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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION,WASHINGTON, D.C. 20549

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FORM 20-F

|o                                          | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------ | ----------------------------------------------------------------------------------------------
|or                                        
|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended January 31, 2003
|or                                        
|o                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      

Commission File Number 1-9129

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Xcelera Inc.(Exact name of Registrant as specified in its charter)

Cayman Islands(Jurisdiction of incorporation or organization)

P.O. Box 309GT, Ugland House, South Church Street
George Town, Grand Cayman, Cayman Islands(Address of principal executive offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act:

|Title of each class                     |  | Name of each exchange
on which registered
|--------------------------------------- |  | -----------------------------------------
|Common Stock, par value $0.01 per share |  | The American Stock Exchange              

Securities
registered or to be registered pursuant to Section 12(g) of the Act. None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

|Classes of Capital or Common Stock      |  | Outstanding Shares
as of January 31, 2003
|--------------------------------------- |  | -----------------------------------------
|Common Stock, par value $0.01 per share |  | 126,128,523                              

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

Indicate
by check mark which financial statement item the registrant has elected to follow.

Item
17 o    Item 18 ý

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. When we use the words "aim(s)," "expect(s)," "feel(s)," "will," "may," "believe(s)," "anticipate(s)" and similar expressions in this annual report, we are
intending to identify those statements as forward-looking. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested
by our forward-looking statements, including but not limited to, changes in technology and changes in the Internet marketplace. You should not place undue reliance on these forward-looking statements,
which speak only as of the date of this annual report. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date of this annual report
or to reflect the occurrence of unanticipated events. We urge you to review and consider carefully the various disclosures that we make concerning the factors that may affect our business, including
the disclosures made in the sections of this annual report entitled "Key InformationRisk Factors," "Operating and Financial Review and Prospects" and "Quantitative and Qualitative
Disclosures About Market Risk." Unless otherwise indicated, information presented herein regarding market trends is based on various publicly available sources.

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TABLE OF CONTENTS

|                                                                             |  | Page
|---------------------------------------------------------------------------- |  | ----
|PART I                                                                       |  |     
|IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |  | 4   
|OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 4   
|KEY INFORMATION                                                              |  | 4   
|INFORMATION ON THE COMPANY                                                   |  | 17  
|OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 27  
|DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 31  
|MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 35  
|FINANCIAL INFORMATION                                                        |  | 36  
|THE OFFER AND LISTING                                                        |  | 37  
|ADDITIONAL INFORMATION                                                       |  | 38  
|QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 45  
|DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 46  
|PART II                                                                      |  |     
|DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 47  
|MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 47  
|[RESERVED]                                                                   |  | 47  
|[RESERVED]                                                                   |  | 47  
|PART III                                                                     |  |     
|FINANCIAL STATEMENTS                                                         |  | 48  
|FINANCIAL STATEMENTS                                                         |  | 48  
|EXHIBITS                                                                     |  | 48  

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PART I

Item 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.

Not applicable.

Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLE.

Not applicable.

Item 3.    KEY INFORMATION.

Selected Financial Data

The following sets forth, at the dates and for the years presented, selected consolidated financial data for Xcelera Inc. ("Xcelera" or the "Company"). The
selected consolidated financial data for each of the three years in the period ended January 31, 2003 and as of January 31, 2003 and 2002 have been derived from our audited consolidated
financial statements and related notes appearing elsewhere in this annual report. The selected financial data for each of the two years in the period ended January 31, 2000 and as of
January 31, 2001, 2000 and 1999 have been derived from our audited consolidated financial statements and related notes that are not included in this annual report. The consolidated financial
statement information has been prepared in accordance with accounting principles generally accepted in the United States of America. The information is only a summary and

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should
be read in conjunction with our consolidated financial statements and related notes and the section of this annual report entitled "Operating and Financial Review and Prospects".

|                       |                                                                                                    | Xcelera Inc.
Selected Financial Data
Fiscal Year Ended January 31, |  
|---------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | -
|
|Income Statement Data: |                                                                                                    |                                                                    |  
|                       | Total Revenues                                                                                     |                                                                    | $
|                       |                                                                                                    | Revenues from discontinued operations                              |  
|                       |                                                                                                    | Operating revenues                                                 |  
|                       | Other income (loss), net                                                                           |                                                                    |  
|                       | Net (Loss) Income                                                                                  |                                                                    |  
|                       | Basic (Loss) income per common share                                                               |                                                                    | $
|                       | Diluted (Loss) income per common share                                                             |                                                                    | $
|                       | (Loss) Income from continuing operations                                                           |                                                                    | $
|                       | (Loss) Income from continuing operations available to common shareholders per basic common share   |                                                                    | $
|                       | (Loss) Income from continuing operations available to common shareholders per diluted common share |                                                                    | $
|                       | Cash dividends per common share                                                                    |                                                                    |  
|                       | Preferred stock dividends                                                                          |                                                                    | $
|Balance Sheet Data:    |                                                                                                    |                                                                    |  
|                       | Total assets                                                                                       |                                                                    | $
|                       | Long term obligations4                                                                             |                                                                    | $
|                       | Convertible note payable                                                                           |                                                                    |  

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Risk Factors

An investment in our common stock involves a high degree of risk. Set out below is a description of certain risk factors that may affect our business and results
of operations from time to time. These factors, which do not purport to be a complete list of all risks we face, should be considered carefully. There can be no assurance that our investment
objectives will be achieved.

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Although we were incorporated in 1988, in April 1999 we announced that we changed our strategy and business objectives to be an international Internet
holding company. Since that time, we have acquired interests in numerous technology companies. Consequently, there is limited meaningful historical financial data upon which to base planned operating
revenues and expenses and upon which investors may evaluate us and our prospects. You should consider the risks and difficulties frequently encountered by companies like us in a new and rapidly
evolving market. There can be no assurances that we will be able to successfully execute our business strategy and achieve our business objectives, and there can be no assurances that such inability
will not result in a material adverse effect on our financial position, results of operations and value.



We have been named as a respondent in an arbitration proceeding initiated by two claimants relating to the sale of common stock of Mirror Image
Internet, Inc. ("Mirror Image"), our principal operating subsidiary, to us and various other parties. The claimants were the former parent company of Mirror Image, and another investor in
Mirror Image. In September 2001, the arbitral tribunal ruled in our favor with respect to the claims by the former parent, but against us on the claims by the other
investor, allowing the other investor to make damage claims. The other investor has not yet initiated the additional proceedings necessary for it to pursue its claims.

We
and several of our officers and directors are named as defendants in several class action lawsuits alleging violations of the Securities Act of 1933 and the Securities Exchange Act of
1934. These lawsuits were filed in August 2000 and have been consolidated. The plaintiffs have moved for class certification, which is under consideration. During those proceedings, no
discovery has taken place on the underlying claims.

We,
along with several current and former directors, as well as Mirror Image, were named defendants in an action brought by several minority shareholders of Mirror Image who also brought
the arbitration claim referred to above. The suit purports to assert the same or related claims as in the arbitration above but in a different forum and under different legal theories, including
breach of fiduciary duty, fraud, civil conspiracy, interference with contract, and misappropriation of corporate opportunity. The court ruled in our favor and all claims against all defendants were
dismissed. However, a portion of the case was successfully appealed and that portion of the case is proceeding. The case is now in the discovery phase.

We
believe each of these proceedings to be without merit and are contesting them vigorously. However, we can provide no assurance as to the outcome of these matters. Any conclusion of
these matters in a manner adverse to us could have a material adverse affect on our financial position and results of operations. In addition, the costs to us of defending any litigation or other
proceeding, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and our resources in general. We have not included any
provision for any liability in our consolidated financial statements that may result from these proceedings. Each of these proceedings is described more fully below under the heading "Legal
Proceedings".

Also,
from time to time, we are involved in legal actions incurred in the ordinary course of business. While the ultimate outcome of these matters is not determinable, we do not believe
that the resolution of these matters will have a material adverse effect on our future results in a particular period.

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As with many other technology-focused companies, the market price of our common stock has been, and is likely to continue to be, extremely volatile, experiencing
wide fluctuations. In recent years, the stock market has experienced significant price and volume fluctuations, which have particularly
impacted the market prices of equity securities of many companies providing Internet-related products and services. During our previous two fiscal years, our stock traded as high as $9.16 and as low
as $0.30. Future market movements may adversely affect the market price of our common stock. Furthermore, the market price of our stock could continue to experience significant volatility that may be
unrelated to market movements. The following factors, if they were to occur, could cause the market price of our common stock to continue to fluctuate significantly:



The
continued threat of terrorism within the United States and abroad since September 11, 2001 and the potential for additional military action and heightened security measures in
response to such threat may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease
in corporate spending on information technology, or our inability to effectively market and sell our services and software, our business and results of operations could be materially and adversely
affected.



We have made significant investments in technology companies. We may be unable to find a sufficient number of additional attractive opportunities to meet our
investment objectives. If we do find suitable opportunities, we may continue to expand through investments in businesses, technologies and products and services from other businesses. Investments
involve a number of special problems, including:



We
may not be able to successfully address these problems. Moreover, our future operating results will depend to a significant degree on our ability to successfully manage growth and
investments. In addition, many of our investments are and will continue to be in early-stage companies with limited operating histories and limited or no revenues. We may not be able to successfully
develop these young companies.

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The increased use of the Internet for retrieving, sharing and transferring information among businesses, consumers, suppliers and partners has only begun to
develop in recent years, and our success depends on continued growth in the use of the Internet and in related technological developments. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of access, quality of service and regulatory initiatives, remain unresolved and are likely to affect the development of the market for our
services. The adoption of the Internet for information retrieval and exchange, commerce and communications generally will require the acceptance of a new medium of conducting business and exchanging
information. If the Internet as a commercial or business medium fails to further develop or develops more slowly than expected, our business and prospects would materially suffer.



Our portfolio companies are concentrated in the technology sector. Concentration in a single sector involves risks that are not generally associated with
diversified investments, including potential significant fluctuations in returns. The technology industry is challenged by factors including rapid change, evidenced by rapidly changing market
conditions and/or participants, new competing products and/or improvements in existing products. Our portfolio companies compete in this volatile environment. There can be no assurance that products
sold by our portfolio companies will not be rendered obsolete or adversely affected by competing products.

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As
of June 30, 2003, Alexander M. Vik, our Chairman of the Board and Chief Executive Officer, Gustav M. Vik, our Executive Vice President, Treasurer, Secretary and one of our
directors, and an entity related to them owned an aggregate of approximately 73% of our outstanding common stock. As a result, these shareholders have the power to elect all of our directors and to
control the vote on all other matters, including the approval of significant corporate transactions.



We
have invested and intend to invest directly or indirectly in non-U.S. entities. Such non-U.S. investments involve certain risk factors not typically associated
with U.S. investments, including risks relating to (i) currency exchange matters such as fluctuations in the rate of exchange between the U.S. dollar and the various foreign currencies in which
an investment may be denominated; (ii) differences between the U.S. and foreign securities markets, and the absence of uniform accounting, auditing and financial reporting standards, practices
and disclosure requirements; and (iii) certain economic and political risks, including potential exchange control regulations and potential restrictions on foreign investment and repatriation
of capital. Other potential risks may include (depending upon the country involved) expropriation, the possible imposition of foreign taxes on income and gains recognized with respect to foreign
securities, political or social instability, illiquidity, difference in legal systems and market manipulation.



We
invest our capital utilizing investment techniques that may include, among other things investing in or having exposure to leveraged and non-leveraged derivative financial
instruments (including futures contracts, options contracts and forward agreements), structured equity and debt securities, trading on margin and selling short. Each of these techniques in certain
circumstances can magnify the adverse impact of market movements to which we may be subject. Additionally, we may engage in troubled company investing and may finance a significant portion or all of
an investment or acquisition using debt that may be guaranteed or secured by us and other forms of leverage.

Derivatives
have risks that are similar in type to the risks of the instruments to which their values are linked. For example, in times of market stress, sharp price movements and
reductions in liquidity in the related instruments may result in comparable or even greater price movements and reductions in liquidity in the derivative markets. Further, the risks associated with
derivatives are potentially greater than those associated with the related instruments because of the additional complexity and potential for leverage. In addition, derivatives may include credit risk
(the risk that a counterparty on a derivative transaction will not fulfill its contractual obligations), as well as legal, operational, reputation and other risks beyond those associated with the
underlying instruments to which their value is linked. Below is a summary of some of the ways in which we may from time to time invest our capital and some of the associated risks.



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There
can be no assurances that our use of derivatives and other speculative investments and techniques may not have a material adverse effect on our results of operations or financial
condition in any period.



Although
we were treated as a foreign personal holding company for the taxable year ended December 31, 2000, we do not believe we met the test to be treated as a foreign personal
holding company for the taxable years ended December 31, 2001 and 2002. However, there can be no assurance that we are not currently a foreign personal holding company and we may again be
treated as a foreign personal holding company in future taxable years. If we are a foreign personal holding company, you would be required, regardless of your percentage ownership, to include in
income, as a dividend, your pro rata share of our undistributed foreign personal holding company incomegenerally, taxable income with certain adjustmentsif you hold shares on
the last day of our taxable year or, if earlier, the last day on which we were a foreign personal holding company. If we are a passive foreign investment company for any taxable year during which you
hold our stock, you will generally be subject to special tax rules with respect to any "excess distributions" that you receive and any gain you realize from a sale or other disposition, including, a
pledge of our stock. Taxation matters are described more fully below under the heading "Taxation".



Based
upon an analysis of our current assets and the manner in which we intend to operate our business, we do not believe we are an investment company, as defined by the Investment
Company Act
of 1940. The determination of whether we are an investment company is based upon the composition and value of our assets, which are subject to change. As a result, we could inadvertently become an
investment company in the future, which could subject us to the requirements of the Investment Company Act of 1940.



As
a "foreign private issuer," we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations under
Section 14 of the Exchange Act and our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions contained in Section 16
of the Exchange Act, and the rules thereunder, with respect to their purchases and sales of shares of common stock. In addition, we are not required under the Exchange Act to file periodic reports and
financial statements with the Securities and Exchange Commission as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we required to comply
with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning our company than there is for companies
that do not qualify as "foreign private issuers". However, we will furnish shareholders with annual reports containing financial statements (prepared in accordance with accounting principles generally
accepted in the United States), which are audited by an independent public accounting firm.



Mirror
Image has not achieved operating profitability and expects to continue to incur net operating losses for the foreseeable future. Mirror Image expects to continue to incur
significant sales and marketing, product development, equipment and administrative expenses as it continues to develop its advanced Application Delivery Network ("ADN") of Content Access
Point® ("CAPs") facilities and

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as
it continues to develop other services. We have in the past provided substantial capital support to Mirror Image, and it is likely that Mirror Image will continue to require our support. However,
there can be no assurances that we will continue financing Mirror Image and, in any event, Mirror Image may have to seek alternative sources to satisfy its capital requirements. If Mirror Image were
to cease operations, our results of operations could be adversely affected.



In
addition to the capital concerns it must address, Mirror Image faces several additional challenges that it must overcome for it to become profitable. These challenges include:



If
Mirror Image cannot successfully overcome these challenges, our business, financial condition and results of operations could be materially adversely affected.



Mirror
Image's operations are dependent in part upon transmission capacity provided by third-party telecommunications network providers. A number of these network providers have recently
filed for protection under the federal bankruptcy laws. As a result, there is uncertainty about whether such providers or others that enter into bankruptcy will be able to continue to provide services
to us. Any failure of these network providers to provide the capacity we require may result in a reduction in, or interruption of, service to Mirror Image's customers. This failure may be a result of
the telecommunications providers or Internet service providers ceasing operations, experiencing interruptions or other failures, failing to comply with or terminating their existing agreements with
Mirror Image, otherwise denying or interrupting service, refusing to enter into relationships with Mirror Image or only agreeing to enter into relationships with Mirror Image on terms that are not
commercially acceptable to Mirror Image. If Mirror Image does not have access to third-party

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transmission
capacity, Mirror Image could lose customers. If Mirror Image is unable to obtain transmission capacity on terms commercially acceptable to Mirror Image, its business and financial results
could suffer. In addition, some of Mirror Image's telecommunications and network providers provide space for its servers and damage or destruction of, or other denial of access to, a facility where
its servers are housed could result in a reduction in, or interruption of, service to its customers.



Economic,
governmental, industry and internal company factors outside our control affect each of our portfolio companies. The material risks relating to our portfolio companies may
include the lack of the widespread commercial use of the Internet, which may prevent our portfolio companies from succeeding. Additionally, many of our portfolio companies are early-stage companies
with limited operating histories, and they may never be profitable.

A
significant part of the businesses of our portfolio companies is to develop technology businesses. As is typical in the case of a new and rapidly evolving industry characterized by
rapidly changing technology, evolving industry standards and frequent new product and service introductions, demand and market acceptance for recently introduced products and services on the Internet
are subject to a high level of uncertainty. In addition, critical issues concerning the commercial use of the Internet remain unresolved and may impact the growth of Internet use. These issues include
a perceived lack of security and privacy and capacity constraints resulting in delays, transmission errors and other difficulties. If the market for Internet access services develops more slowly than
expected or becomes saturated with competitors, or if the Internet access and services offered by our portfolio companies are not broadly accepted, our portfolio companies' growth strategy could be
materially adversely affected.



The
current financial market conditions pose a variety of additional challenges to our portfolio companies' businesses. The financial condition of many of our portfolio companies'
customers has deteriorated, and continues to deteriorate because of their inability to raise additional funds for their businesses. Accordingly, many of our portfolio companies' customers are making
and will continue to make significant cutbacks in their sales and marketing efforts and capital expenditures, which could in turn adversely affect our portfolio companies' financial results. A decline
in the overall economy may also have a material adverse impact on the demand for the services of our portfolio companies.



If
any of our portfolio companies' revenue grows more slowly than it anticipates or if its operating expenses increase more than it expects or cannot be reduced in the event of lower
revenue, such portfolio company may need to obtain funding from outside sources. If the portfolio company were unable to obtain needed outside funding, its business would be materially and adversely
affected. In addition, even if it were to find outside funding sources, the portfolio company might be required to issue securities to the outside funding sources with greater rights than those that
we currently possess. Our portfolio companies might also be required to take other actions that could lessen the value of their stock, including borrowing money on terms that are not favorable to it.



Several
of our portfolio companies, including Mirror Image, provide services that are highly complex and are designed to be deployed in and across numerous large and complex networks.

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Customers
of our portfolio companies have from time to time discovered errors and defects in the services provided and there may be additional errors and defects that adversely affect the services. If
our portfolio companies are unable to efficiently fix errors or other problems that may be identified, they could experience:





Several
of our portfolio companies may need to hire a significant number of additional sales, support, marketing, and research and development personnel. There is competition for these
personnel, and our portfolio companies may not be able to attract or retain additional highly qualified personnel in the future. Our future success also depends upon the continued service of our
portfolio companies' executive officers and other key sales, support, marketing, and research and development personnel. In addition, our portfolio companies provide services and technologies that are
complex, and they depend on the continued efforts of our existing technical personnel. Although the executive officers of our portfolio companies typically are bound by employment agreements, the
companies' relationships with other employees often are at will.



Some
of our portfolio companies provide services that could experience interruptions that are not within their control. For example, Mirror Image provides its services from multiple data
centers, some of which is housed at facilities operated by a single-source hosting provider. Circumstances outside of its control such as fires, natural disasters, power failures, telecommunications
failures, human error, sabotage and vandalism, unauthorized intrusions into its databases and similar events may impair one or more Mirror Image's CAPs. With regard to intentional disruptions, Mirror
Image (and our other portfolio companies) believe that they have sufficient controls in place to prevent disruptions caused by software viruses specifically designed to impede the performance of their
services; yet any of them may be an ongoing target of such disruptions. Service interruptions for any reason would reduce revenues, could result in contract cancellations and could negatively impact
Mirror Image's ability to attract new customers. Many other of our portfolio companies are subject to similar risks and concerns.



