS

(thousands of euros) 2001 2000(a)

A. NET CASH AT THE BEGINNING OF THE PERIOD 45,187 -

B. CASH FLOWS FROM OPERATING ACTIVITIES 1,644 8,946

Cash flows from operating activities before changes in working capital 4,595 3,753

- Net income for the period 1,937 1,216

- Amortization and depreciation 2,645 2,472

- Net change in employee severance indemnities 65 13

- Net change in the allowance for risks and charges (52) 52

(Increase) / decrease in accounts receivable (1,836) (6,656)

Increase / (decrease) in accounts payable (75) 10,826

Changes in other items of working capital (1,040) 1,023

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (10,826) (19,769)

(Investments in)/disposal of fixed assets:

- Intangibles (145) (4,731)

- Tangibles (278) (538)

- Financial (10,403) (14,501)

D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES 180 56,010

Increase in share capital 1 1,076

Increase in share premium reserve 179 54,934

E. CASH FLOW FOR THE PERIOD (9,002) 45,187

F. NET CASH AT THE END OF THE PERIOD (A+E) 36,185 45,187

(a) Acotel Group S.p.A., the Parent Company, was incorporated on April 6, 2000, and the comparative data

therefore refers to such date.

Annual Report 2001

Annual Report 2001

Annual Report 2001

Annual Report 2001

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS

Annual Report 2001

They will be inserted as available In accordance with terms by th Law

Annual Report 2001

REPORTS OF THE INDEPENDENT AUDITORS

Annual Report 2001

They will be inserted as available In accordance with terms by th Law

Annual Report 2001

KEY DATA REGARDING SUBSIDIARIES

Annual Report 2001

Acotel S.p.A. Share capital 13,000,000 euros Registered office Via della Valle dei Fontanili 29 00168 Roma

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Unpaid, called-up share capital 8,780 8,780Fixed assets 450 533Current assets 11,531 9,379

Total Assets 20,761 18,692

Shareholders' equity 13,867 13,382Employee severance indemnities 41 28Current liabilities 6,853 5,282

Total Liabilities and Shareholders'Equity 20,761 18,692

Key income statement data

2001 2000

Total revenues 8,592 7,568Operating costs 8,220 7,311EBITDA 372 257

Financial income (expense), net 318 103Extraordinary income (expense), net 64 (6)Income (loss) before taxes 754 354

Income taxes (271) (151)Net income (loss) for the period 483 202

Annual Report 2001

AEM Advanced Electronic Microsystems S.p.A. Share capital 858,000 euros Registered office Via della Valle dei Fontanili 29/37 00168 Roma

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 456 708Current assets 1,622 2,134

Total Assets 2,078 2,842

Shareholders' equity 985 1,354Employee severance indemnities 115 105Medium-/long-term liabilities 504 506Current liabilities 474 877

Total Liabilities and Shareholders'Equity 2,078 2,842

Key income statement data

2001 2000

Total revenues 811 2,074Operating costs 1,344 1,602EBITDA (533) 473

Financial income (expense), net (22) (79)Extraordinary income (expense), net 140 34Income (loss) before taxes (415) 428

Income taxes 47 (297)Net income (loss) for the period (368) 131

Annual Report 2001

Acomedia S.r.l. Share capital 15,600 euros Registered office Via della Valle dei Fontanili 29 00168 Roma

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 2 4Current assets 448 142

Total Assets 450 146

Shareholders' equity 31 12Employee severance indemnities 15 4Current liabilities 404 130

Total Liabilities and Shareholders'Equity 450 146

Key income statement data

2001 2000

Total revenues 511 108Operating costs 474 119EBITDA 37 (10)

Financial income (expense), net (1) (1)Extraordinary income (expense), net 4 (3)Income (loss) before taxes 40 (14)

Income taxes (22) (3)Net income (loss) for the period 18 (17)

Annual Report 2001

Acotel Participations S.A. (a) Share capital 1,200,000 euros Registered office 8, Boulevard Royal L-2449 Luxembourg

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 19,251 143Current assets 1,209 34

Total Assets 20,460 177

Shareholders' equity (730) - Current liabilities 21,190 177

Total Liabilities and Shareholders'equity 20,460 177

Key income statement data

2001 2000

Operating costs 240 32EBITDA (240) (32)

Financial income (expense), net (813) 1Adjustments to financial assets (837) - Extraordinary income (expense), net (8) - Income (loss) before taxes (1,898) (32)

Income taxes - - Net income (loss) for the period (1,898) (32)

(a) The company changed its name from Acotel International S.A.. on December 13, 2001.