Some
of our portfolio companies may be subject to legal claims relating to the content on their websites, or the downloading and distribution of this content. Claims could involve
matters such as defamation, invasion of privacy and copyright infringement. In addition, some of the content that may be provided by our portfolio companies on their websites could be drawn from data
compiled by other parties, including governmental and commercial sources. This data may have errors. If any of our portfolio companies' website content is improperly used or if any of our portfolio
companies supply incorrect information, it could result in unexpected liability. Any of our portfolio companies that incur this type of unexpected liability may not have insurance to cover the claim
or its insurance may not provide sufficient coverage. If our portfolio companies incur substantial cost because of this type of unexpected liability, the expenses incurred by our portfolio companies
will increase and their profits, if any, will decrease.

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Concerns
regarding the security of transactions and confidential information on the Internet may have an adverse impact on our portfolio companies' businesses. Some observers believe
that concern regarding the security of confidential information transmitted over the Internet prevents many potential customers from engaging in online transactions. As online usage becomes more
widespread, Internet users may become more concerned about security.

Despite
measures that portfolio companies may take, the infrastructure of all Internet companies is potentially vulnerable to physical or electronic break-ins, viruses or
similar problems. If a person circumvents the security measures imposed by any of our portfolio companies, he or she could misappropriate their proprietary information or cause interruption in their
operations. Security breaches that result in access to confidential information could damage our reputation as well as that of our portfolio companies and expose any affected company to a risk of loss
or liability. Some of our portfolio companies may be required to make significant investments and efforts to protect against or remedy security breaches.



The
market for outsourced e-Business infrastructure services and software is likely to continue to be characterized by rapid technological change, frequent new product and
service introductions and changes in customer requirements. They have experienced and expect to continue to experience increased competition from current and potential competitors, many of which have
significantly greater financial, technical, marketing and other resources than they have.

Competition
in the Internet infrastructure market continues to intensify as new solutions are coming to market and several companies are forming technology alliances to sell their
products. For example, numerous major software developers as well as smaller entrepreneurial companies are focusing significant resources on developing and marketing products and services against
which Mirror Image competes. Additionally, Mirror Image may face competition from other providers of competing solutions for network infrastructure problems, including networking hardware and software
manufacturers, content distribution providers, traditional hardware manufacturers, telecommunications providers and large diversified software and technology companies. Many of these companies provide
or have announced their intentions to provide a range of software and hardware products based on Internet protocols and to compete in the broad Internet/intranet software market as well as in specific
market segments in which Mirror Image and other of our portfolio companies compete.

Competitors
may be able to respond more quickly than our portfolio companies to new or emerging technologies and changes in customer requirements. In addition, our portfolio companies'
current and potential competitors may bundle their products with other software or hardware, including operating systems and browsers, in a manner that may discourage users from using the services of
our portfolio companies. Also, some current and potential competitors have greater name recognition and more extensive customer bases than do our portfolio companies. Increased competition could
result in price reductions, reduced gross margins and loss or failure to obtain market share with respect to our portfolio companies.



Many
of our portfolio companies' ability to compete depends substantially on their internally-developed proprietary technology, which they must protect through a combination of patent,
copyright, trade secret and trademark laws. Despite using all reasonable efforts to protect their proprietary rights, unauthorized parties may attempt to copy aspects of their services or otherwise
obtain and use their

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trade
secrets or other information our portfolio companies regard as proprietary. We cannot be sure that the steps our portfolio companies have taken will prevent unauthorized use of their technology,
particularly in foreign countries where laws may not protect their proprietary rights as fully as in the United States.



In
recent years, there has been significant litigation in the United States regarding patents and other intellectual property rights. Internet-related products may be increasingly
vulnerable to third-party infringement claims as the number of competitors in the Internet infrastructure industry grows and the functionality of products in the different industry segments overlap.
We cannot be sure that third parties will not make claims of infringement against our portfolio companies with respect to their services and technology. Any such claims, regardless of their merits,
would likely be time consuming and expensive to resolve, would divert management time and attention and could cause costly delays. Any potential intellectual property litigation resulting from
third-party infringement claims could also force any of our portfolio companies to do the following:





Laws
and regulations that apply to communications and commerce over the Internet are becoming more prevalent. The law of the Internet, however, remains largely unsettled, even in areas
where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet, or interpretations of existing law, could materially adversely
affect our business and the businesses of our portfolio companies.

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Item 4.    INFORMATION ON THE COMPANY.

History and Development of the Company

Xcelera is a company incorporated and operating under the laws of the Cayman Islands. Xcelera was initially incorporated in the Cayman Islands under the name "The
Scandinavia Company, Inc." on October 7, 1988. Our registered office is located at Ugland House, P.O. Box 309GT, South Church Street, George Town, Grand Cayman, Cayman Islands.
Our common stock has been publicly traded on the American Stock Exchange ("AMEX") since 1989 and, though we do not maintain a listing on a stock exchange other than the AMEX, beginning in our 2001
fiscal year our common stock was also traded on the Frankfurt Stock Exchange (Deutsche Börse AG).

In
March 1999, we acquired majority control of Mirror Image, which we hope will become a leading globally integrated application delivery network and function as a core technology
platform for companies engaged in the distribution of content and applications over the Internet. Since then, we invested significant capital and resources in Mirror Image to further develop its
technology and capabilities, evaluated and invested in other companies and changed our name to Xcelera.com Inc. In January 2000, we sold our Spanish real estate assets, which had been
our primary operating assets from 1993 to 1999. In October 2000, we changed our name to Xcelera Inc.

During
the fiscal years ended January 31, 2001, 2002 and 2003, we funded an aggregate of approximately $90 million, $46 million and $22 million, respectively,
in new and existing portfolio companies, including Mirror Image. During the fiscal years ended January 31, 2001, 2002 and 2003, we received proceeds of $267 million, $10 million
and $0 million, respectively, from the disposition of investments, which includes the disposition of our shares of Exodus common stock related to the April 2000 transactions among us,
Mirror Image and Exodus Communications, Inc. ("Exodus") that are described more fully under Item 5 below under the heading "Overview".

Business Overview

We are a European technology company focused on founding, developing, operating and financing technology companies and managing our portfolio of assets. Our
strategy is to leverage our core competencies in caching, application and content distribution, content management, searching, security solutions, storing and streaming by continuing to acquire
interests in technologies, products, services, people and companies, and to manage our portfolio of assets.

As
of June 30, 2003, our portfolio of companies in which we held a 5% or greater interest included Mirror Image, Agentus AS ("Agentus"), Ceetron ASA ("Ceetron"), Escenic
Technology AS ("Escenic"), SOT Finnish Software Engineering Ltd. ("SOT"), Suntail.com AS ("Suntail"), Wide Computing AS ("Wide Computing"), FIRM Inc. ("FIRM"), Ineo Inc. ("Ineo")
and a subsidiary ("Protegrity"), which acquired substantially all the assets of Protegrity Research & Development AB and which is in the process of changing its name. These portfolio companies
are described below under the heading "Overview of Our Portfolio Companies".

We
generate revenues from our consolidated subsidiaries, receive interest and dividends on our investments and realize other income (loss) from sales of our investments when sold. During
the fiscal year ended January 31, 2003, Mirror Image was our only material consolidated subsidiary that generated revenues.

Our
current liquidity position is strong. As of June 30, 2003, we held a total of approximately $80 million in cash, cash equivalents and marketable securities.

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We believe that our access to the technology and people of our portfolio companies, our focus on the technology markets, and our access to capital resources will
enable us to identify and attract strategic and financial opportunities in early-stage technology companies and to manage our portfolio of assets.

We
have identified the following sectors of the Internet infrastructure technology market as those that we believe currently provide the most significant opportunities for us:



We
seek to identify and align ourselves with those companies that we believe have the potential to be strong participants in their markets and are synergistic with our technology
interests. We screen potential opportunities using the following primary criteria:



After
we have identified a company's business plan to determine if it fits with our investment criteria, we evaluate the company's potential, relying on both our own experience and also
the experience of our portfolio companies and other sources of expertise to which we have access. We believe that these resources permit us to make informed judgments concerning a company's potential.

In
view of the operating resources that we devote to the development of companies, we seek opportunities to take a meaningful ownership position and exercise significant operational
influence. Our objective is to acquire a significant interest in our portfolio companies, while ensuring that management and key personnel continue to retain an equity stake in the company. In some
instances, we have increased our ownership gradually, which permits us to manage our investment risk while retaining significant upside potential. We often seek to invest an initial amount of equity
and

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simultaneously
acquire options that allow us to increase our percentage ownership position at our discretion.



As of June 30, 2003, we held investments with an ownership interest of more than 5% in the following companies:

|Company        |  | Description                                                                                                          |  | Initial
Investment
Year
(Calendar) |  | Ownership(1)
|-------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- |  | ------------
|Mirror Image   |  | Provides secure, outsourced e-Business infrastructure services (described below)                                     |  | 1999                               |  | 99%         
|Agentus        |  | Develops specialized Internet caching solutions                                                                      |  | 2000                               |  | 90%         
|Ceetron        |  | Provides image processing technology and services focused on the global business-to-business image processing market |  | 2000                               |  | 13%         
|Escenic        |  | Develops and markets Web based publishing software                                                                   |  | 2000                               |  | 15%         
|SOT            |  | Develops Linux software and provides professional services                                                           |  | 2000                               |  | 16%         
|Suntail        |  | Develops web services tools and applications.                                                                        |  | 2000                               |  | 12%         
|Wide Computing |  | Develops server-based search technology solutions                                                                    |  | 2000                               |  | 63%         
|FIRM           |  | Develops online information and research management software                                                         |  | 2001                               |  | 14%         
|Ineo           |  | Provides network access control and security solutions for telecommunications service providers                      |  | 2002                               |  | 100%        
|Protegrity     |  | Provides data protection and security solutions                                                                      |  | 2003                               |  | 100%        

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Disposition of Investments

In
May 1999, we made a minority investment in MNW, an independent record company. In May 2000, MNW spun off deo.com, its majority-owned digital music subsidiary, to its
shareholders, including us. During fiscal 2002, we sold our holdings of MNW, and in May 2001 deo.com filed for bankruptcy.

In
January 2000, we made a minority investment in E-Game, a developer of advertising games. In December 2000, E-Game agreed to be acquired by
Daydream Entertainment AB ("Daydream"), an online game developer, in a stock exchange, resulting in our owning an equity interest in Daydream. During fiscal 2002, we sold substantially all of our
holdings of Daydream.

In
March 2000, we made a minority investment in Wideyes, an online recruitment company. In March 2001, we sold our holdings of Wideyes after it agreed to be acquired by
Jobline International AB.

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In
September 2000 and February 2001, we made investments in PC Data, a provider of technology and Internet market intelligence, in the form of a convertible note. In
March 2001, PC Data sold substantially all of its assets to a third party for cash. With the proceeds from this sale, PC Data repaid all of the amounts that it owed to us.

In
August 2001, Omnitree AS, a content management company in which we held a 31% ownership stake, halted operations. In September 2001, E-Vue Inc., an
MPEG-4 technology company to which we had extended a loan, halted operations. In April 2002, HelpInHand ASA, a mobile Internet enabling company in which we held a 19% ownership
stake, halted operations. These investments were written off in our 2001 and 2002 fiscal years.

In
September 2002, Atlantic Systems Group Inc. ("ASG"), a secure network access control and security solution provider to which we had extended several loans, halted
operations. In October 2002, Ineo acquired substantially all assets of ASG.



Mirror Image, a leading global e-Business delivery provider of end-to-end Content Delivery, Streaming Media,
e-Commerce and Web Computing solutions, increases the speed, performance, capacity and reliability of transaction, application and content delivery. With an Internet-class infrastructure
that combines an optimal mix of connectivity, processing power and storage, Mirror Image helps e-Businesses efficiently utilize the power of the Internet to increase revenues, reduce
infrastructure costs and operating expenses and improve customer satisfaction worldwide. Mirror Image principally targets enterprises, service providers, publishers and e-Businesses as its
customers. Mirror Image was incorporated in Delaware in 1998 and has its corporate headquarters at 49 Dragon Court, Woburn, Massachusetts.

Mirror
Image believes that it offers a superior and cost-effective approach to deploying and managing e-Business technology infrastructure. Mirror Image's
approach is highly scalable, easy and quick to implement, and simple to maintain.

Mirror
Image introduced its content delivery and streaming media services in November 2000 and continues to add features and functionality to each of these product lines. Through
the acquisition of Clearway Acquisition, Inc. ("Clearway") in January 2001, Mirror Image combined its network-centric content delivery technology with Clearway's server-centric content
delivery technology, thereby extending its platform to the origin server. Mirror Image continued to develop its service offerings by introducing additional content delivery services directed at
solving specific content distribution business requirements in March 2002.

Mirror
Image announced its global e-Commerce services in January 2003 and its Digital Asset Library in March 2003. Mirror Image's e-Commerce
solution builds, hosts, operates and markets outsourced online stores by leveraging Mirror Image's Application Delivery Network (ADN) of Content Access Point® (CAP) to reliably deliver and
support the fulfillment of digital assets and physical products, such as software, books and music, to users worldwide. The Digital Asset Library provides a more efficient means for customers to
obtain and sell products such as software, books and music directly on the Web.

Mirror
Image announced its dynamic caching solution in April 2003, which extends its dynamically built content delivery solution offerings by providing the ability to cache and
distribute dynamically built HTML pages thereby greatly offloading application servers and database capacity.

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Mirror Image's goal is to become a standard technology network platform for outsourced e-Business infrastructure services and Web computing services.
Mirror Image's strategy to achieve this objective includes the following key elements:

Expand its Network Platform.Mirror Image intends to expand its platform by deploying technology at all key points of the content delivery
process; at the origin site, at its CAP facilities and at the end-user. Mirror Image has deployed a high capacity Application Delivery Network (ADN) of CAP facilities, each residing at key
traffic aggregation points on the Internet backbone, that today serves as its platform. Mirror Image intends to continue to extend its platform by deploying technology enablers that enable future
solutions. Mirror Image believes that extending its network will allow Mirror Image to better control the serving of content and applications to the end-user and thereby significantly
improve the security, efficiency, quality, performance and capability of service compared to platforms in use today. In addition, Mirror Image believes that the extended platform may enable it to
provide significant new functionality that is not possible with platforms in use today, such as information management, distributed computing, peer-to-peer file sharing,
individual network caching and distributed applications.

Seek to Establish its Network Platform as Leading Internet Services Platform.Mirror Image intends to establish its ADN and CAP
architecture as the preferred integrated platform for content delivery, streaming, storage, application and information services developed by Mirror Image and third parties. Mirror Image intends to
continue to invest resources in the development and implementation of new technology and services that will be deployed on this network and benefit its customers. By leveraging its existing network,
engineering and research expertise to create a platform that is easy to deploy, easy to use and easy to manage, Mirror Image believes that it can reduce the incremental costs and time associated with
developing, deploying and providing new services. In addition to internally developed services, Mirror Image intends to position its CAP network as an attractive platform for third-party applications
and services.

Target Multiple Customer Bases.Mirror Image's strategy targets multiple customer bases by providing service offerings to each base.
Mirror Image's content delivery and streaming media services target content providers. Mirror Image's e-Commerce services target e-Business
merchants and publishers. Mirror Image's web computing strategy targets application developers, hosting service providers, managed service providers, enterprises, e-Businesses and
application services by providing Mirror Image's network as an infrastructure service for the deployment of their applications, while simultaneously providing aggregation and performance advantages to
the users of those applications, specifically e-Businesses and enterprises. By using the same infrastructure and content to provide services to multiple stakeholders, Mirror Image
potentially can spread the fixed costs associated with building and maintaining its network over a large and diverse target customer base. Customers today are often selecting several competing
services to work with in order to have several suppliers, to add functionality and to reduce costs. Mirror Image is developing specific suites of services and features targeted at particular vertical
market segments that Mirror Image believes will find its services attractive and can generate large volumes of business for Mirror Image.

Deliver Superior Quality Customer Service and Support.Mirror Image's success depends in part upon its ability to develop and to
consistently deliver high quality services to its customers, providing them with reliable, stable and flexible support. Mirror Image's organization is focused on delivering maximum network
availability, sustained performance, active support services and rapid response to the changing needs of its customers. Mirror Image provides professional support services to its customers, both
before and after the sale. Mirror Image offers network management and customer services as well as detailed network performance measurements and reporting tools that allow its customers to monitor the
performance of their Internet operations based on a variety of metrics.

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Sales channels.Mirror Image's sales strategy builds on direct sales activities and selling through resellers. Mirror Image has reseller
agreements with MCI WorldCom Network Services, Inc. and IBM Canada Ltd., for non-exclusive reselling of Content Delivery and Streaming Media services provided by Mirror
Image.



Mirror Image offers a broad range of secure, outsourced e-Business infrastructure services for content delivery, streaming media,
e-Commerce and Web computing. Mirror Image believes that this comprehensive service portfolio enables enterprises to reduce the cost and complexity of deploying and managing their
technology infrastructure while improving its security, consistency, reliability and performance.

By
moving content and applications closer to its customers' end-users, Mirror Image's services seek to improve end-user experience and reduce customers'
infrastructure and bandwidth costs while improving security, consistency, reliability and performance. Mirror Image
believes that its services uniquely combine the benefits of intelligent software residing on the origin server, in the CAP platform and later at the end-user, distributed
high-capacity computing, large-scale storage, extensive connections to Internet access networks and open Web services protocols to deliver superior functionality for
e-Businesses.

Mirror
Image's solution suite includes:

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In
addition, Mirror Image's CAP architecture is designed to serve as an open platform for future applications to be developed by Mirror Image, its partners or third parties. These
applications are
intended to further offload work from origin sites as well as to provide additional application functionality in a more cost effective and scalable manner.



Mirror Image seeks to provide its customers with a broad range of benefits and features from Mirror Image's services, including:



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Mirror
Image introduced its initial suite of services to customers on a test basis beginning in March 2000 and announced the commercial availability of its content delivery and
streaming media services in November 2000. Mirror Image's e-Commerce services became available in 2003. As of June 30, 2003, Mirror Image had 101 customers.



Mirror Image has designed and built a global platform consisting of an advanced global Application Delivery Network of CAP facilities to address the inherent
design limitations of the Internet and to provide an optimized "delivery vehicle" to accelerate the adoption and distribution of Internet-native distributed applications and services.

The
CAP platform is designed to combine the benefits of intelligent management software, high-capacity computing, large-scale storage, extensive connections to Internet
access networks and open Internet services protocols. Mirror Image locates its CAP facilities at key traffic
aggregation points because Mirror Image believes that such strategic placement will allow it to most efficiently store, process and deliver content and applications to the end-users and
capture benefits from economies of scale. Mirror Image has 17 CAP facilities worldwide, which combined create a global ADN with high performance capabilities.

This
CAP platform is designed to enable and accelerate the development and introduction of new complex Internet applications and services such as advanced storage services, distributed
e-Commerce and other Internet applications. As bandwidth increases in local access networks and more end-users use broadband connections, Mirror Image expects that the demand
for complex Internet application and services will intensify increasing the need for Mirror Image's services. As a result, Mirror Image believes that the CAP Platform's location at key traffic
aggregation points, efficiency and computing power will become an increasingly important competitive advantage.

Mirror
Image has a comprehensive system of proprietary and licensed systems to centrally manage its CAP platform. In order to accommodate the needs of its customers, Mirror Image's
active content verification technology ensures that content in the core database is kept up-to-date. All CAP facilities are unmanned, "lights-out" operations, which
Mirror Image manages from its network operations center in Woburn, Massachusetts.

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Mirror
Image has CAP facilities in Atlanta; Chicago; Dallas; Elmsford, New York; Frankfurt; Hong Kong; London; Los Angeles; Miami; Paris; San Jose; Seattle; Singapore; Sterling,
Virginia; Stockholm; Taipei; and Tokyo.



Each fully modular CAP facility contains three separate functional layers. Each layer utilizes multiple specialized high-end multiprocessor systems
operating in parallel with Mirror Image's proprietary software. The CAP infrastructure benefits from the following functional layers:



Each
functional layer has several specialized high-end multiprocessor systems operating in parallel. Each CAP facility is fully modular, which provides redundancies within
each CAP functional layer. When customer traffic increases, additional capacity is easily added by deploying additional system components or full modules as appropriate within the layer. There are
also connecting layers of redundant, fault-detecting load-balancing CAP components between the separate functional layers, designed to ensure trouble-free operation if
different components or processes would fail. Mirror Image's system management software connects the layers. As an additional level of security and redundancy, each CAP facility acts as a replacement
for the others, redirecting traffic to other nearby CAP facilities in the unlikely event of a catastrophic CAP failure. CAP facilities incorporate proprietary features to maintain fresh content and
are equipped with functions for reporting, monitoring and billing.

Mirror
Image's CAP platform is designed to be easily expanded in the critical dimensions of storage capacity, computing power, network connections and bandwidth. CAP facilities include
large-scale redundant storage that can be expanded to incorporate additional storage capacity without having to redesign. Mirror Image's modular systems are designed such that extra servers,
processors and memory can be added as necessary. New service components can be rapidly added to provide additional performance or new service features while still leveraging the same distributed
infrastructure.

Mirror
Image uses third-party products from companies such as Hewlett Packard, Cisco and Concord for monitoring, reporting and performance management.

Additional Business Information

During our 2001 fiscal year we established the Xcelera Shareholder IPO Participation Program. The purpose of the Program is to allow our shareholders to purchase
shares offered in initial public offerings of our portfolio companies at the offering price. During our 2002 and 2003 fiscal year, none of our portfolio companies sold shares in an IPO.

On
July 16, 2000, our Board of Directors approved a share repurchase program allowing us to buy up to 2 million shares of our stock on the open market. Any purchase of our
shares is subject to limitations that may be imposed on such purchases by applicable securities laws and regulations and by the rules of the AMEX. The timing of the purchases and the number of shares
to be bought at any one time will depend on market conditions. On October 3, 2002, we announced that our Board of Directors had approved a new share repurchase program allowing us to buy up to
an additional 5 million shares. During our 2001 fiscal year, we repurchased 232,800 shares and during our 2003 fiscal year, we repurchased 1,715,759 shares. We did not repurchase any shares
during our 2002 fiscal year.

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Organizational Structure

The Company's only significant subsidiary is Mirror Image, which is incorporated in Delaware.

Property, Plants and Equipment

Our registered offices are located at P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. Mirror Image's
principal executive office is located in Woburn, Massachusetts, where it leases approximately 20,250 square feet under a lease that expires on March 31, 2005. Annual rental payments under this
lease totaled approximately $154,000 through November 30, 2001 and increased to approximately $164,000 per year thereafter. In addition, the lease included a one-time payment of
12,000 shares of our common stock.

Mirror
Image has deployed CAPs in Atlanta; Chicago; Dallas; Elmsford, New York; Frankfurt; Hong Kong; London; Los Angeles; Miami; Paris; San Jose; Seattle; Singapore; Sterling, Virginia;
Stockholm; Taipei; and Tokyo.

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Item 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

The following discussion of our operations should be read in conjunction with our consolidated financial statements and related notes included in this annual
report. The following discussion contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those described above under the heading "Risk Factors". Our
results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a European technology company focused on founding, developing, operating and financing technology companies and managing our portfolio of assets. Our
strategy is to leverage our core competencies in caching, application and content distribution, content management, searching, security solutions, storing and streaming by continuing to acquire
interests in technologies, products, services, people and companies, and to manage our portfolio of assets.

As
of June 30, 2003, our portfolio of companies in which we held a 5% or greater interest included Mirror Image, Agentus, Ceetron, Escenic, SOT, Suntail, Wide Computing, FIRM,
Ineo and Protegrity. These portfolio companies are listed above under the heading "Overview of Our Portfolio Companies".

We
generate revenues from our consolidated subsidiaries, receive interest and dividends from our investments and realize other income (loss) from sales of our investments when sold at a
profit. During the fiscal year ended January 31, 2003, Mirror Image was our only material consolidated subsidiary that generated revenues.

In
March 2000, Exodus agreed to purchase approximately 15% of the fully diluted equity in Mirror Image through a combination of a direct equity investment in Mirror Image and a
purchase of Mirror Image shares from us. In connection with the transactions, Mirror Image and Exodus entered into a commercial relationship that has ended following Exodus' bankruptcy during 2001.
Pursuant to those transactions, on April 21, 2000 we received $25 million in cash and 6,046,636 shares of Exodus common stock, and Mirror Image received $50 million in cash and
1,469,900 shares of Exodus common stock. In return, Exodus received Mirror Image common stock representing approximately 15% of Mirror Image's outstanding shares on an as-converted basis. During
fiscal 2001, we sold all of the shares of
Exodus common stock received by Xcelera in the transaction for total cash proceeds of approximately $216 million.

During
the 2002 fiscal year, we disposed of substantially all of our holdings in Daydream, which had acquired E-Game, and our holdings in Wideyes and MNW. Also during the
2002 fiscal year, PC Data, a company in which we had made an investment in the form of a convertible note, repaid all amounts that it owed to us.

During
our 2003 fiscal year, Ineo acquired substantially all assets of ASG.

Operating Results



Our net income increased to a gain of $3.6 million for the fiscal year ended January 31, 2003 compared to a loss of $96.3 million for the
fiscal year ended January 31, 2002. This increase in net income was primarily due to the following factors, each of which is discussed further below:



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The
decrease in our cost of revenue was primarily attributable to a reduction in operating expenses for the CAP facilities and equipment as well as a reduction in personnel costs.

During
the year ended January 31, 2003, we recorded an impairment charge of $12,681,548, of which $11,374,764 is included in cost of revenue and $1,306,784 is included in
engineering and development. The decrease in our other selling, general and administrative expenses was primarily attributable to a reduction in personnel and sales related costs during 2003, as well
as a $6 million writedown of goodwill during our fiscal 2002.

The
increase in our other income during 2003 was primarily attributable to a $43.8 million gain from extinguishment of debt held by Hewlett-Packard and approximately
$14.2 million of favorable performance in our securities portfolio. In addition, our 2002 other income was affected by a $13 million loss on transactions related to our prior ownership
of Exodus common stock, a $4 million reserve for notes receivables, writedowns of investments and an increase in our net interest expenses and realized losses during our 2002 fiscal year.



Our net income decreased to a loss of $96.3 million for the fiscal year ended January 31, 2002 compared to a profit of $124.3 million for the
fiscal year ended January 31, 2001. This decrease in net income was primarily due to the following factors, each of which is discussed further below:



The
increase in our cost of revenue was primarily attributable to increased depreciation and amortization expenses incurred during 2002 fiscal year associated with a full year of
expenses for CAPs placed in service throughout 2001 as well as a full year of colocation and bandwidth expenses for these CAPs.

The
increase in our selling, general and administrative expenses was primarily attributable to a $6 million writedown of goodwill during our fiscal 2002, and an increase in
personnel and sales related costs. Mirror Image also incurred higher occupancy costs due to additional office leases from the Clearway acquisition and for remote sales people. These increases were
partially offset by a decrease in advertising and public relations costs.

The
decrease in our other income was primarily attributable to a $13 million loss on transactions related to our prior ownership of Exodus common stock as compared to several
transactions that positively impacted our other income for our fiscal year ended January 31, 2001 by $145.3 million in the aggregate. These 2001 transactions were:



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Additional
items contributing to this decrease in our other income include, a reserve that we recorded in fiscal 2002 for notes receivables of $4 million, writedowns of
investments and an increase in our net interest expenses and realized losses.

Liquidity and Capital Resources

We have met our short-term and long-term liquidity needs in recent years with proceeds from the issuance of convertible preferred shares,
borrowings from our majority shareholder and from sales of investments.

Consolidated
working capital increased to $138.9 million at January 31, 2003 compared to $117.9 million at January 31, 2002. Cash used in operating activities
decreased to $7.4 million for the year ended January 31, 2003 as compared to cash used by operating activities of $72.7 million for the year ended January 31, 2002. This
decrease was primarily due to the increase in income (loss) from operations. Operating expenses decreased to $58.2 million for the year ended January 31, 2003, compared to
$91.8 million for the year ended January 31, 2002, while revenues increased to $4.1 million for the year ended January 31, 2003, from $3.2 million for the year ended
January 31, 2002.

Cash
used in investing activities was $5.1 million for the year ended January 31, 2003, as compared to cash provided by investing activities of $13.5 million for the
year ended January 31, 2002. This decrease primarily reflects the purchase of marketable securities of $3.2 million during fiscal year ended January 31, 2003, compared to
$15.0 million of proceeds from the sale of marketable securities during the fiscal year ended January 31, 2002.

During
the year ended January 31, 2003, we funded approximately $22 million to acquire interests in and make advances to new and existing portfolio companies, primarily to
Mirror Image compared to $46 million during the fiscal year ended January 31, 2002. From February 1, 2003 through June 30, 2003, we funded approximately $5 million
to acquire ownership interests in or make advances to new and existing portfolio companies, primarily to Mirror Image.

On
April 21, 2000, the transactions among us, Mirror Image and Exodus were completed. Pursuant to those transactions, we received $25 million in cash and 6,046,636 shares
of Exodus common stock, and Mirror Image received $50 million in cash and 1,469,900 shares of Exodus common stock. In return, Exodus received Mirror Image common stock representing
approximately 15% of Mirror Image's outstanding shares on an as-converted basis. During the year ended January 31, 2001, we sold all of the shares of Exodus common stock received by Xcelera in
the transaction for total cash proceeds of approximately $216 million.

On
December 21, 1999, Hewlett-Packard and we entered into a strategic alliance to enhance and expand Mirror Image's global content distribution system. As part of the alliance,
Hewlett-Packard agreed to purchase 246,152 shares of our common stock for $2 million in cash and to provide credit to us in an amount of up to $30 million under a convertible note
facility that was convertible into our common stock. In March 2000, Hewlett-Packard and we agreed to increase the amount of the note facility to $50 million and the total amount borrowed
under this facility was $45.3 million. The convertible note carried a 9% interest rate annually. Pursuant to an agreement between Hewlett-Packard and us dated as of September 25, 2001,
the principal on the convertible notes was due in four equal installments on April 30, 2002, July 31, 2002, October 30, 2002 and January 31, 2003, and the related interest
similarly became payable on each installment date. The principal and any unpaid accrued interest on the convertible notes were convertible at Hewlett-Packard's option at any time, and

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the
principal and related interest were convertible at our option when due. The conversion price for the initial $7,500,000 was $8.125 per share and for all other amounts $29.37 per share. During our
fiscal year 2003, we converted all $45.3 million of principal and approximately $1 million of interest into our common stock and issued approximately 2.2 million shares to
Hewlett-Packard. The remaining interest of approximately $1.5 million was paid in cash. We recognized a $43.8 million gain during our fiscal year 2003 relating to the conversion of these
notes and accrued interest.

On
November 11, 1999, we issued 100,000 shares of our Series A 10% Convertible Preferred Stock to VBI Corporation in exchange for $10 million. VBI Corporation also
received an option to acquire an additional 100,000 shares of Series A 10% Convertible Preferred Stock on the same terms, which option was exercised on June 30, 2000. We have used the
proceeds from the VBI Corporation investments to fund additional investments in Mirror Image and our portfolio companies. During our 2003 fiscal year, we repurchased all 200,000 shares of our
preferred stock for cash.

We
believe that existing working capital and the availability of available-for-sale securities and investment funds, which could be sold or posted as additional
collateral for additional loans, will be sufficient to fund operations, investments and capital expenditures for the foreseeable future. Should additional capital be needed to fund future investment
and acquisition activity, we may seek to raise additional capital through public or private offerings of our or our subsidiaries' stock or through debt financing. There can be no assurance, however,
that we will be able to raise additional capital on terms that are favorable to us.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145, "Recission of
FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which eliminates the automatic classification of gain or loss on extinguishment of debt
as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board
No. 30, "Reporting Results of Operations." The provisions of SFAS 145 related to the recission of Statement 4 are effective for fiscal years beginning after May 15, 2002. We
adopted SFAS 145 and recorded a gain of approximately $43.8 million, included in other (expense) income, net, that resulted from the extinguishment of convertible notes payable.

In
June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and EITF 94-3 relates to
the requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a liability is recognized at the date of an entity's commitment to an exit plan. SFAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. We do not expect the adoption of SFAS 146 to have a material impact on our financial position or results of
operations.

In
November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), which requires a guarantor to include disclosure of certain obligations, and, if applicable, at the inception of the guarantee, to recognize a liability for the fair value of other
certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and is not expected to have a material
impact on us. We have no such obligations that would fall under either the disclosure or recognition requirements of FIN 45.

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In
December 2002, FASB issued SFAS No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure," which was issued to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123
to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for financial statements for fiscal years ending after December 15, 2002. SFAS 148 will not have any impact on us because we do not plan to
implement the fair value method.

In
January 2003, FASB issued Interpretation No. 46, ("FIN 46"), "Consolidation of Variable Interest Entities." This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective February 1, 2003 for variable
interest entities created after January 31, 2003, and July 1, 2003 for
variable interest entities created prior to February 1, 2003. We are currently studying the impact of this recent pronouncement on its financial position, results of operations or cash flows.

In
May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity"). This statement establishes
standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the
standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. This statement shall be effective for financial instruments entered into or
modified after May 31, 2003 and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. We are currently studying the impact of this
recent pronouncement on our financial position.

Inflation and Changing Prices

We do not anticipate any material impact on our revenues or income from operations as a result of the impact of inflation and changing prices.

Item 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The following table sets forth information regarding our directors and senior management as of June 30, 2003.

|Name                |  | Position                                                   
|------------------- |  | -----------------------------------------------------------
|Alexander M. Vik(1) |  | Chairman of the Board and Chief Executive Officer          
|Gustav M. Vik(1)    |  | Director, Executive Vice President, Treasurer and Secretary
|Michael J. Kugler   |  | Director, Executive Vice President                         
|Hans Eirik Olav     |  | Director                                                   

---

Alexander M. Vikhas served as our Chairman of the Board and Chief Executive Officer since March 1989. His current term as Chairman
continues until the next annual meeting of shareholders and until his successor is duly elected and qualified. Since March 1999, Mr. Vik has been the Chairman of the Board of Mirror
Image and since October 2001, Mr. Vik has been the Chief Executive Officer of Mirror Image. Mr. Vik is a Director of Agentus, Wide Computing and a number of other companies.

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Since
1986, Mr. Vik has been Chairman and Chief Executive Officer of Vik Brothers International USA Inc. From February 1989 to May 1997, Mr. Vik served as Chairman
of the Board and Chief Executive Officer of Vik Brothers Insurance Inc. Mr. Vik holds an A.B. in Economics from Harvard University.

Gustav M. Vikhas served as our Director, Treasurer and Secretary since March 1989, and as our Executive Vice President since 1996.
His current term as a Director continues until the next annual meeting of shareholders and until his successor is duly elected and qualified. Since March 1999, Mr. Vik has served as a
Director of Mirror Image. Mr. Vik is the Chairman and Chief Executive Officer of Ineo and a director of a number of other companies. Since September 1986, Mr. Vik has been
Executive Vice President of Vik Brothers International USA Inc. From September 1986 to April 1997, Mr. Vik was the President and Chief Operating Officer of Vik Brothers
Insurance Inc. Mr. Vik attended the University of Stockholm from 1978 to 1981.

Michael J. Kuglerhas served as our Executive Vice President, responsible for managing financial operations and investor relations, since
October 2000. He has served as our Director since December 2000. His current term as a Director continues until the next annual meeting of shareholders and until his successor is duly
elected and qualified. Mr. Kugler also serves as a Director of Mirror Image. Prior to joining Xcelera, Mr. Kugler was most recently Executive Vice President of the Government Securities
Department at Daiwa Securities America Inc. since 1992. From 1984 to 1992, he was Executive Vice President and a member of the Board of Directors at Drexel Burnham Lambert Inc. and
Chairman of Drexel Burnham Lambert Government Securities Inc. From 1977 to 1984, Mr. Kugler was Chairman of the Government Securities Division at Merrill Lynch. He was also a General
Partner in Fixed Income at Salomon Brothers for 20 years beginning in 1957. Mr. Kugler attended the Baruch
School of Business of the City College of New York. He received an Honorary Doctorate of Business Administration degree from Hawthorne College of Antrim, N.H. in 1980, and he is a member of the
Washington Quarterly Roundtable of the Center for Strategic and International Studies of Washington, D.C.

Hans Eirik Olavhas served as our Director since December 2000. His current term as a Director continues until the next annual
meeting of shareholders and until his successor is duly elected and qualified. Mr. Olav is Chairman of Wide Computing, and a Director of FIRM, Suntail, Agentus and Ceetron. Mr. Olav
holds an MBA from University of Miami and a BBA from University of Georgia.

Compensation

We paid an aggregate of $356,518 to our directors and officers during the 2003 fiscal year, and an aggregate of $506,518 was expensed for our directors and
officers, as a group, for services in all capacities. As of January 31, 2003, an aggregate of $522,166 was payable to our current and former officers and directors, as a group, for services in
all capacities. Mirror Image paid $100,000 and $50,000 to Alexander M. Vik and Gustav M. Vik, respectively, during our 2003 fiscal year.

Employees

We and Mirror Image employed approximately 100, 145 and 244 persons as of January 31, 2003, 2002 and 2001, respectively. None of the employees is
represented by a labor union, and we consider our relations with our employees to be positive. We have not experienced any work stoppages. Competition for technical and financial personnel in our
industry is intense. We believe that our future success depends in part on our continued ability to hire, assimilate and retain qualified personnel. To date, we believe that we have been successful in
recruiting qualified employees.

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Share Ownership



Our share capital consists of common stock, par value $0.01 per share. We are controlled by VBI Corporation, which owns 61% of our outstanding voting securities.
Alexander M. Vik, our Chairman and Chief Executive Officer, is a Director and officer of VBI Corporation.

The
following table sets forth certain information as of June 30, 2003, with respect to all shareholders known by the Company to be owners of more than 5% of our common stock and
preferred stock and the total amount of common stock and preferred stock owned by all directors and senior management named above under the heading "Directors and Senior Management". As of
June 30, 2003, we had 126,128,523 shares of common stock outstanding (excluding shares issuable upon exercise of options), of which VBI Corporation and our directors and senior management as a
group collectively owned 90,659,000 shares and other shareholders owned 35,469,523 shares.

|Title of Class |  | Identity of Shareholder |  | Amount
Owned(1) |     | Percent of
Class
Owned(1) |    
|-------------- |  | ----------------------- |  | --------------- | --- | ------------------------- | ---
|Common Stock   |  |                         |  |                 |     |                           |    
|               |  | VBI Corporation         |  | 77,182,000      |     | 61.2%                     |    
|               |  | Alexander M. Vik*       |  | 12,384,000      |     | 9.8%                      |    
|               |  | Gustav M. Vik*          |  | 7,008,000       | (2) | 5.3%                      | (2)
|               |  | Michael J. Kugler       |  | 85,000          | (3) | **                        |    
|               |  | Hans Eirik Olav         |  | 0               |     | **                        |    

---



Our Board of Directors and shareholders have adopted the 1999 Incentive Plan for Employees of Mirror Image (the "1999 Incentive Plan"), which provides for the
issuance of up to 25,512,000 shares of our common stock through the grant of incentive and non-qualified stock options. Stock options can

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be
issued by action of our Board of Directors, or a committee thereof or executive officers of Xcelera, to key employees, officers, directors, consultants and advisors of Mirror Image, and any of its
subsidiaries as a long-term incentive. These persons, as described in the 1999 Incentive Plan, are designated by the Administrator in its sole discretion. All current employees, officers,
directors, consultants and advisors of Mirror Image are eligible to be designated as participants.

Stock
options under the 1999 Incentive Plan will provide for an exercise price per share determined by the Administrator in accordance with the 1999 Incentive Plan, subject to applicable
statutory requirements in connection with incentive stock options. The options will be exercisable as specified by the Administrator at the time of the grants. Options will be exercisable for a period
determined by the Administrator but not in excess of 10 years after grant.

We
did not issue any options pursuant to this plan during our 2003 fiscal year and we may or may not issue any further options pursuant to this plan.



On July 23, 1999, Mirror Image's Board of Directors adopted the 1999 Employee Stock Option Plan (the "1999 Option Plan") for the issuance of incentive and
nonqualified stock options. The number of shares of common stock reserved for issuance under the 1999 Option Plan is 20.