Annual Report 2001

Acotel CHILE S.A. Share capital USD 50,000 Registered office Santiago - Chile

(thousands of US dollars)

Key balance sheet data

12.31.01 12.31.00

Unpaid, called-up share capital 33 33Current assets 17 17

Total Assets 50 50

Shareholders' equity 50 50

Total Liabilities and Shareholders'Equity 50 50

Annual Report 2001

Acotel Espana S.L. Share capital 3,000 euros Registered office Paseo De Gracia 111 Barcelona - Spain

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 1 1Current assets 2 2

Total Assets 3 3

Shareholders' equity 2 3Current liabilities 1 -

Total Liabilities and Shareholders'Equity 3 3

Key income statement data

2001 2000

Operating costs 1 - EBITDA (1) -

Financial income (expense), net - - Income (loss) before taxes (1) -

Income taxes - - Net income (loss) for the period (1) -

Annual Report 2001

Acotel Greece A.E. Share capital 61,855 euros Registered office 51, Vas.Sophias Athens - Greece

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Current assets 39 48

Total Assets 39 48

Shareholders' equity 39 48

Total Liabilities and Shareholders'Equity 39 48

Key income statement data

2001 2000

Operating costs 9 14EBITDA (9) (14)

Income taxes - - Net income (loss) for the period (9) (14)

Annual Report 2001

Acotel Do Brasil Ltda Share capital 50,000 Brazilian real Registered office Av.Presidente Wilson 231, 23 Andar 20030-021 Rio De Janeiro Brazil

(thousands of Brazilian real)

Key balance sheet data

12.31.01 12.31.00

Unpaid, called-up share capital 50 50Fixed assets 1,171 - Current assets 697 2,085

Total Assets 1,918 2,135

Shareholders' equity 1,183 441Current liabilities 735 1,694

Total Liabilities and Shareholders'Equity 1,918 2,135

Key income statement data

2001 2000

Total revenues 1,983 888Operating costs 1,002 422EBITDA 981 466

Financial income (expense), net (30) - Extraordinary income (expense), net (47) - Income (loss) before taxes 904 466

Income taxes (163) (75)Net income (loss) for the period 741 391

Annual Report 2001

Jinny Software Ltd Share capital 2,927 euros Registered office 29 North Anne Street Dublin 7, Dublin Ireland

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00(a)

Fixed assets 825 451Current assets 5,882 1,678

Total Assets 6,707 2,129

Shareholders' equity 3,797 30Current assets 2,910 2,099

Total Liabilities and Shareholders'Equity 6,707 2,129

Key income statement data

2001 2000(a)

Total revenues 10,096 2,556Operating costs 6,467 4,022EBITDA 3,629 (1,466)

Financial income (expense), net 28 26Extraordinary income (expense), net 158 - Income (loss) before taxes 3,815 (1,440)

Income taxes (49) - Net income (loss) for the period 3,766 (1,440)

(a) The fiscal year 2000 lasted 7 months from May 1 to December 31.

Annual Report 2001

Millennium Software SAL Share capital 30,000,000 Lebanese pounds Registered office Samra Center, Fanar

Beirut, Lebanon

(thousands of Lebanese pounds)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 213,301 142,789Current assets 508,132 211,990

Total Assets 721,433 354,779

Shareholders' equity 445,359 163,541Current liabilities 276,074 191,238

Total Liabilities and Shareholders'Equity 721,433 354,779

Key income statement data

2001 2000

Total revenues 1,537,650 877,365Operating costs 1,191,676 788,473EBITDA 345,974 88,892

Financial income (expense), net (607) (2,721)Extraordinary income (expense), net (10,158) (9,316)Income (loss) before taxes 335,209 76,855

Income taxes (53,389) (12,414)Net income (loss) for the period 281,820 64,441

Annual Report 2001

Millenium Luxembourg S.A. Share capital 38,850 euros Registered office 8, Boulevard Royal L-2449 Luxembourg

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 204 196Current assets 33 33

Total Assets 237 229

Shareholders' equity 215 214Current liabilities 22 15

Total Liabilities and Shareholders'Equity 237 229

Key income statement data

2001 2000

Total revenuesOperating costs 7 16EBITDA (7) (16)

Financial income (expense), net 1 (1)Income (loss) before taxes (6) (17)

Income taxes - - Net income (loss) for the period (6) (17)

Annual Report 2001

Millenium Communication S.A. Share capital 199,800 euros Registered office 8, Boulevard Royal L-2449 Luxembourg

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 132 139Current assets 19 97

Total Assets 151 236

Shareholders' equity (559) 32Current liabilities 710 204

Total Liabilities and Shareholders'Equity 151 236

Key income statement data

2001 2000

Operating costs 570 164EBITDA (570) (164)

Financial income (expense), net (22) - Income (loss) before taxes (592) (164)

Income taxes - - Net income (loss) for the period (592) (164)

Annual Report 2001

Publimedia S.A. Share capital 38,850 euros Registered office 8, Boulevard Royal L-2449 Luxembourg

(thousands of euros)

Key balance sheet data

12.31.01 12.31.00

Fixed assets 4 2Current assets 25 27

Total Assets 29 29

Shareholders' equity 21 29Current liabilities 8 -

Total Liabilities and Shareholders'Equity 29 29

Key income statement data

2001 2000

Operating costs 8 8EBITDA (8) (8)

Financial income (expense), net (1) (1)Income (loss) before taxes (9) (9)

Income taxes - - Net income (loss) for the period (9) (9)

Annual Report 2001