Under
the terms of the 1999 Option Plan, the exercise price of incentive stock options granted must not be less than the fair market value of the common stock on the date of grant, as
determined by Mirror Image's Board of Directors. The exercise price of nonqualified stock options may be less than the fair market value of the common stock on the date of grant, as determined by
Mirror Image's Board of Directors, but in no case may the exercise price be less than the statutory minimum. Vesting of options granted (currently four years) is at the discretion of Mirror Image's
Board of Directors. The term of options granted cannot exceed 10 years. The 1999 Option Plan also includes acceleration provisions in the event of a change in control of Mirror Image.

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In April 2002, Mirror Image adopted the 2002 Stock Option Plan (the "2002 Option Plan"), which allows for the granting of 684 options to individuals. The
terms of the 2002 Option Plan are essentially the same as the 1999 Option Plan except that the 2002 Option Plan does not include acceleration provisions in the event of a change in control of Mirror
Image. Under the 2002 Option Plan, Mirror Image granted options to purchase 25 shares of common stock at an exercise price of $10,000 per share to individuals. Additionally, upon the conversion into
equity of at least $2,000,000 of Mirror Image's convertible debt, the option holders can purchase additional shares of Mirror Image common stock at $10,000 at the rate of an additional 45% for each
$1,000,000 increment of the debt cumulatively converted into Mirror Image common stock up to a maximum of 452 shares of Mirror Image common stock.

Item 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

Major Shareholders

Information regarding control of the Company and shareholders known to beneficially own 5% or more of the Company's voting securities is disclosed above under the
heading "Share Ownership". None of the Company's major shareholders have voting rights that differ from the voting rights associated with the Company's common stock.

As
of January 31, 2003, we had 480 holders of record, including 458 with U.S. addresses, including shares held in street name in the United States. As of January 31, 2003,
approximately 24% of our outstanding common stock was held in the United States, including shares held in street name in the United States. In addition, as of January 31, 2003, there were still
7 record holders of The Scandinavia Fund, Inc., a Maryland investment company whose assets we purchased on February 21, 1989, who had failed to surrender their shares of the Fund in
exchange for shares of our common stock.

Related Party Transactions

In December 2001, we advanced approximately $33,138 on behalf of Juno Finans AS ("Juno Finans"), a company affiliated with Hans Eirik Olav, one of our
directors, to a third party in which we have an ownership interest. We recorded the amount as a receivable and it has subsequently been repaid. For the years ended January 31, 2003, 2002 and
2001 we paid $111,118, $33,499 and $0, respectively, to Juno Finans for administrative services provided.

Included
in general and administrative expenses for the year ended January 31, 2003, 2002 and 2001 are management fees paid to an affiliated company, pursuant to a management
agreement, equal to $538,252, $1,800,000 and $562,000, respectively. As of January 31, 2003 and 2002, we had $0 and $261,748 payable to this company.

We
paid $358,750 to an officer for the year ended January 31, 2003 as reimbursement of administrative expenses.

Included
in other assets as of January 31, 2003 and 2002 are $1,810,122 and $1,135,889, respectively, of life insurance premium payments made to an insurance company on behalf of
two of our Directors, Mr. Gustav M. Vik and Mr. Alexander M. Vik. During fiscal year 2000, the Directors signed a collateral agreement on these policies giving us the right to collect
all premiums paid on behalf of the directors, in the event of their death or other termination of the policies.

On
November 11, 1999, we issued 100,000 shares of our Series A 10% Convertible Preferred Stock, stated value $100 per share, for $10 million in cash to VBI
Corporation, our majority shareholder, in exchange for $10 million. As part of the transaction, VBI Corporation also received an option to acquire an additional 100,000 shares of our
Series A 10% Convertible Preferred on the same

35

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terms,
which option was exercised on June 30, 2000. During our 2003 fiscal year, we repurchased all 200,000 shares of our preferred stock for cash.

During
the 2002 fiscal year, we sold to VBI Corporation our holdings in an investment fund for $3.3 million in cash, the market value of our holdings in the fund, and we advanced
$4.0 million to VBI Corporation. We charged 6% interest on advances to VBI Corporation. During the 2002 fiscal year VBI Corporation paid $6.0 million to us. At January 31, 2002,
we had a $1.5 million net receivable from VBI Corporation, including accrued interest. VBI Corporation repaid all amounts owed during our fiscal year 2003.

During
the years ended January 31, 2001, 2002 and 2003, we funded an aggregate of approximately $90 million, $46 million and $22 million, respectively, in new
and existing portfolio companies, including Mirror Image.

Item 8.    FINANCIAL INFORMATION.

Consolidated Financial Statements

See our financial statements in Item 18.

Legal Proceedings

In 2000, we were named as a respondent in an arbitration proceeding in Sweden initiated by two claimants relating to the sale of common stock of Mirror Image, our
principal operating subsidiary, to us and various other parties. The claimants were the former parent company of Mirror Image, and another investor in Mirror Image. In September 2001 the
arbitral tribunal rendered its arbitral award under which the former parent's claims were dismissed in their entirety. However, the arbitral tribunal ruled that the applicable underwriting agreement
between us and the other investor in Mirror Image is invalid and that we are liable and must compensate the other investor for damages suffered, if any, as a result of certain decisions regarding the
issuance of shares of Mirror Image. In order for the other investor to claim such damages, the investor must initiate new proceedings. As of today, no proceedings have been commenced. We do not
believe the other investor has suffered any damages and would vigorously defend any damage claim it may assert. However, depending on the amount and timing, an unfavorable resolution of this matter
could materially adversely affect our future results or expenses in a particular period. We have not included any provision for any liability in our consolidated financial statements that may result
from such proceeding.

Since
on or about August 11, 2000, approximately nineteen plaintiffs have commenced nearly identical class action lawsuits alleging securities fraud against us and two of our
directors, Alexander M. Vik and Gustav M. Vik. These class actions were consolidated in January 2001 in the United States District Court for the District of Massachusetts and the plaintiffs
filed an Amended Complaint on April 2, 2001. The Amended Complaint alleges claims of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 against all defendants
and under Sections 20(a) and 20A against Alexander M. Vik and Gustav M. Vik. The plaintiffs claim that the defendants failed to disclose the tax ramifications of our sale of Mirror Image common stock
to Exodus, that Alexander M. Vik and Gustav M. Vik sold our stock while its price was inflated, and that the defendants failed to disclose a dispute over our ownership of shares in Mirror Image based
on the allegations made by another party in an action brought in the Southern District of New York entitledJAM Investments, Ltd. and Kahnberget Holdings, Ltd. v.
Alexander Vik and VBI Corp.(the "JAM Litigation"). On May 31, 2001, we, along with the other defendants, moved to dismiss the action in its entirety on a number of
grounds. On March 8, 2002, the Court granted our motion to dismiss with respect to disclosure of the tax ramifications and denied it with respect to the ownership allegations. Following the
partial denial of our motion to dismiss the Amended Complaint, we moved for reconsideration and for judgment on the pleadings because, among other things, the claims in the JAM Litigation were
dismissed with prejudice

36

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and
we believe that no damages were caused. The plaintiffs also moved for reconsideration of the portion of our motion to dismiss that had been granted. The Court denied all of these motions on
April 23, 2002. In early 2003, the plaintiffs moved for certification of the case as a class action. The defendants opposed the motion. The Court conducted a hearing on June 17, 2003 to
consider the motion. At that time, the Court did not certify a class, and it indicated that an evidentiary hearing may be required to resolve the motion. Such a hearing has tentatively been scheduled
for September 2003. During the class certification proceedings, no discovery has taken place on the underlying claims. We believe that the lawsuit is without merit and that no damages were
caused by the alleged conduct, and we are contesting it vigorously. Depending on the amount and timing, an unfavorable resolution of this matter could materially adversely affect our future results or
expenses in a particular period. We have not included any provision for any liability in our consolidated financial statements that may result from this proceeding.

On
or about November 15, 2000, we, along with directors Alexander M. Vik and Gustav M. Vik and former director Hans Magnus Fajerson, as well as Mirror Image, were named defendants
in an action brought in the Court of Chancery in the State of Delaware by several minority shareholders of Mirror Image, the same group who also brought the arbitration claim against us. The suit
purports to assert the same or related claims as made in the arbitration described above but in a different forum and under different legal theories, including breach of fiduciary duty, fraud, civil
conspiracy, interference with contract, and misappropriation of corporate opportunity. The various causes of action allegedly arise out of actions taken by us, Alexander M. Vik, Gustav M. Vik, Hans
Magnus Fajerson and Mirror Image during 1999 pertaining to investments that we made in Mirror Image, and the corresponding issuance of shares by Mirror Image, as well as out of our sale during 2000 of
Mirror Image stock to Exodus. The plaintiffs seek unspecified monetary damages against us and a transfer and assignment of Mirror Image shares held by us to them. On January 11, 2001, we, along
with the other defendants, moved to dismiss the suit in its entirety, on a number of grounds. On December 20, 2001, the Court of Chancery issued a decision granting summary judgment in favor of
the defendants and dismissing all claims against all defendants. Thereafter, the plaintiffs filed an appeal with the Delaware Supreme Court challenging a portion of the decision. On November 4,
2002, the Delaware Supreme Court
reversed the Court of Chancery's ruling, thereby reinstating the portion of the case which was subject to the appeal. The case is now in the discovery phase, which is expected to continue into early
2004. We believe that the lawsuit is without merit and are contesting it vigorously. However, depending on the amount and timing, an unfavorable resolution of this matter could materially adversely
affect our future results or expenses in a particular period. We have not included any provision for any liability in our consolidated financial statements that may result from this proceeding.

Also,
from time to time, we are involved in legal actions incurred in the ordinary course of business. While the ultimate outcome of these matters is not determinable, we do not believe
that the resolution of these matters will have a material adverse effect on our future results in a particular period.

Item 9.    THE OFFER AND LISTING.

Market Price Information

Our common stock is principally traded on the AMEX under the symbol "XLA". The tables below sets forth, for the periods indicated, the high and low closing prices
per share for our common stock, as reported on the AMEX composite tape and adjusted for stock splits.

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High

LowFiscal Year Ended:January 31, 1999

$
0.19

0.09January 31, 2000


37.50

0.13January 31, 2001


111.75

2.94January 31, 2002


8.31

1.05January 31, 2003


1.94

0.31




High

LowFiscal Year 2002:Quarter ended April 30, 2001

$
8.31

3.29Quarter ended July 31, 2001


6.77

2.51Quarter ended October 31, 2001


3.00

1.05Quarter ended January 31, 2002


2.98

1.57Fiscal Year 2003:Quarter ended April 30, 2002

$
1.94

1.15Quarter ended July 31, 2002


1.50

0.64Quarter ended October 31, 2002


0.78

0.31Quarter ended January 31, 2003


1.55

0.56




High

LowJuly 2003 (through July 30)

$
1.75

$
1.35June 2003


1.75


1.25May 2003


1.17


0.85April 2003


1.05


0.61March 2003


0.69


0.61February 2003


0.76


0.62


Item 10.    ADDITIONAL INFORMATION.

Memorandum and Articles of Association



The Company has been assigned registration number CR-30564 by the registrar of companies in the Cayman Islands. The registered office is located at
Ugland House, P.O. Box 309GT, South Church Street, George Town, Grand Cayman, Cayman Islands.



Paragraph 3 of the Memorandum of Association ("Memorandum of Association"), adopted by Special Resolution on April 7, 2000, provides that the
objects of the Company are unrestricted.

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Articles 59 and 60 of the Articles of Association of the Company ("Articles of Association") provide that a director may vote in respect of any contract or
proposed contract or arrangement notwithstanding the director's interest, so long as the nature of the interest of the director in question is disclosed prior to the consideration or vote on the
applicable contract or arrangement, and that an interested director will not be liable to the Company for any profit realized through any such contract or arrangement. Article 53 provides that
directors' compensation shall from time to time be determined by the directors of the Company. Article 66 provides that directors may pay a pension or allowance on retirement to any director
who has held any other salaried office within the Company. Article 67 provides that directors may exercise all the powers of the Company to borrow money and to mortgage or charge its
undertaking, property and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the
Company or any third party. Article 57 provides that the directors of the Company are not required to own shares of the Company in order to serve as directors unless such a requirement is fixed
by the Company at a shareholders' meeting.



The Company's Memorandum of Association authorizes the issuance of 400,000,000 shares of a nominal or par value of US$0.01 per share; 395,000,000 of such shares
have been designated ordinary shares, which we sometimes refer to as our common stock, and 5,000,000 of such shares have been designated preferred shares. The Company's board may, from time to time,
allot, issue, grant options over or otherwise dispose of shares of the Company with preferred, deferred or other special rights or restrictions.



Upon issuance and once payment is received, the ordinary shares are fully paid and accordingly no further capital may be called for by the Company from any holder
of the ordinary shares outstanding. Under Cayman Islands law, non-residents may freely hold, vote and transfer ordinary shares in the same manner as Cayman Islands residents, subject to
the provisions of the Companies Law (2003 Revision) and the Articles of Association. No Cayman Islands laws or regulations restrict the export or import of capital, or affect the payment of dividends
to non-resident holders of the ordinary shares.



The Company has authorized the issuance of 5,000,000 shares of preferred stock, 200,000 of which have been designated Series A 10% Convertible Preferred
Stock. We repurchased all 200,000 outstanding shares of our preferred stock during our 2003 fiscal year.



The holders of ordinary shares are entitled to receive, when, as and if declared by the board of directors of the Company out of legally available funds,
dividends and other distributions in cash, shares or property of the Company, subject to the preferential dividend rights of any outstanding preferred shares. Dividends or distributions so declared by
the Company's board of directors shall be paid ratably to the holders of the ordinary shares.



Except as provided by statute or the Articles of Association, holders of ordinary shares have the sole right and power to vote on all matters on which a vote of
the Company's shareholders is to be taken. At every meeting of the shareholders, each holder of the ordinary shares is entitled to cast one

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vote
provided such holder is present in person or by proxy for each ordinary share standing in its name as of the record date for such a vote.



In case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment of creditors of the Company, the remaining assets
and funds of the Company available for distribution to the Company's shareholders shall be divided among and paid ratably to the holders of the ordinary shares, subject to the liquidation preferences
of any then outstanding preferred shares.



The Articles of Association provide that an annual general meeting of shareholders shall be held each calendar year unless the Company in a general meeting waives
this requirement for any particular year or years at an annual meeting. Other general meetings of the shareholders may be held at such time as the directors see fit. Additionally, in accordance with
the Articles of Association holders of 25% or more of the voting shares of the Company may request the directors to convene a general meeting, and if the directors do not so convene a general meeting
within 21 days of the request then the persons making the request, or any of them representing more than 50% of the total voting rights of all such persons, may themselves convene a general
meeting. The quorum for all general meetings is members holding a majority of the voting shares of the Company.

The
Articles of Association establish an advance notice procedure for shareholders' meetings. In accordance with these procedures, the Company must, in order to convene a general
meeting, provide notice of not less than 10 days nor more than 90 days prior to the general meeting. The notice must specify the time, place and general nature of the meeting. Absent
these procedures, a general meeting may still be duly convened if:



Material Contracts

Other than the contracts listed under "Item 19. Exhibits" and described elsewhere in this annual report, in the past two years we have not entered into any
material contracts other than contracts entered into in the ordinary course of our business.

Exchange Controls

There are no Cayman Islands governmental laws, decrees or regulations that currently restrict the export or import of capital or payments to
non-residents of the Cayman Islands.

Cayman Tax Considerations

Based on the advice of counsel in the Cayman Islands, the Company is not aware of any taxes imposed by the Cayman Islands on U.S. holders of shares of our common
stock. In addition, there is presently no taxation imposed on the income of a Cayman Islands' company by the government of the Cayman Islands. If any form of taxation were to be enacted, the Company
has been granted an exemption therefrom to the year 2008. There is no tax treaty between the U.S. and the Cayman Islands.

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United States Federal Income Tax Considerations

The following discussion summarizes the material United States federal income tax considerations for beneficial owners of shares of our common stock, that hold
those shares as a capital asset, and that are "U.S. persons" under the Internal Revenue Code of 1986, as amended (the "Code"). This discussion is intended only as a descriptive summary, and does not
purport to be a complete analysis or listing of all possible tax considerations. Under the Code, a "U.S. person" is:



Except
where noted, this summary does not deal with special situations, such as those of



Furthermore,
the discussion below is based on the provisions of the Code and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below.

If
a partnership holds our shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a
partnership holding our shares, you should consult your tax advisor.

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You should consult your own tax advisor concerning the United States federal income tax consequences of the purchase, ownership or disposition of our shares in
light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.



While we maintain a January 31 fiscal year for financial reporting purposes, our taxable year to the extent relevant for United States tax purposes is the
calendar year.



The Code contains a number of special rules that are applicable to U.S. persons who are owners of stock of foreign corporations like us. Under these rules, which
we discuss below, you may be required to include in your taxable income your share of our income, whether or not we make any distributions to you. In addition, these rules may affect the tax
consequences arising from a sale or other disposition of your shares.



A foreign corporation is classified as a foreign personal holding company if:



Although
we met the shareholder test and income test in the taxable year ended December 31, 2000 and were treated as a foreign personal holding company for that year, we do not
believe we were a foreign personal holding company in the taxable years ended December 31, 2001 or 2002. However, there can be no assurance that we are not currently a foreign personal holding
company or will not become a foreign personal holding company in the future.

If
we are a foreign personal holding company, you would be required, regardless of your percentage ownership, to include in income, as a dividend, your pro rata share of our (or certain
of our foreign subsidiary's) undistributed foreign personal holding company incomegenerally, taxable income with certain adjustmentsif you hold shares on the last day of our
taxable year or, if earlier, the last day on which we satisfied the shareholder test described above. In addition, if we are a foreign personal holding company and you acquired your shares from a
decedent, you would not receive a "stepped-up" basis in that stock. Instead, you would have a tax basis equal to the lower of the fair market value of those shares or the decedent's basis
in them.

You
should consult your own tax advisors concerning the United States federal income tax consequences of holding shares in a foreign personal holding company.



In general, a company is considered a passive foreign investment company for any taxable year if either



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The
50% of value test is based on the average of the value of our assets for each quarter during the taxable year. The Internal Revenue Service has indicated that cash balances, even if
held as working capital, are considered to be assets that produce passive income. If we own at least 25% by value of another company's stock, we are treated, for purposes of the passive foreign
investment company rules, as owning our proportionate share of the assets and receiving our proportionate share of the income of that company.

In
determining our asset and income composition for these tests, certain significant assumptions, including interpretation of certain rules and regulations, concerning the valuation of
our assets and classification of our income are necessary. Based on the composition of our income and valuation of our assets and such assumptions used in the determination thereof, we may or may not
be a passive foreign investment company. The Internal Revenue Service has not provided clear guidance on the interpretation of these rules and it is possible that the Internal Revenue Service may
challenge any determination of the value of our assets or the nature of our income with the result that we would be classified as a passive foreign investment company. In addition, in the absence of
complete information concerning some of our former subsidiaries there can be no assurances that we were not a passive foreign investment company for one or more prior years. There is particular
uncertainty regarding our status under the passive foreign investment company rules for our fiscal year ended January 31, 1993, since we were then involved in certain litigation which may have
affected our entitlement to look-through treatment with respect to Rochfield Limited, a United Kingdom corporation ("Rochfield"), and since we were able to obtain only limited information
concerning the assets and business operations of Rochfield and its subsidiary for the 13-month period ended January 31, 1993.

If
we are a passive foreign investment company for any taxable year during which you hold our stock, you will be subject to special tax rules with respect to any "excess distribution"
that you receive and any gain you realize from a sale or other disposition, including a pledge, of our stock. Distributions you receive in a taxable year that are greater than 125% of the average
annual distributions you received during the shorter of the three preceding taxable years or your holding period for our stock will be treated as excess distributions. Under these special tax rules:



If
you hold our shares in any year in which we are a passive foreign investment company, you are required to file Internal Revenue Service Form 8621.

In
certain circumstances, a U.S. person, in lieu of being subject to the rules discussed above, may make an election to include gain on the stock of a passive foreign investment company
as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under current law, the
mark-to-market election may be available to you because our stock is listed on the American Stock Exchange which constitutes a qualified exchange as designated in the Internal
Revenue Code, although there can be no assurance that our stock will be "regularly traded."

If
you make an effective mark-to-market election, you will include in each year as ordinary income the excess of the fair market value of your passive foreign
investment company stock at the end of the year over your adjusted tax basis in the stock. You will be entitled to deduct as an ordinary loss each

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year
the excess of your adjusted tax basis in the stock over its fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the
mark-to-market election.

Your
adjusted tax basis in the passive foreign investment company stock will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the
mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent
taxable years unless the stock is no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You are urged to consult your tax
advisor about the availability of the mark-to-market election and whether making the election would be advisable in your particular circumstances.

Alternatively,
a U.S. person owning shares of a passive foreign investment company can sometimes avoid the rules described above by electing to treat us as a "qualified electing fund"
under Section 1295 of the Code. This option is not available to you because we do not comply with the requirements necessary to permit U.S. persons to make this election.

You
are urged to consult your tax advisors concerning the United States federal income tax consequences of holding our stock if we are considered a passive foreign investment company in
any taxable year.



For the purposes of this paragraph, we will refer to U.S. persons that ownor are deemed for United States federal income tax purposes to own,
pursuant to complex attribution and constructive ownership rules10% or more of our voting stock or the voting stock of any of our non-United States subsidiaries as "10%
Shareholders." If 10% Shareholders own, in the aggregate, more than 50%, measured by voting power or value, of our stock or the stock of any of our non-United States subsidiaries,
directly, indirectly, or by attribution, we or any such non-United States subsidiary would be a controlled foreign corporation. If we are characterized as a controlled foreign corporation,
then a portion of our undistributed income may be includable in the taxable income of our 10% Shareholders, and all or a portion of the gain recognized by such 10% Shareholders on the disposition of
their stock, which could otherwise qualify for capital gains treatment, may be converted into ordinary dividend income. In addition, unless our stock has been regularly traded on an established
securities exchange for each quarter during the year, we would have to determine whether we are a passive foreign investment company by reference to the tax basis, rather than the fair market value,
of our assets.

It
is possible that we may become a controlled foreign corporation in the future. However, except as it may impact our status as a passive foreign investment company, controlled foreign
corporation status generally only has potentially adverse consequences to 10% Shareholders. If we are also characterized as a foreign personal holding company, 10% Shareholders would be required to
include only amounts required to be included in income under the controlled foreign corporation rules.



Subject to the discussion above regarding the various special rules applicable to foreign corporations, cash dividends paid to you with respect to our shares will
be treated as dividend income, to the extent paid out of current or accumulated earnings and profits, as determined under United States federal income tax principles. This income will be includable in
your gross income as ordinary income on the day you receive it. These dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

For
purposes of calculating the foreign tax credit, dividends paid on our shares will be treated as income from sources outside the United States and will generally constitute "passive
income" or, in the

44

---

case
of certain U.S. persons, "financial services income", which are treated separately from other types of income in computing the foreign tax credit allowable to U.S. persons under United States
federal income tax laws.

To
the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a
tax-free return of capital, causing a reduction in your adjusted basis in the shares (thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a
subsequent disposition of the shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange.



For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of your shares in an amount equal to the difference
between the amount realized for the shares and your basis in the shares. Subject to the discussion above regarding the passive foreign investment company and controlled foreign corporation rules, such
gain or loss will be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility
of capital losses is subject to limitations. Any gain or loss you recognize will generally be treated as United States source gain or loss.



In general, information reporting requirements will apply to dividends in respect of the shares or the proceeds received on the sale, exchange, or redemption of
the shares paid to you within the United States (and in certain cases, outside of the United States) unless you are one of certain exempt recipients (such as corporations), and backup withholding may
apply to such amounts if you fail to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on your federal income tax returns. The amount of any
backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability.

Documents on Display

We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934. Under the Exchange Act, we are required to
file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year. Copies of
reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, NW, Washington, D.C. 20549. The public may obtain information regarding the Washington D.C. Public Reference Room by calling the Commission at
1-800-SEC-0330. Certain of our SEC Filings are also available to the public on the SEC's website at http://www.sec.gov. As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions in Section 16 of the Exchange Act.

Item 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our investments at January 31, 2003 include positions in companies in the technology industry sector. This sector has experienced significant historical
volatility in its stock prices and credit quality. Though we typically do not attempt to reduce or eliminate market exposure on these securities, we may engage in derivative activities from time to
time in the future to reduce the market exposure on our securities and investments. There can be no assurances that such derivative activities will not result in a material impact on our consolidated
financial statements in any period.

45

---

We
are exposed to price risks on the marketable portion of our portfolio of assets. At January 31, 2003, we held marketable securities with a fair value of approximately
$19.2 million. We may or may not use derivative financial instruments to limit our exposure to market risk associated with these marketable securities. A hypothetical decrease of 10% of the
overall value of our marketable securities would result in a decrease in our portfolio of these securities of $1.9 million.

We
have historically had exposure to changes in foreign currency exchange rates as we have equity interests in companies that hold assets and liabilities, earn income and pay expenses in
a variety of currencies. As we continue to expand globally, the risk of foreign currency exchange rate fluctuation may increase. Therefore, in the future, we may utilize derivative instruments to
mitigate foreign currency exchange fluctuation risk. There can be no assurances that such hedging activities will not result in a material impact on our financial statements in any period.

Item 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

Not applicable.

46

---



PART II

Item 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

Not applicable.

Item 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

None.

Item 15.    [RESERVED]

Item 16.    [RESERVED]

47

---



PART III

Item 17.    FINANCIAL STATEMENTS.

Included in Item 18.

Item 18.    FINANCIAL STATEMENTS.

Financial statements begin at page F-1, and are incorporated herein by reference.

Index of Financial Statements

PageReport of Independent AuditorsBDO Seidman, LLP

F-1Independent Auditors' ReportDeloitte & Touche LLP

F-2Consolidated Balance Sheets as of January 31, 2003 and 2002

F-3Consolidated Statements of Operations for the Years ended January 31, 2003, 2002 and 2001

F-4Consolidated Statements of Cash Flows for the Years ended January 31, 2003, 2002 and 2001

F-5Consolidated Statements of Changes in Shareholders' Equity for the Years ended January 31, 2003, 2002 and 2001

F-6Notes to Consolidated Financial Statements

F-7


Item 19.    EXHIBITS.

The exhibits listed on the Exhibit Index hereof are filed herewith in response to this item.

48

---



SIGNATURES

The registrant herby certifies that it meets all of the requirements for filing on Form 20-F and that is has duly caused and authorized the
undersigned to sign this annual report on its behalf.

|Dated: July 31, 2003 |  | XCELERA INC.
|-------------------- |  | ------------
|                     |  |             
|                     |  | By:         
|                     |  |             
|                     |  |             

49

---

CERTIFICATION

I,
Alexander M. Vik, certify that:

Date:
July 31, 2003

|/s/ALEXANDER M. VIK                                             |  | 
|--------------------------------------------------------------- |  | 
|Alexander M. Vik,                                               |  | 
|Chairman of the Board and Chief Executive Officer,
Xcelera Inc.

---

CERTIFICATION

I,
Gustav M. Vik, certify that:

Date:
July 31, 2003

|/s/GUSTAV M. VIKGustav M. Vik,                                            |  | 
|------------------------------------------------------------------------- |  | 
|Director, Executive Vice President, Treasurer and Secretary,
Xcelera Inc.

---



REPORT OF INDEPENDENT AUDITORS

To
the Shareholders and
Board of Directors of
Xcelera Inc.
Grand Cayman, Cayman Islands

We
have audited the accompanying consolidated balance sheet of Xcelera Inc. (formerly Xcelera.com Inc. and The Scandinavia Company, Inc.) and subsidiaries (the
"Company") as of January 31, 2003, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements, present fairly, in all material respects, the financial position of Xcelera Inc. and subsidiaries as of January 31,
2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

| |  | /s/ BDO SEIDMAN, LLP
| |  | --------------------
| |  | New York, New York  
| |  | July 2, 2003        

F-1

---



INDEPENDENT AUDITORS' REPORT

To
the Shareholders and
Board of Directors of
Xcelera Inc.
Grand Cayman, Cayman Islands

We
have audited the accompanying consolidated balance sheet of Xcelera Inc. (formerly Xcelera.com Inc. and The Scandinavia Company, Inc.) and subsidiaries (the
"Company") as of January 31, 2002, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended January 31, 2002 and 2001.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements, present fairly, in all material respects, the financial position of Xcelera Inc. and subsidiaries as of January 31,
2002, and the results of their operations and their cash flows for the years ended January 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of
America.

|/s/ DELOITTE & TOUCHE LLP           |  | 
|----------------------------------- |  | 
|Stamford, Connecticut
July 24, 2002 |  | 

F-2

---



XCELERA INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS(In U.S. Dollars)

|                                                                                                                                                                                                        |                            | As of January 31, |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | -----------
|
|Current assets:                                                                                                                                                                                         |                            |                   |            
|Cash and cash equivalents                                                                                                                                                                               |                            | $                 | 137,362,179
|Accounts receivable, net of allowances of $1,249,458 and $757,285 at January 31, 2003 and 2002                                                                                                          |                            |                   | 1,130,667  
|Marketable securities, at fair value                                                                                                                                                                    |                            |                   | 19,178,060 
|Prepaid expenses and other current assets                                                                                                                                                               |                            |                   | 200,527    
|                                                                                                                                                                                                        |                            |                   |            
|Total current assets                                                                                                                                                                                    |                            |                   | 157,871,433
|Property and equipment, net                                                                                                                                                                             |                            |                   | 1,728,869  
|Other assets                                                                                                                                                                                            |                            |                   | 2,026,386  
|                                                                                                                                                                                                        |                            |                   |            
|                                                                                                                                                                                                        | Total assets               |                   | $          
|                                                                                                                                                                                                        |                            |                   |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                    |                            |                   |            
|Current liabilities:                                                                                                                                                                                    |                            |                   |            
|Accounts payable                                                                                                                                                                                        |                            | $                 | 1,907,138  
|Accrued expenses                                                                                                                                                                                        |                            |                   | 1,357,618  
|Securities sold, not yet purchased                                                                                                                                                                      |                            |                   | 15,315,371 
|Current portion of obligations under capital lease                                                                                                                                                      |                            |                   | 435,822    
|Distributions payable to preferred shareholder                                                                                                                                                          |                            |                   |           
|Current portion of convertible notes payable                                                                                                                                                            |                            |                   |           
|                                                                                                                                                                                                        |                            |                   |            
|                                                                                                                                                                                                        | Total current liabilities  |                   |            
|Obligation under capital leases, less current portion                                                                                                                                                   |                            |                   | 303,838    
|                                                                                                                                                                                                        |                            |                   |            
|                                                                                                                                                                                                        | Total liabilities          |                   |            
|Commitments and contingencies (Note N):                                                                                                                                                                 |                            |                   |            
|Shareholders' equity:                                                                                                                                                                                   |                            |                   |            
|Preferred stock, stated value $100 per share, 5,000,000 shares authorized; 0 and 200,000 shares issued and outstanding at January 31, 2003 and 2002, respectively                                       |                            |                   |           
|Common stock, par value $.01 per share, 400,000,000 authorized; 174,026,312 and 162,026,312 shares issued and 126,128,523 and 113,598,496 shares outstanding at January 31, 2003 and 2002, respectively |                            |                   | 1,740,264  
|Additional paid-in capital                                                                                                                                                                              |                            |                   | 136,759,468
|Treasury stock, at cost; 47,897,789 and 48,427,816 shares at January 31, 2003 and 2002, respectively                                                                                                    |                            |                   | (7,789,059 
|Accumulated earnings                                                                                                                                                                                    |                            |                   | 12,023,724 
|Accumulated other comprehensive loss                                                                                                                                                                    |                            |                   | (427,496   
|                                                                                                                                                                                                        |                            |                   |            
|                                                                                                                                                                                                        | Total shareholders' equity |                   |            
|                                                                                                                                                                                                        |                            |                   |            
|Total liabilities and shareholders' equity                                                                                                                                                              |                            | $                 | 161,626,688
|                                                                                                                                                                                                        |                            |                   |            

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

F-3

---



XCELERA INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS(In U.S. Dollars)

|                                                         |                                     | Years Ended January 31,                            |            
|-------------------------------------------------------- | ----------------------------------- | -------------------------------------------------- | -----------
|
|REVENUE                                                  |                                     | $                                                  | 4,063,047  
|COSTS AND EXPENSES:                                      |                                     |                                                    |            
|                                                         | Costs of revenues                   |                                                    |            
|                                                         | Engineering and development         |                                                    |            
|                                                         | Selling, general and administrative |                                                    |            
|                                                         |                                     |                                                    |            
|                                                         |                                     | Total costs and expenses                           |            
|                                                         |                                     |                                                    |            
|Operating loss                                           |                                     |                                                    | (54,121,232
|Other income (expense), net                              |                                     |                                                    | 57,687,080 
|Minority interest in net loss of consolidated subsidiary |                                     |                                                    |           
|                                                         |                                     |                                                    |            
|Net Income (Loss)                                        |                                     |                                                    | 3,565,848  
|Preferred stock dividends                                |                                     |                                                    | 1,767,631  
|                                                         |                                     |                                                    |            
|Net income (loss) available to common shareholders       |                                     | $                                                  | 1,798,217  
|                                                         |                                     |                                                    |            
|Earnings (Loss) per share:                               |                                     |                                                    |            
|                                                         | Basic:                              |                                                    |            
|                                                         |                                     | Net income (loss) available to common shareholders |            
|                                                         |                                     |                                                    |            
|                                                         | Diluted:                            |                                                    |            
|                                                         |                                     | Net income (loss) available to common shareholders |            
|                                                         |                                     |                                                    |            
|Weighted average shares outstanding:                     |                                     |                                                    |            
|Basic                                                    |                                     |                                                    | 117,471,280
|                                                         |                                     |                                                    |            
|Diluted                                                  |                                     |                                                    | 129,357,870
|                                                         |                                     |                                                    |            

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

F-4

---



XCELERA INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS(In U.S. Dollars)

|                                                                                     |                                                                  | Year ended January 31, |            
|------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ---------------------- | -----------
|
|Operating activities:                                                                |                                                                  |                        |            
|Net income (loss)                                                                    |                                                                  | $                      | 3,565,848  
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                                                  |                        |            
|Depreciation and amortization                                                        |                                                                  |                        | 22,224,293 
|Gain on debt conversion                                                              |                                                                  |                        | (43,833,759
|Interest on debt, converted to stock                                                 |                                                                  |                        | 1,019,882  
|Impairment and loss on equipment                                                     |                                                                  |                        | 12,726,267 
|Provision for notes receivable                                                       |                                                                  |                        | 2,874,195  
|Equity in loss of unconsolidated subsidiaries                                        |                                                                  |                        | 532,106    
|Loss (Gain) on sale of marketable securities                                         |                                                                  |                        |           
|Write-down of investments                                                            |                                                                  |                        | 2,275,283  
|Minority interest in net loss of consolidated subsidiary                             |                                                                  |                        |            
|Stock-based compensation                                                             |                                                                  |                        |           
|Changes in assets and liabilities:                                                   |                                                                  |                        |            
|                                                                                     | Decrease (Increase) in trade and other receivables               |                        |            
|                                                                                     | (Increase) Decrease in marketable securities                     |                        |            
|                                                                                     | Decrease (Increase) in prepaid expenses and other current assets |                        |            
|                                                                                     | (Decrease) Increase in accounts payable and accrued expenses     |                        |            
|                                                                                     |                                                                  |                        |            
|Net cash used in operating activities                                                |                                                                  |                        | (7,438,596 
|Investing activities:                                                                |                                                                  |                        |            
|Net sales of (investment in) marketable securities                                   |                                                                  |                        | (3,154,614 
|(Investment in) Proceeds from sale of unconsolidated subsidiaries                    |                                                                  |                        | (545,000   
|Repayment on notes receivables                                                       |                                                                  |                        |            
|Issuance of notes receivable                                                         |                                                                  |                        |            
|Increase in property and equipment and intangible assets                             |                                                                  |                        | (708,855   
|Other assets                                                                         |                                                                  |                        | (674,223   
|(Increase) Decrease in receivable from affiliates                                    |                                                                  |                        |           
|                                                                                     |                                                                  |                        |            
|Net cash (used in) provided by investing activities                                  |                                                                  |                        | (5,082,692 
|                                                                                     |                                                                  |                        |            
|Financing activities:                                                                |                                                                  |                        |            
|Principal payments on capital lease obligations                                      |                                                                  |                        | (1,641,219 
|Proceeds from sale of subsidiary stock, net of related costs                         |                                                                  |                        |            
|Purchase of treasury stock                                                           |                                                                  |                        | (616,124   
|Proceeds from issuance of convertible notes                                          |                                                                  |                        |            
|Issuance of common stock                                                             |                                                                  |                        | 1,681,548  
|Issuance of preferred stock                                                          |                                                                  |                        |            
|Dividends paid                                                                       |                                                                  |                        | (1,767,631 
|Repurchase of common stock                                                           |                                                                  |                        | (3,688     
|Repurchase of preferred stock                                                        |                                                                  |                        | (20,000,000
|Payments on notes payable                                                            |                                                                  |                        |           
|Release of restricted cash                                                           |                                                                  |                        | 95,285     
|                                                                                     |                                                                  |                        |            
|Net cash provided by (used in) financing activities                                  |                                                                  |                        | (22,251,829
|Effect of exchange rate on cash                                                      |                                                                  |                        |            
|                                                                                     |                                                                  |                        |            
|Net (decrease) increase in cash and cash equivalents                                 |                                                                  |                        | (34,773,117
|Cash and cash equivalents at beginning of year                                       |                                                                  |                        | 172,135,296
|                                                                                     |                                                                  |                        |            
|Cash and cash equivalents at end of year                                             |                                                                  |                        | 137,362,179
|                                                                                     |                                                                  |                        |            

Supplemental schedule of non-cash investing and financing activities: Equipment acquired under capital leases in 2003, 2002 and 2001
of $0 and $851,088 and $5,751,993, respectively. Interest paid in 2003, 2002 and 2001 of $1,669,993, $7,261,020 and $2,423,824, respectively. Common stock issued for debt in 2003 of $2,514,223.

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

F-5

---



XCELERA INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(In U.S. Dollars)

|                                               |                                                                                       | Preferred
Stock |             | Common
Stock |   | Additional
Paid-In
Capital |  | Accumulated
(Deficit)/Earning
s |             | Treasury
Stock |   | Comprehensive
Income |   | Accumulated Other
Comprehensive
Income (Loss) |            | Stock-Based
Compensation |   | Total Shareholders'
Equity |          
|---------------------------------------------- | ------------------------------------------------------------------------------------- | --------------- | ----------- | ------------ | - | -------------------------- |  | ------------------------------- | ----------- | -------------- | - | -------------------- | - | --------------------------------------------- | ---------- | ------------------------ | - | -------------------------- | ---------
|Balance at January 31, 2000                    |                                                                                       | $               | 10,000,000  |              | $ | 1,539,794                  |  | $                               | 52,169,583  |                | $ | (14,144,145          | ) | $                                             | (6,320,535 | )                        |   |                            |          
|Net income for the year ended January 31, 2001 |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | 124,269,917          |   |                                               |            |                          | $ | 124,269,917                |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Other comprehensive income:                    |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               | Foreign currency translation adjustments, net of reclassification adjustments         |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            | 383,611  
|                                               | Unrealized loss on available for sale securities, net of reclassification adjustments |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            | (164,214 
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Other comprehensive income                     |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   | 219,397                    |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Comprehensive income                           |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          | $ | 124,489,314                |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Dividends on preferred stock                   |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | (1,603,854           | ) |                                               |            |                          |   |                            |          
|Issuance of shares                             |                                                                                       |                 |             |              |   | 2,695                      |  |                                 | 1,997,342   |                |   |                      |   |                                               |            |                          |   |                            |          
|Stock-based compensation                       |                                                                                       |                 |             |              |   |                            |  |                                 | 3,978,201   |                |   |                      |   |                                               |            |                          |   |                            |          
|Amortization of stock-based compensation       |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Issuance of shares pursuant to stock options   |                                                                                       |                 |             |              |   | 68,735                     |  |                                 | 1,481,739   |                |   |                      |   |                                               |            |                          |   |                            |          
|Effect of subsidiary's equity transaction      |                                                                                       |                 |             |              |   |                            |  |                                 | 70,439,766  |                |   |                      |   |                                               |            |                          |   |                            |          
|Sale of treasury shares                        |                                                                                       |                 |             |              |   |                            |  |                                 | 3,035,524   |                |   |                      |   |                                               | 26,761     |                          |   |                            |          
|Purchase of treasury shares                    |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               | (1,642,580 | )                        |   |                            |          
|Issuance of preferred stock                    |                                                                                       |                 | 10,000,000  |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Balance at January 31, 2001                    |                                                                                       |                 | 20,000,000  |              |   | 1,611,224                  |  |                                 | 133,102,155 |                |   | 108,521,918          |   |                                               | (7,936,354 | )                        |   |                            |          
|Net loss for the year ended January 31, 2002   |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | (96,297,117          | ) |                                               |            |                          |   | (96,297,117                | )        
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Comprehensive loss:                            |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               | Foreign currency translation adjustments, net of reclassification adjustments         |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            | (917,300 
|                                               | Unrealized loss on available for sale securities, net of reclassification adjustments |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            | 100,003  
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Other comprehensive loss                       |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   | (817,297                   | )        
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Comprehensive loss                             |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   | (97,114,414                | )        
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Dividends on preferred stock                   |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | (1,999,294           | ) |                                               |            |                          |   |                            |          
|Stock-based compensation                       |                                                                                       |                 |             |              |   |                            |  |                                 | (864,553    | )              |   |                      |   |                                               |            |                          |   |                            |          
|Amortization of stock-based compensation       |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Issuance of common stock to landlord           |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               | 408,668    |                          |   |                            |          
|Issuance of shares pursuant to stock options   |                                                                                       |                 |             |              |   | 9,040                      |  |                                 | 804,526     |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Balance at January 31, 2002                    |                                                                                       |                 | 20,000,000  |              |   | 1,620,264                  |  |                                 | 133,042,128 |                |   | 10,225,507           |   |                                               | (7,527,686 | )                        |   |                            |          
|Net income for the year ended January 31, 2003 |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | 3,565,848            |   |                                               |            |                          |   | 3,565,848                  |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Other comprehensive income:                    |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               | Foreign currency translation adjustments, net of reclassification adjustments         |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            | 1,046,995
|Comprehensive income                           |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   | 4,612,843                  |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Dividends on preferred stock                   |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   | (1,767,631           | ) |                                               |            |                          |   |                            |          
|Issuance of shares                             |                                                                                       |                 |             |              |   |                            |  |                                 | 2,159,474   |                |   |                      |   |                                               | 354,751    |                          |   |                            |          
|Issuance of shares pursuant to stock options   |                                                                                       |                 |             |              |   | 120,000                    |  |                                 | 1,557,866   |                |   |                      |   |                                               |            |                          |   |                            |          
|Purchase of treasury shares                    |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               | (616,124   | )                        |   |                            |          
|Repurchase of preferred stock                  |                                                                                       |                 | (20,000,000 | )            |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          
|Balance at January 31, 2003                    |                                                                                       |                 |            |              | $ | 1,740,264                  |  | $                               | 136,759,468 |                | $ | 12,023,724           |   | $                                             | (7,789,059 | )                        |   |                            |          
|                                               |                                                                                       |                 |             |              |   |                            |  |                                 |             |                |   |                      |   |                                               |            |                          |   |                            |          

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

F-6

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XCELERA INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.    Basis of Presentation

The accompanying consolidated financial statements of Xcelera Inc. ("Xcelera") (formerly Xcelera.com Inc. and The Scandinavia Company, Inc.)
and its subsidiaries (collectively, the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") after elimination of all
significant intercompany transactions. The Company is incorporated in the Cayman Islands and its functional currency is the U.S. dollar. The Company's fiscal year ends on January 31. Certain of
the Company's subsidiaries utilize the calendar year as their fiscal year.

The
Company is a European technology company focused on founding, developing, operating and financing technology companies and managing its portfolio of assets. The Company's primary
consolidated operating subsidiary is Mirror Image Internet, Inc. ("Mirror Image"). Mirror Image provides secure, outsourced e-Business infrastructure services and web services.

The
Company's investments over which the Company exercised significant influence but not control during fiscal years 2003, 2002 and 2001, are accounted for using the equity method (see
Note D). Under the equity method, the Company's proportionate share of each unconsolidated subsidiary's net income or loss and amortization of the Company's net excess investment over its
equity in each unconsolidated subsidiary's net assets is included in "Other (expense) income, net".

Certain
amounts in the 2002 and 2001 financial statements have been reclassified to conform to the 2003 presentation.

On
April 10, 2000, the Company's shareholders approved an increase in authorized common stock to 400,000,000 shares. At the annual meeting of shareholders on December 4,
2000, the Company's
shareholders approved an amendment to the Company's Memorandum and Articles of Association. The amendment changed the name of the Company to Xcelera Inc. from Xcelera.com Inc.

B.    Significant Accounting Policies

Consolidation Methodology

The Company consolidates subsidiaries in which the Company holds a majority voting interest or a controlling influence over operating activities through
controlling board representation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses
during the reporting period. Significant estimates include allowances for doubtful accounts and certain accrued liabilities, including accruals relating to disputed obligations and valuation reserves
for the Company's deferred tax assets. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents include cash
held in financial institutions and brokerage accounts.

F-7

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Included
in cash equivalents are transactions related to repurchase agreements, which are treated as collateralized financing transactions and are recorded at their contracted repurchase
amounts plus accrued interest, as specified in the respective agreements. It is the Company's policy that the brokerage firm take possession of the underlying collateral, the fair value of which
exceeds the
principal and accrued interest of the repurchase transaction at all time. If the seller defaults and the fair value of the collateral declines, realization of the collateral by the Company may be
delayed or limited.

Brokerage Accounts

The Company has a prime brokerage agreement along with clearing agreements with various brokerage firms to carry their account as a customer. The brokers have
custody of the Company's securities and, from time to time, cash balances, which may be due from these brokers. These securities and/or cash positions serve as collateral for any amounts due to broker
or as well as collateral for securities sold short or purchased on margin. The securities and/or cash positions also serve as collateral for potential defaults of the Company. The Company is subject
to credit risk if the brokers are unable to repay balances due or deliver securities in their custody.

Marketable Securities

Marketable securities are accounted for in accordance with Statements of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the appropriate classification of marketable debt and equity securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Securities not classified as trading are classified as available-for-sale. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses reported as other comprehensive income, net of tax effects, in a separate component of shareholders' equity. Trading securities are carried at their stated
fair value, with unrealized gains and losses included in "Other (expense) income, net" in the consolidated statement of operations. Realized gains or losses from sales are included in "Other (expense)
income, net" in the consolidated statement of operations.

Marketable
securities held by the Company are also reviewed for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, any decline in the fair value that is determined to be other than temporary is recognized within earnings in the period in which the loss
actually occurs (see Note I).

The
Company has also purchased interests in various private investment funds. These investments are classified as trading securities and carried at their estimated fair value, with any
unrealized gains or losses included in "Other (expense) income, net" in the consolidated statements of operations. These investments are included in marketable securities on the accompanying
consolidated balance sheet.

Revenue Recognition

All of the Company's revenues for fiscal years 2003, 2002 and 2001 are attributable to Mirror Image. Mirror Image's revenue is derived primarily from the delivery
of its services under contracts with terms typically ranging from 3 to 24 months. Mirror Image's revenue is recognized based upon fees for the amount of Internet content delivered, either total
data delivered or peak bandwidth utilized, during a monthly billing period, providing persuasive evidence that an arrangement exists, the services have been rendered, the price to the buyer is fixed
or determinable, and collection is reasonably assured. Certain contracts for Mirror Image also provide for minimum monthly fees. Mirror Image's revenue may also be derived from one-time
implementation, installation, usage and other fees that are recognized over the period of the related contracts. Deferred revenue consists of billings in

F-8

---

excess
of revenue recognized. At January 31, 2003, deferred revenue was $31,910 and $45,539, respectively and is included under the caption "accrued expenses" on the accompanying consolidated
balance sheet. During the year ended January 31, 2003, no customer accounted for more than 10% of Mirror Image's revenues. During the year ended January 31, 2002, one customer accounted
for 42.8% of Mirror Image's revenue. During the year ended January 31, 2001, two other customers accounted for 16.4% and 11.7% of Mirror Image's revenues.

The
Company recognizes income from realized gains on sales of investments and unrealized gains on trading securities based on date of trade.

The
Company recognizes income from interest and dividends on investments and trading securities on an accrual basis.

In
December 1999, the staff of the United States Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
This bulletin summarizes certain of the staff's views in applying GAAP to revenue recognition in financial statements. The Company's management believes that its revenue recognition policies,
including those of its subsidiary, Mirror Image, comply with the guidance expressed in this bulletin.

Sale of Stock by Subsidiaries

At the time a subsidiary of the Company sells its unissued shares to unrelated parties at a per share price in excess of the Company's carrying value per share of
its investment in that subsidiary, the Company's net investment in that subsidiary increases. If at that time, the subsidiary is not a newly formed, non-operating entity, nor a research
development, start-up or development stage company, nor is there question as to the subsidiary's ability to continue as a going
concern, the Company records the increase in the consolidated statements of operations. Otherwise the increase is reflected in "effect of subsidiaries' equity transactions" in the Company's
consolidated statement of changes in shareholders' equity. (See Note E)

Translation of Foreign Currencies

In translating financial statements of foreign subsidiaries, all assets and liabilities are translated using the exchange rate in effect at the balance sheet
date. All revenues, costs and expenses are translated using the average exchange rate during the period presented. Changes in the translation of foreign currency balances and amounts occurring during
the year are included in the cumulative translation adjustment component of other comprehensive income in consolidated shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in "Other (expense) income, net" in the consolidated statements of operations. The Company recorded foreign currency transaction (losses) gains of $(88,938), $(88,014) and
$(87,513) for the years ended January 31, 2003, 2002 and 2001, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company evaluates the collectibility of accounts receivable based on a combination
of factors. In circumstances where the Company is aware of a specific customer's inability to meet its financial obligations, a specific allowance is recorded to reduce the receivable to the amount
the Company believes will be collected. The Company may also reserve for a percentage of a customer's balance if it believes the chance of collection is questionable. Typically, the Company considers
all receivables not paid within specified terms of the invoice past due. If circumstances change, the Company's estimates of the collectibility of amounts due may be reduced by a material amount.

F-9

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The
Company performs continuing credit evaluations of its customers' financial condition and requires no collateral from its customers. Any unanticipated change in customers' credit
worthiness or other matters affecting the collectibility of amounts due from such customers could have a material effect on the results of operations in the period in which such events occurred.

Prepaid Expenses

Included in prepaid expenses and other assets as of January 31, 2003 and 2002 is $41,893 and $254,497, respectively, relating to Mirror Image maintenance
agreements for internal use software, which is being amortized over the life of the related software license (three years) on a straight-line basis.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of three to seven years commencing upon the date the assets are placed in service. Equipment used in Mirror Image's service network is considered placed in service on the date
the equipment is network enabled. Property and equipment acquired under capital lease is depreciated over the shorter of the related lease terms or the useful life of the asset. Upon retirement or
sale, the costs of the assets disposed and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Repairs and maintenance costs are
expensed as incurred. License fees for software utilized in Mirror Image's Content Access Points are capitalized in accordance with American Institute of Certified Public Accountants
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The software license fees are amortized over the
useful life of the asset (three years) or the term of the agreement, if shorter.

Impairment of Long-Lived Assets

Long-lived assets and certain identifiable intangibles held and used are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. During the year ended January 31, 2003, the Company recorded an impairment charge of $12,681,548, of which $11,374,764 is included in cost of
revenues and $1,306,784 is included in engineering and development.

Cost of Revenues

Cost of revenues consists of depreciation and amortization of the content access point ("CAP") network equipment placed in service (see above) and software,
maintenance of the hardware and software, colocation and bandwidth charges, and wages directly related to the delivery of our services.

Goodwill

The application of purchase accounting for the Company's investment in Mirror Image during the fiscal year ended January 31, 2000 resulted in the
recognition of goodwill, because the Company's investment exceeded its proportionate share of Mirror Image's net assets. Goodwill, which totaled $878,537, is amortized on a straight-line
basis over 10 years. Accumulated amortization at January 31, 2002 was $248,918. In connection with Mirror Image's acquisition of Clearway Acquisition Inc., the Company recorded
goodwill of $5.3 million. In 2002, the Company recorded a $6.0 million impairment

F-10

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charge
relating to all goodwill reducing the total balance to zero based on operating results of underlying assets.

Engineering and Development Costs

Engineering and development costs consist primarily of salaries and related personnel costs for the design, deployment, testing and enhancement of the Mirror
Image's services and network software. In addition, the Company periodically purchases technology from third-party developers. Costs incurred or purchased for the engineering and development of the
Company's services are expensed as incurred until certain capitalization criteria are met in accordance with SOP 98-1. Computer software costs incurred in the preliminary project stage are
expensed as incurred. Once the capitalization criteria specified by SOP 98-1 have been met, external and internal direct costs of materials and services consumed in developing or obtaining
internal-use computer software are capitalized and amortized over the estimated useful lives of the software, generally on a straight-line basis, unless another systematic and
rational basis is more representative of the software's use. Costs incurred for upgrades and enhancements are expensed or capitalized in accordance with the criteria found in SOP 98-1.
Costs incurred for maintenance and relatively minor upgrades and enhancements are expensed either as incurred or over the maintenance period, as applicable.

Advertising Costs

Advertising costs are expensed as incurred, and were $227,422, $1,121,582, and $2,587,377 for the years ended January 31, 2003, 2002 and 2001,
respectively.

Income Per Common Share

Income per common share is computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic income per
common share is based on the weighted average number of common shares outstanding during the year. Diluted income per common share includes the dilutive effect of the stock options, calculated using
the treasury stock method.

During
the years ended January 31, 2002, the Company had a loss from continuing operations, consequently all options and preferred stock are considered to be
anti-dilutive, and basic and diluted earnings per share are the same for that period.

Stock-Based Compensation

The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted, prospectively, the conclusions of Financial Accounting Standards Board ("FASB")
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation," effective July 1, 2000. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least equal to the fair market value of the Company's common stock at the date of grant. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation."

The
Company applies the disclosure only provision of SFAS No. 123, "Accounting for Stock-Based Compensation" for stock options granted to employees by both Xcelera and Mirror
Image. Accordingly, no compensation expense for the stock options granted to employees has been recorded in the consolidated statements of operations. The fair value of options granted by Mirror Image
at the grant date for the years ended January 31, 2003, 2002 and 2001 were $6,400, $500,000 and $11,980,000, respectively. Had compensation expense been determined based on the fair value of
the options at the

F-11

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grant
date, consistent with the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been as follows:

|                                                                                                                             |  | 2003 |            | 2002 |   | 2001         |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ------------ | -
|Net (loss) income as reported                                                                                                |  | $    | 3,565,848  |      | $ | (96,297,117  | )
|Deduct: total stock based employee compensation determined under fair value method for all awards net of related tax effects |  | $    | (4,828,590 | )    | $ | (9,751,211   | )
|                                                                                                                             |  |      |            |      |   |              |  
|Net (loss) incomepro forma                                                                                                  |  |      | (1,262,742 | )    |   | (106,048,328 | )
|                                                                                                                             |  |      |            |      |   |              |  
|Net income (loss) per share available to common shareholders, basic, as reported                                             |  | $    | .02        |      | $ | (0.87        | )
|Net (loss) income per share available to common shareholders, basic, pro forma                                               |  | $    | (.03       | )    | $ | (0.95        | )
|Net income (loss) per share available to common shareholders, diluted, as reported                                           |  | $    | .01        |      | $ | (0.87        | )
|Net (loss) income per share available to common shareholders, diluted, pro forma                                             |  | $    | (.02       | )    | $ | (0.95        | )

All
stock-based awards to non-employees are accounted for at their fair market value in accordance with SFAS No. 123 and Emerging Task Force Issue
No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Sale of Goods or Services."

Included
in selling, general and administrative expenses, in the accompanying consolidated statement of operations, is stock-based compensation composed of the following: (a) the
amortization of deferred stock-based compensation resulting from the granting of a stock option to a consultant in August 1999 (see Note L), as adjusted in August 2000 for the
intrinsic value of the stock option based upon the consultant becoming an employee of Mirror Image; (b) compensation expense equal to the intrinsic value of stock options awarded by the Company
to Mirror Image employees which were
re-priced in April 2000, resulting in the accounting for these options as variable until exercise (see Note L); and (c) compensation expense relating to the fair value
of options that were modified as of the modification date (see Note L). For the years ended January 31, 2003, 2002 and 2001, stock-based compensation was $0, $484,295, and $2,629,353,
respectively, relating to these awards.

Income Taxes

There is presently no taxation imposed on income by the government of the Cayman Islands. If any form of taxation were to be enacted, the Company has been granted
an exception therefrom to the year 2008. Accordingly, no provision for income taxes has been made in the Company's financial statements for Cayman Islands taxation.

The
Company's subsidiary, Mirror Image, a Delaware corporation, accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in Mirror Image's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax bases of assets and liabilities using presently enacted tax rates. A valuation
allowance is provided against net deferred tax assets where management believes it is more likely than not that the asset will not be realized (see Note M).

F-12

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Business Segment

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires companies to report certain financial and descriptive
information about their reportable operating segments, as well as certain enterprise-wide disclosures about geographic operations and major customers.

During
the years ended January 31, 2003, 2002, and 2001, the Company operated in one business segment, technology, which began with the acquisition of Mirror Image in March of
1999. In the future, as the Company invests in additional operating businesses, it may identify additional reportable segments.

As
of January 31, 2003, the Company does not have significant long-lived assets in its country of domicile, the Cayman Islands, and the majority of the Company's
long-lived assets, excluding financial instruments, were located in the United States and Europe.

Fair Value of Financial Instruments

As described above, the Company's trading securities and investment funds are carried at fair value. The fair value of the Company's remaining financial
instruments, including its cash and cash equivalents, note receivable, and trade receivables and payables approximates their carrying amounts, due to their short-term nature.

Stock Splits

The Company split its stock two times, or a total of 4 to 1, during the fiscal year ended January 31, 2001. The Company did not split its stock during the
2002 or 2003 fiscal years. All share and per share amounts in the accompanying consolidated financial statements and the notes have been retroactively restated to reflect the effect of the stock
splits. The table below summarizes the Company's stock splits.

F-13

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|               |  |         |  |          |  |          |  | Shares Outstanding
|-------------- |  | ------- |  | -------- |  | -------- |  | ------------------
|
|
|April 29, 2000 |  | 2 for 1 |  | 04-10-00 |  | 04-28-00 |  | 52.9 million      
|March 4, 2000  |  | 2 for 1 |  | 02-14-00 |  | 03-03-00 |  | 26.4 million      

Effective
February 28, 2000, Mirror Image split its common stock 3:1. Effective December 20, 2001, Mirror Image effected a 1:20 reverse split of its common stock. Effective
November 21, 2002, Mirror Image effected a 1:100,000 reverse split of both its common and preferred stock. All share and per share amounts have been retroactively restated to reflect the
effects of the stock splits and reverse stock splits.

Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income", requires the Company to classify items of "other comprehensive income", such as unrealized gains and losses
on its securities classified as available for sale and foreign currency translations, by their nature in the financial statements, and to display the accumulated balance of other comprehensive income
(loss) in the shareholders' equity section of the consolidated balance sheet. In accordance with SFAS No. 130, cumulative unrealized gains and losses on securities available for sale and
foreign currency translations are classified as accumulated other comprehensive income in shareholders' equity and current period unrealized gains and losses are included as a component of
comprehensive income.

401K Savings Plan

Mirror Image has a 401(k) savings plan that covers substantially all its employees. The 401(k) savings plan is subject to certain minimum age and length of
employment requirements. Employer contributions are discretionary. Mirror Image did not contribute to the plan during the years ended January 31, 2003, 2002 or 2001.

Other Income (Expenses)

Other income (expenses) includes the gain from the conversion of the Hewlett-Packard convertible note payable, interest income and expense, realized and
unrealized gain (losses) and reserve on investments.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145, "Recission of
FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which eliminates the automatic classification of gain or loss on extinguishment of debt
as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30, "Reporting Results
of Operations." The provisions of SFAS 145 related to the recission of Statement 4 are effective for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 and
recorded a gain of approximately $43.8 million, included in other (expense) income, net, that resulted from the extinguishment of convertible notes payable.

In
June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and EITF

F-14

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94-3
relates to the requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability is recognized at the date of an entity's commitment to an exit plan.
SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 to have a material impact on
its financial position or results of operations.

In
November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), which requires a guarantor to include disclosure of certain obligations, and, if applicable, at the inception of the guarantee, to recognize a liability for the fair value of other
certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and is not expected to have a material
impact on the Company's financial statements. The Company has no such obligations that would fall under either the disclosure or recognition requirements of FIN 45.

In
December 2002, FASB issued SFAS No. 148, "Accounting for Stock Based CompensationTransition and Disclosure," which was issued to provide alternative methods
of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used
on reported results. SFAS 148 is effective for financial statements for fiscal years ending after December 15, 2002.
SFAS 148 will not have any impact on the Company because it does not plan to implement the fair value method.

In
January 2003, FASB issued Interpretation No. 46, ("FIN 46"), "Consolidation of Variable Interest Entities." This interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective February 1, 2003 for variable
interest entities created after January 31, 2003, and July 1, 2003 for variable interest entities created prior to February 1, 2003. The Company is currently studying the impact
of this recent pronouncement on its financial position, results of operations and cash flows.

In
May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement establishes
standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the
standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. This statement shall be effective for financial instruments entered into or
modified after May 31, 2003 and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently studying the impact of
this recent pronouncement on its financial position.

C.    Mirror Image

In March, April and July of 1999, the Company purchased, for cash, a total of 51 shares of Mirror Image's common stock, representing 90.6% of the total common
shares outstanding. In addition, on November 30, 1999, the Company agreed to purchase 235 shares of Series A Convertible Preferred Stock of Mirror Image for approximately
$50 million. After the issuance of all of the shares of preferred stock, the Company owned approximately 94% of Mirror Image equity. Following the Exodus Communications, Inc. ("Exodus")
transaction described in (Note E) in which the Company sold $2.1 million of its investment in Mirror Image, the Company owned approximately 78% of Mirror Image's equity.

F-15

---

In
January 2001, Mirror Image acquired Clearway Acquisition Inc. ("Clearway"), that was formed for the purpose of assuming substantially all assets and liabilities of its
parent, Clearway Technologies LLC, a development-stage internet service provider, in a stock-for-stock transaction. Mirror Image recorded $5.3 million of goodwill from
the transaction. In connection with this acquisition, Mirror Image issued 5 shares of its common stock to the then owners of Clearway and Clearway entered into a $10 million secured loan
agreement with the Company. The loan agreement
was guaranteed and collateralized by all assets of Mirror Image. On August 31, 2001, the Company, Mirror Image and Clearway entered into an amended and restated secured convertible loan
agreement. Pursuant to this loan agreement, the Company acted as lender to Mirror Image, subject to various conditions, and interest accrued on the borrowed amounts at 12% and 20% per annum. In
addition to being collateralized by the assets of Mirror Image, all amounts borrowed from the Company are guaranteed and collateralized by the assets of Clearway. All amounts outstanding under the
loan agreement are convertible at anytime at the Company's option into common stock of Mirror Image. At January 31, 2003, $62.2 million of principal and accrued interest was outstanding
under the loan agreement. In August 2002, the Company and Mirror Image entered into a new subordinated loan agreement for up to $10 million of borrowings. Interest accrues at 25% per
annum, compounded at year end, and both interest and principal are convertible, at the Company's option, into common shares. The subordinated loan agreement grants the Company an irrevocable right to
acquire all intellectual property of the borrower for $10 million. Conversion of the debt under these agreements would result in the Company owning greater than 99% of Mirror Image on an
as-converted basis.

The
operating results of Mirror Image are included in the Company's consolidated financial statements from the date of the Company's initial purchase of a controlling interest in Mirror
Image in March 1999. The purchases of Mirror Image common shares by the Company resulted in an allocation of Mirror Image's net assets of $406,765 to holders of a minority interest in its
common shares. During fiscal 2000, losses from Mirror Image operations were allocated to the minority interest in accordance with their ownership, until such minority interest's recorded share of net
assets was reduced to zero. The purchase of Mirror Image shares by Exodus (Note E) resulted in an allocation of Mirror Image's net assets of $58,294,977 to holders of a minority interest in its
common shares. During fiscal year ended January 31, 2001, losses from Mirror Image operations totaling $32,862,831 were allocated to the minority interest in accordance with their ownership,
which reduced minority interest to $25,432,146 as of January 31, 2001. During fiscal 2002, the purchase of Clearway resulted in an allocation of Mirror Image's net assets of $4,125,591 to
holders of a minority interest in its common stock. Additionally, losses from Mirror Image's operations totaling $29,557,734 were allocated to the minority interest in accordance with their ownership,
which reduced minority interest to $0 as of January 31, 2002.

Had
Mirror Image acquired Clearway as of January 1, 2000, the unaudited pro forma consolidated net income would have been approximately $113 million for the year ended
January 31, 2001 based on the operations of Clearway Technologies LLC. Additionally, as the acquisition occurred close to the beginning of Mirror Image's fiscal 2001, the pro-forma
consolidated results would not have been materially different from the Company's consolidated results of operations for the year ended January 31, 2002.

D.    Investments in Unconsolidated Subsidiaries

On May 21, 1999, the Company invested approximately $1.7 million in the common shares of MNW, an independent record company headquartered in Sweden
and listed on the NGM stock exchange in Sweden. The Company's investment represented approximately 19% of MNW's common shares outstanding, and 40% of the shareholder votes.

The
Company believes as of January 31, 2001 there was a decline in their investment in MNW that was other than temporary. During the 2002 fiscal year, the Company sold its
holdings in MNW for approximately $500,000. The Company has recorded a $1.2 million charge during the fiscal year ended

F-16

---

January 31,
2001, to write down this investment to its net realizable value, which is included in other income on the consolidated statements of operations.

During
the fiscal year ended January 31, 2001, the Company invested an aggregate of approximately $1.7 million in two private entities in which the Company's interest was
greater than 20%, in which case the Company used the equity method of accounting. The Company believes as of January 31, 2001 there was a decline in their investments in these entities that was
judged to be other than temporary. The Company recorded a $1.7 million charge to write down these investments to their net realizable value.

The
Company did not make any investments in unconsolidated subsidiaries during the fiscal years ended January 31, 2003 or 2002.

E.    Exodus Investment in Mirror Image

On April 21, 2000, Exodus, which was a provider of Internet hosting and managed services and was then listed on the Nasdaq National Market, in two
concurrent transactions involving the Company and Mirror Image, purchased approximately 15% of Mirror Image's fully diluted common stock for $75 million in cash and 7,516,536 shares of Exodus
common stock. To effect the purchase, Xcelera sold 12 shares of its Mirror Image stock holdings with a basis to Xcelera of $2,106,108, for $25 million in cash and 6,046,636 shares of Exodus
common stock. Mirror Image issued to Exodus 4 new shares of its common stock and received $50 million in cash and 1,469,900 shares of Exodus common stock. Following this transaction, the
Company's ownership interest in Mirror Image was reduced to approximately 78%. Costs incurred by Mirror Image in conjunction with the sale to Exodus amounted to $5,520,000.

The
Company recorded a gain of approximately $348 million on the sale of Mirror Image stock that it held directly. Subsequent to this transaction and during the year ended
January 31, 2001, Xcelera sold shares of Exodus stock realizing a loss of approximately $110 million, which is included in other income in the accompanying consolidated statements of
operations.

As
a result of the sale of previously unissued shares by Mirror Image to Exodus in the year ended January 31, 2001, the Company has reflected an increase in its net investment in Mirror
Image in
"Effect of subsidiary's equity transaction" in the consolidated statements of changes in shareholders' equity.

In
connection with Exodus' equity investment in Mirror Image in 2000, Mirror Image entered into a commercial relationship with Exodus. Exodus agreed to purchase certain services from
Mirror Image, and Mirror Image agreed to purchase certain services from Exodus. On September 26, 2001, Exodus filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In
the course of the Exodus bankruptcy, Exodus sold certain assets to Cable & Wireless, plc ("C&W"). In connection with this asset sale, a dispute arose between Mirror Image and C&W under which
each party claimed it was owed by the other party for services rendered. In September 2002, Mirror Image and C&W settled the dispute and ended the services relationship. Mirror Image still has
certain claims on Exodus which it is pursuing with the bankruptcy estate.

F.    Hewlett-Packard

On December 21, 1999, Hewlett-Packard and the Company entered into a strategic alliance to enhance and expand Mirror Image's global content distribution
system. As part of the alliance, Hewlett-Packard agreed to purchase 246,152 shares of the Company's common stock for $2 million in cash and to provide credit to the Company in an amount of up
to $30 million under a convertible note facility that is convertible into the Company's common stock. In March 2000, Hewlett-Packard and the Company agreed to increase the amount of the
note facility to $50 million. As of January 31, 2002,

F-17

---

Hewlett-Packard
had advanced the Company $45.3 million. The convertible note bears interest at 9% annually. Pursuant to an agreement between Hewlett-Packard and the Company dated as of
September 25, 2001, the principal on the convertible notes was due in four equal installments on April 30, 2002, July 31, 2002, October 30, 2002 and January 31,
2003, and the related interest similarly became payable on each installment date. The principal and any unpaid accrued interest on the convertible notes were convertible at Hewlett-Packard's option at
any time, and the principal and related interest were convertible at the Company's option when due. The conversion price for the initial $7,500,000 was $8.125 per share and for all other amounts
$29.37 per share. During the fiscal year 2003, the Company converted all $45.3 million of principal and approximately $1 million of interest into common stock and issued approximately
2.2 million shares to Hewlett-Packard. The remaining interest of approximately $1.5 million was paid in cash. The Company recognized during the year ended January 31, 2003 a
$43.8 million gain included in other (expense) income, net, related to the conversion of these notes and accrued interest.

G.    Related Party Transactions

In December 2001, the Company advanced approximately $33,182 on behalf of Juno Finans AS ("Juno Finans"), a company affiliated with Hans Eirik Olav, a
director of the Company, to a third party in
which the Company has an ownership interest. The Company recorded the amount as a receivable and has subsequently been repaid. For the years ended January 31, 2003, 2002 and 2001, the Company
paid $111,118, $33,499 and $0, respectively, to Juno Finans for administrative services provided.

Included
in general and administrative expenses for fiscal years 2003, 2002, and 2001, are management fees to affiliated parties for administrative services of $538,252, $1,800,000 and
$562,000, respectively. Included in accounts payable and accrued expenses as of January 31, 2003 and 2002 are $0 and $261,748, respectively, relating to these management fees.

The
Company paid $358,750 to an officer for the year ended January 31, 2003 as reimbursement of administrative expenses.

Included
in other assets as of January 31, 2003 and 2002 is $1,810,122 and $1,135,889, respectively, of life insurance premium payments made to an insurance company on behalf of
two of the Company's directors. The directors signed a collateral agreement on these policies giving the Company the right to collect all premiums paid on behalf of the directors, in the event of
their death or other termination of the policies.

On
November 11, 1999, the Company issued 100,000 shares of its Series A 10% Convertible Preferred Stock, stated value $100 per share, for $10 million in cash to VBI
Corporation, the Company's majority shareholder. The 200,000 shares of Series A 10% Convertible Preferred Stock are convertible into 3,605,632 shares of the Company's common stock at $5.55 per
share, as adjusted for stock splits. As part of the transaction, VBI Corporation also received an option to acquire an additional 100,000 of the Company's Series A 10% Convertible Preferred
Stock on the same terms. VBI Corporation exercised the option on June 30, 2000. During the fiscal year ended January 31, 2003, the Company repurchased all 200,000 shares of its
Series A 10% Convertible Preferred Stock.

During
the 2002 fiscal year, the Company sold to VBI Corporation the Company's holdings in an investment fund for $3.3 million in cash, the market value of the Company's holdings
in the fund, and advanced $4.0 million to VBI Corporation. The Company charged 6% interest on advances to VBI Corporation. During the 2002 fiscal year VBI Corporation paid $6.0 million
to the Company At January 31, 2002, the Company had a $1.5 million net receivable from VBI Corporation, including accrued interest. In February 2002, VBI Corporation paid
$1.3 million to the Company. VBI Corporation repaid all amounts owed during fiscal year ended January 31, 2003.

F-18

---

H.    Property and Equipment

Property and equipment consisted of the following:

January 31,2003

2002Property and equipment, at cost:CAP Network equipment

$


$
49,364,012Internal use software





12,584,285Office equipment


6,909,937


6,899,737Leasehold improvements


477,224


457,514Furniture and fixtures


215,220


304,6447,602,381


69,610,192Less: accumulated depreciation and amortization


(5,873,512
)

(34,157,053
)$
1,728,869

$
35,453,139


Depreciation
and amortization expense on property and equipment for the years ended January 31, 2003, 2002 and 2001 was $22,202,621, $21,952,817 and $11,354,658, respectively.

Equipment
under capital leases was as follows:

January 31,2003

2002Machinery and equipment

$
3,502,018

$
10,075,721Accumulated amortization


(3,502,018
)

(6,414,516
)Net

$
0

$
3,661,205


F-19

---

I.    Marketable Securities, Fair Value

|                    |                                               | 2003                     |           | 2002     
|------------------- | --------------------------------------------- | ------------------------ | --------- | ---------
|
|Trading Securities: |                                               |                          |           |          
|                    | Equity Securities                             |                          | $         | 1,025,000
|                    | Debt Securities                               |                          |           | 1,571,837
|                    |                                               |                          |           |          
|                    |                                               | Total Trading Securities |           |          
|                    | Unrealized Gain on Forward Currency Contracts |                          |           |         
|                    |                                               | $                        | 2,596,837 |          
|                    |                                               |                          |           |          

Realized
gains and (losses) from sales of securities classified as available for sale were $0, $(9,623,910) and $(2,924,864) for the years ended January 31, 2003, 2002 and 2001,
respectively.

J.    Investments, at Cost, and Notes Receivables

During the fiscal years ended January 31, 2002 and 2001 the Company invested approximately $2.0 million and $38.8 million in one and nine
private companies, respectively. The Company owns less than 20% of these companies and does not exercise significant control over them and records these investments at cost. The Company has evaluated
these investments for impairment and for the years ended January 31, 2003, 2002 and 2001 has recorded a write down of these investments of approximately $2.0 million, $0.3 million
and $38.7 million, respectively.

During
the fiscal years ended January 31, 2003 and 2002, the Company invested approximately $0.7 million and $1.7 million in secured convertible notes receivables
from one and two private companies, respectively. The notes accrue interest at 5% and have five-year terms. The two companies did not generate significant revenues during the 2003 or 2002
fiscal year, did not have sufficient funds to reach profitability and they will therefore require additional funding. There can be no assurances that these companies will be able to reach
profitability or secure additional funding. The Company had reserved approximately $2.4 million and $1.7 million relating to these notes receivables at January 31, 2003 and 2002,
respectively.

During
the fiscal year ended January 31, 2003 and 2002, an indirect subsidiary of the Company, Ineo Inc. ("Ineo"), invested approximately $2.1 million and
$2.3 million, respectively, in secured convertible notes receivables from Atlantic Systems Group Inc. ("ASG"), a publicly traded company on the Toronto Venture Exchange under the ticker
symbol "YGT". The notes accrue interest at 11% and have a term of five years. The notes are convertible into ASG's common stock at any time at the Company's option. The notes have embedded warrants
that will be issued upon conversion of the debenture and are exercisable into the same number of shares as the debentures. ASG did not generate significant revenues during the 2002 or 2003 fiscal
years and was not profitable. In September 2002, ASG halted operations. In October 2002, Ineo acquired substantially all assets of ASG. The Company had reserved approximately
$2.3 million relating to these notes receivables at January 31, 2002 and during the year ended January 31, 2003, the Company utilized this reserve and wrote off the remaining
$2.1 million invested amounts in ASG.

K.    Financial Instruments With Off-Balance Sheet Risk

Securities sold, not yet purchased by the Company, may give rise to off-balance sheet risk. The Company has sold securities it does not own in
anticipation of a decline in the fair value of those securities. When the Company sells a security short, it must borrow the security sold short. A gain, limited to the price at which the Company sold
the security short, or a loss, unlimited in amount, will be recognized upon the termination of a short sale. The Company has recorded this obligation in the financial statements at the
January 31, 2003 and 2002 market value of those securities. There is an element of market risk in that, if the securities increase in value, it will be necessary to purchase the securities at a
cost in excess of the price reflected in the consolidated balance sheet. Included in securities sold not yet purchased at January 31, 2003

F-20

---

and
2002, was $5,132,000 and $0 of equity securities, respectively and $10,183,371 and $6,106,130 of call options, respectively.

During
the years ended January 31, 2003 and 2002, the Company invested into derivative instruments for speculative purposes. These derivatives do not qualify for hedge accounting
treatment and as result, have been recorded at fair value as of January 31, 2003 and 2002, with offsetting unrealized gains included in the consolidated statement of operations. Included in
"Other (expense) income, net" for the years ended January 31, 2003 and 2002 is approximately $25,063,683 and $(468,340) of unrealized gain (loss), respectively.

During
the year ended January 31, 2003, the Company has entered into forward foreign currency exchange contracts. When entering into a forward currency contract, the Company
agrees to receive or deliver a fixed quantity of foreign currency for an agreed upon price at an agreed future date. These contracts are valued monthly and the Company's net equity therein,
representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the
reporting date, is included under marketable securities in the balance sheet. Realized and unrealized gains and losses are included in earnings. These instruments involve market risk, credit risk or
both kinds of risks, in excess of the amount recognized in the balance sheet. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movement in
currency and securities values and interest rates. At January 31, 2003, the notional value of these contracts was $200,000,000 and an unrealized gain of $16,996,560 is included in marketable
securities.

During
the years ended January 31, 2003 and 2002, the Company purchased and wrote option contracts for marketable securities. Option contracts are contractual agreements that give
the purchaser the right, but not the obligation, to purchase or sell a financial instrument at a predetermined exercise price. In return for this right, the purchaser pays a premium to the seller of
the option. By selling or writing options, the Company receives a premium and becomes obligated during the term of the option to purchase or sell a financial instrument at a predetermined exercise
price if the option is exercised, and assumes the risk of not being able to enter into a closing transaction if a liquid market does not exist. Option contracts are recorded in the consolidated
balance sheet at fair value as discussed above. Gains and losses on option contracts are recorded in the consolidated statement of operations.

L.    Employee Stock Options



Xcelera's Board of Directors and shareholders have adopted the 1999 Incentive Plan for Employees of Mirror Image (the "1999 Incentive Plan"), which provides for
the issuance of up to 25,512,000 shares of Xcelera's common stock through the grant of incentive and non-qualified stock options. Stock options can be issued by action of Xcelera's Board
of Directors, or a committee thereof or executive officers of Xcelera (each the "Administrator"), to key employees, officers, directors, consultants and advisors of Mirror Image, and any of its
subsidiaries as a long-term incentive. Such persons, as described in the 1999 Incentive Plan, are designated by the Administrator in its sole discretion. All current employees, officers,
directors, consultants and advisors of Mirror Image are eligible to be designated as participants.

Stock
options under the 1999 Incentive Plan will provide for an exercise price per share determined by the Administrator in accordance with the 1999 Incentive Plan, subject to applicable
statutory requirements in connection with incentive stock options. The options will be exercisable as specified by the Administrator at the time of the grants. Options will be exercisable for a period
determined by the Administrator but not in excess of 10 years after grant.

The
Company did not issue any options pursuant to this plan during its 2003, 2002 and 2001 fiscal years and it may or may not issue any further options pursuant to this plan.



On June 4, 1999, Xcelera issued options to purchase 4,011,456 shares (adjusted for Xcelera stock splits through April 28, 2000) of its common stock
at prices equal to the quoted market price (split adjusted of $.90 per share) of its common stock on the date of grant to approximately 20 employees of Mirror Image ("Xcelera Options"). As of
January 31, 2003, due to exercises, cancellations and forfeitures, shares reserved under this option award were 403,779. These options are fully vested and expire June 4, 2004.

F-21

---

On
April 11, 2000, the Board of Directors of Xcelera approved the repricing of its options granted to employees of Mirror Image Internet (U.K.) Ltd. As a result, the
exercise price of these options is now variable, resulting in variable accounting treatment under APB Opinion No. 25. Variable accounting requires a non-cash charge to compensation
expense relating to the value of the options as of the financial statement date. The charge will increase or decrease based on the market value of Xcelera's common stock. For the year ended
January 31, 2001, Xcelera recorded compensation of $1,520,341 in
connection with these awards. For the year ended January 31, 2002, Xcelera recorded a final credit to compensation expense of $90,915 in connection with the final exercises of these awards.

During
fiscal 2002, Xcelera extended the exercise period of a Mirror Image employee's stock options and has recorded an expense of $372,255 representing the fair value of the options on
the modification date.

The
following is a summary of Xcelera's stock option activity during the three-year period ended January 31, 2003:

|                                        |  | Shares      |   | Exercise Price Per
Share |               | Weighted-Average
Exercise Price Per
Share
|--------------------------------------- |  | ----------- | - | ------------------------ | ------------- | -----------------------------------------
|Options outstanding at January 31, 2000 |  | 26,252,243  |   | $                        | 0.14 to $0.90 |                                          
|Granted to employees and non-employees  |  |            |   |                          |              |                                          
|Exercised                               |  | (6,873,478  | ) | $                        | 0.14 to $0.90 |                                          
|Cancelled and forfeited                 |  | (1,000      | ) | $                        | 0.90          |                                          
|                                        |  |             |   |                          |               |                                          
|Options outstanding at January 31, 2001 |  | 19,377,765  |   | $                        | 0.14 to $0.90 |                                          
|Granted to employees and non-employees  |  |            |   |                          |              |                                          
|Exercised                               |  | (903,962    | ) | $                        | 0.14 to $0.90 |                                          
|Cancelled and forfeited                 |  | (70,024     | ) | $                        | 0.90          |                                          
|                                        |  |             |   |                          |               |                                          
|Options outstanding at January 31, 2002 |  | 18,403,779  |   | $                        | 0.14 to $0.90 |                                          
|Granted to employees and non-employees  |  |            |   |                          |              |                                          
|Exercised                               |  | (12,000,000 | ) | $                        | 0.14          |                                          
|Cancelled and forfeited                 |  |            |   |                          |              |                                          
|                                        |  |             |   |                          |               |                                          
|Shares under option at January 31, 2003 |  | 6,403,779   |   | $                        | 0.14 to $0.90 |                                          
|                                        |  |             |   |                          |               |                                          
|Shares exercisable at January 31, 2001  |  | 19,377,765  |   | $                        | 0.14 to $0.90 |                                          
|                                        |  |             |   |                          |               |                                          
|Shares exercisable at January 31, 2002  |  | 18,403,779  |   | $                        | 0.14 to $0.90 |                                          
|                                        |  |             |   |                          |               |                                          
|Shares exercisable at January 31, 2003  |  | 6,403,779   |   | $                        | 0.14 to $0.90 |                                          
|                                        |  |             |   |                          |               |                                          

The
following table summarizes the Company's stock options outstanding at January 31, 2003:

|               |  | Options Outstanding |  |      |  |  
|-------------- |  | ------------------- |  | ---- |  | -
|
|
|
|$0.14          |  | 6,000,000           |  | 5.25 |  | $
|0.90           |  | 403,779             |  | 1.34 |  |  
|               |  |                     |  |      |  |  
|$0.14 to $0.90 |  | 6,403,779           |  | 5.00 |  | $
|               |  |                     |  |      |  |  



On June 4, 1999, Mirror Image issued options to Xcelera to purchase 1.4733 shares of Mirror Image's common stock ("Xcelera Stock Option Award") with an
exercise price equal to the fair value of the common stock, determined to be not more than $1,560,000 per share on September 27, 1999 (see discussion below). These options expire on
June 4, 2004 and become exercisable when and only to the extent the Xcelera Options are exercised. Specifically, when an option to purchase one share of Xcelera common stock is exercised
pursuant to the Xcelera Options, the Xcelera Stock Option Award vests with respect to .000000367 shares of Mirror Image's common stock. Due to cancellations and forfeitures of portions of the Xcelera
Options, Xcelera's rights under the Xcelera Stock Option Award were limited to .82682 shares of the Company's common stock.

F-22

---

On
July 23, 1999, Mirror Image's Board of Directors adopted the 1999 Employee Stock Option Plan (the "1999 Option Plan") for the issuance of incentive and nonqualified stock
options. The number of shares of common stock reserved for issuance under the 1999 Option Plan is 20.

Under
the terms of the 1999 Option Plan, the exercise price of incentive stock options granted must not be less than the fair market value of the common stock on the date of grant, as
determined by Mirror Image's Board of Directors.

The
exercise price of nonqualified stock options may be less than the fair market value of the common stock on the date of grant, as determined by Mirror Image's Board of Directors, but
in no case may the exercise price be less than the statutory minimum.

Vesting
of options granted (currently four years) is at the discretion of Mirror Image's Board of Directors. The term of options granted cannot exceed 10 years.

The
1999 Option Plan also includes acceleration provisions in the event of a change in control of Mirror Image, as defined.

On
August 31, 1999, Mirror Image granted to an individual under a consulting agreement a stock option as to .1761 shares of Mirror Image's common stock. In August 2000, the
individual was hired as an employee. In connection with his employment, the individual retained the stock option, without modification to the terms of the original award. For the period the individual
was engaged as a consultant, Mirror Image measured and recorded compensation expense in connection with the stock option based upon the fair value of the award, determined using the Black-Scholes
option pricing methodology and the following assumptions: volatility of 100%, risk-free rate of 6.5%, a life of four years and no expected dividends. On the date the individual became an
employee, Mirror Image computed the intrinsic value of the award to be $2,435,463, which was amortized as compensation over the remaining vesting period of the award. For fiscal years 2002 and 2001,
Mirror Image recorded compensation of $202,955 and $1,109,012, respectively, relating to this award. During 2002, the employment of this individual ended at which time the remaining unamortized
compensation and corresponding amount of additional paid-in capital was reduced to zero.

During
the year ended January 31, 2003, Mirror Image adopted the 2002 Stock Option Plan (the "2002 Option Plan"), which allows for the granting of 684 options to individuals. The
terms of the 2002 Option Plan are essentially the same as the 1999 Option Plan except that the 2002 Option Plan does not include acceleration provisions in the event of a change in control of Mirror
Image. Under the 2002 Option Plan Mirror Image granted options to purchase 25 shares of common stock at an exercise price of $10,000 to individuals. Additionally, upon the conversion into equity of at
least $2,000,000 of Mirror Image convertible debt, the option holders can purchase additional shares of Mirror Image common stock at $10,000 at the rate of an additional 45% for each $1,000,000
increment of the debt cumulatively converted into Mirror Image common stock up to a maximum of 452 shares of Mirror Image common stock.

F-23

---

The
following is a summary of the Mirror Image stock option activity during the three-year period ended January 31, 2003:

|                                        |  | Shares |   | Exercise Price Per Share |                          | Weighted-Average
Exercise Price Per
Share
|--------------------------------------- |  | ------ | - | ------------------------ | ------------------------ | -----------------------------------------
|Options outstanding at January 31, 2000 |  | 13     |   | $                        | 1,560,000                |                                          
|Granted to employees and non-employees  |  | 3      |   | $                        | 6,660,000 to $24,000,000 |                                          
|Cancelled and forfeited                 |  | (1     | ) | $                        | 1,560,000 to $24,000,000 |                                          
|                                        |  |        |   |                          |                          |                                          
|Options outstanding at January 31, 2001 |  | 15     |   | $                        | 1,560,000 to $24,000,000 |                                          
|Granted to employees and non-employees  |  | 3      |   | $                        | 1,000,000                |                                          
|Cancelled and forfeited                 |  | (9     | ) | $                        | 1,000,000 to $24,000,000 |                                          
|                                        |  |        |   |                          |                          |                                          
|Shares under option at January 31, 2002 |  | 9      |   | $                        | 1,000,000 to $24,000,000 |                                          
|Granted to employees and non-employees  |  | 25     |   | $                        | 10,000                   |                                          
|Cancelled and forfeited                 |  | (8     | ) | $                        | 10,000 to $24,000,000    |                                          
|Shares under option at January 31, 2003 |  | 26     |   | $                        | 10,000 to $24,000,000    |                                          
|                                        |  |        |   |                          |                          |                                          
|Shares exercisable at January 31, 2001  |  | 3      |   | $                        | 1,560,000 to $24,000,000 |                                          
|                                        |  |        |   |                          |                          |                                          
|Shares exercisable at January 31, 2002  |  | 4      |   | $                        | 1,000,000 to $24,000,000 |                                          
|                                        |  |        |   |                          |                          |                                          
|Shares exercisable at January 31, 2003  |  | 13     |   | $                        | 10,000 to $24,000,000    |                                          
|                                        |  |        |   |                          |                          |                                          

The
following table summarizes Mirror Image's stock options outstanding at January 31, 2003:

|  |                         | Options Outstanding |    | Options Exercisable
|- | ----------------------- | ------------------- | -- | -------------------
|
|$ | 10,000                  |                     | 19 |                    
|  | 1,000,000               |                     | 1  |                    
|  | 1,560,000               |                     | 5  |                    
|  | 1,660,000 to 24,000,000 |                     | 1  |                    
|  |                         |                     |    |                    
|  | 10,000 to 24,000,000    |                     | 26 |                    
|  |                         |                     |    |                    

The
fair value of Xcelera and Mirror Image option grants were estimated using the Black-Scholes option pricing model, assuming no expected dividends and the following assumptions:

|                                    |  | 2003 |   | 2002  |   | 2001   |  
|----------------------------------- |  | ---- | - | ----- | - | ------ | -
|Mirror Image                        |  |      |   |       |   |        |  
|Volatility                          |  | 75   | % | 75.00 | % | 100.00 | %
|Risk-free interest rate             |  | 4    | % | 5.50  | % | 6.50   | %
|Expected life of options (in years) |  | 5    |   | 5     |   | 5      |  

M.    Income Taxes

There
is no income tax benefit for the losses incurred by Mirror Image for the years ended January 31, 2003, 2002 and 2001, due to the need for a valuation allowance. Mirror
Image's effective tax rate varied from the statutory rate primarily as a result of such valuation allowances.

F-24

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Deferred
income tax assets and liabilities for Mirror Image as of January 31:

|                                  |  | 2003 |             | 2002 |  
|--------------------------------- |  | ---- | ----------- | ---- | -
|Net operating loss carry forwards |  | $    | 65,109,527  |      | $
|Capital Loss carry forwards       |  |      | 21,831,541  |      |  
|Property and equipment            |  |      | 4,805,338   |      |  
|Accrued Interest                  |  |      | 4,680,329   |      |  
|Other                             |  |      | 1,515,575   |      |  
|Valuation allowance               |  |      | (97,942,310 | )    |  
|                                  |  |      |             |      |  
|Net deferred tax assets           |  | $    | 0           |      | $
|                                  |  |      |             |      |  

As
of January 31, 2003, Mirror Image had federal and state net operating loss carryforwards of approximately $162 million which begin to expire in 2017 (federal) and 2003
(state). Mirror Image also had tax loss carryforwards in the United Kingdom of approximately $1,117,000. As a result of the change in control on March 29, 1999 when the Company acquired control
of Mirror Image, the ability to use its federal and state net operating loss carryforwards existing as of that date may be limited. Mirror Image has unused research and development tax credits of
approximately $425,000 as of January 31, 2003.

Mirror
Image has established a valuation allowance covering 100% of its deferred tax assets because company management does not believe at this time that realization of such assets is
more likely than not.

The
valuation allowance increased by $19,256,367, $33,562,942 and $39,483,000 in 2003, 2002 and 2001, respectively, primarily from an increase in the net operating loss carryforwards, a
deferred asset relating to property and equipment impairment in 2003 and, in 2001, the deferred asset relating to marketable securities.

N.    Commitments and Contingencies

Leases

Mirror Image leases its facilities and certain equipment under operating leases. Rent expense for the years ended January 31, 2003, 2002 and 2001 was
$366,740, $2,373,166 and $400,554, respectively. In addition, the Company recorded a $785,900 expense related to the early termination of a facility lease obligation during 2002. Expiration terms for
leases run from 2003 to 2005. The Company also leases certain equipment under capital leases. The minimum aggregate future obligations under non-cancelable lease obligations as of
January 31, 2003 are as follows:

|Year                                        |  | Operating Leases |         | Capital Leases |  
|------------------------------------------- |  | ---------------- | ------- | -------------- | -
|2004                                        |  | $                | 187,324 |                | $
|2005                                        |  |                  | 164,956 |                |  
|2006                                        |  |                  | 40,956  |                |  
|2007                                        |  |                  |        |                |  
|Thereafter                                  |  |                  |        |                |  
|                                            |  |                  |         |                |  
|Total                                       |  | $                | 393,236 |                | $
|                                            |  |                  |         |                |  
|Less interest                               |  |                  |         |                |  
|                                            |  |                  |         |                |  
|Total principal obligation                  |  |                  |         |                |  
|Less current portion                        |  |                  |         |                |  
|                                            |  |                  |         |                |  
|Non-current portion of principal obligation |  |                  |         |                | $
|                                            |  |                  |         |                |  

During
the years ended January 31, 2003, 2002 and 2001, Mirror Image recorded interest expense on capital lease obligations of $165,883, $460,591 and $385,749, respectively.

In
February 2000, Mirror Image entered into a new lease agreement for its corporate headquarters. Pursuant to the terms of the agreement, in partial payment of rent, Mirror Image
was obligated to deliver to the landlord, 12,000 shares of Xcelera common stock. In anticipation of settling this obligation, Mirror Image purchased 12,000 shares of Xcelera common stock from Xcelera
in February 2000. Until delivery, the fair market value of the rent is not known. In the Company's consolidated balance sheet, as of January 31, 2001,

F-25

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these
securities are included in treasury stock, at cost. The securities were delivered to the landlord during fiscal 2002, and the fair market value of the securities at delivery was $108,360. This
amount is amortized to rent expense over the life of the lease.

Bandwidth Usage and Colocation Costs

Mirror Image has commitments for bandwidth usage and colocation costs with various network service providers. The minimum aggregate future obligations under these
agreements as of January 31, 2003 are as follows:

Year2004

$
991,4712005


135,0002006


17,700Total

$
1,144,171


During
fiscal 2004, Mirror Image entered into new commitments totaling $1.6 million of which $1.2 million and $.4 million is payable in 2004 and 2005, respectively.

Legal Proceedings

In 2000, the Company was named as a respondent in an arbitration proceeding in Sweden initiated by two claimants relating to the sale of common stock of Mirror
Image, its principal operating subsidiary, to the Company and various other parties. The claimants were the former parent company of Mirror Image, and another investor in Mirror Image. In
September 2001 the arbitral tribunal rendered its arbitral award under which the former parent's claims were dismissed in their entirety. However, the arbitral tribunal ruled that the
applicable underwriting agreement between the Company and the other investor in Mirror Image is invalid and that the Company is liable and must compensate the other investor for damages suffered, if
any, as a result of certain decisions regarding the issuance of shares of Mirror Image. In order for the other investor to claim such damages, the investor must initiate new proceedings. As of today,
no proceedings have been commenced. The Company does not believe the other investor has suffered any damages and would vigorously defend any damage claim it may assert. However, depending on the
amount and timing, an unfavorable resolution of this matter could materially adversely affect the Company's future results or expenses in a particular period. The Company has not included any
provision for any liability in its consolidated financial statements that may result from such proceeding.

Since
on or about August 11, 2000, approximately nineteen plaintiffs have commenced nearly identical class action lawsuits alleging securities fraud against the Company and two of
its directors, Alexander M. Vik and Gustav M. Vik. These class actions were consolidated in January 2001 in the United States District Court for the District of Massachusetts and the plaintiffs
filed an Amended Complaint on April 2, 2001. The Amended Complaint alleges claims of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 against all defendants
and under Sections 20(a) and 20A against Alexander M. Vik and Gustav M. Vik. The plaintiffs claim that the defendants failed to disclose the tax ramifications of the Company's sale of Mirror Image
common stock to Exodus, that Alexander M. Vik and Gustav M. Vik sold the Company's stock while its price was inflated, and that the defendants failed to disclose a dispute over the Company's ownership
of shares in Mirror Image based on the allegations made by another party in an action brought in the Southern District of New York entitledJAM Investments, Ltd. and
Kahnberget Holdings, Ltd. v. Alexander Vik and VBI Corp.(the "JAM Litigation"). On May 31, 2001, the Company, along with the other defendants, moved to dismiss
the action in its entirety on a number of grounds. On March 8, 2002, the Court granted the Company's motion to dismiss with respect to disclosure of the tax ramifications and denied it with
respect to the ownership allegations. Following the partial denial of the Company's motion to dismiss the Amended Complaint, the Company moved for reconsideration and for judgment on the pleadings
because, among other things, the claims in the JAM Litigation were dismissed with prejudice and the Company believes that no damages were caused. The plaintiffs also moved for reconsideration of the
portion of the Company's motion to dismiss that had been granted. The Court denied all of these motions on April 23, 2002. In early 2002, the plaintiffs moved for certification of the case as a
class action. The defendants opposed the motion. The Court conducted a hearing on June 17, 2003 to consider the motion. At that time, the Court did not certify a class, and it indicated that an
evidentiary hearing may be required to resolve the

F-26

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motion.
Such a hearing has tentatively been scheduled for September 2003. During the class certification proceedings, no discovery has taken place on the underlying claims. The Company believes
that the lawsuit is without merit and that no damages were caused by the alleged conduct, and the Company is contesting it vigorously. Depending on the amount and timing, an unfavorable resolution of
this matter could materially adversely affect the Company's future results or expenses in a particular period. The Company has not included any provision for any liability in its consolidated
financial statements that may result from this proceeding.

On
or about November 15, 2000, the Company, along with directors Alexander M. Vik and Gustav M. Vik and former director Hans Magnus Fajerson, as well as Mirror Image, were named
defendants in an action
brought in the Court of Chancery in the State of Delaware by several minority shareholders of Mirror Image, the same group who also brought the arbitration claim against the Company. The suit purports
to assert the same claims as made in the arbitration described above but in a different forum and under different legal theories, including breach of fiduciary duty, fraud, civil conspiracy,
interference with contract, and misappropriation of corporate opportunity. The various causes of action allegedly arise out of actions taken by the Company, Alexander M. Vik, Gustav M. Vik, Hans
Magnus Fajerson and Mirror Image during 1999 pertaining to investments that the Company made in Mirror Image, and the corresponding issuance of shares by Mirror Image, as well as out of the Company's
sale during 2000 of Mirror Image stock to Exodus. The plaintiffs seek unspecified monetary damages against the Company and a transfer and assignment of Mirror Image shares held by the Company to them.
On January 11, 2001, the Company, along with the other defendants, moved to dismiss the suit in its entirety, on a number of grounds. On December 20, 2001, the Court of Chancery issued a
decision granting summary judgment in favor of the defendants and dismissing all claims against all defendants. Thereafter, the plaintiffs filed an appeal with the Delaware Supreme Court challenging a
portion of the decision. On November 4, 2002, the Delaware Supreme Court reversed the Court of Chancery's ruling, thereby reinstating the portion of the case which was subject to the appeal.
The case is now in the discovery phase, which is expected to continue into early 2004. The Company believes that the lawsuit is without merit and is contesting it vigorously. However, depending on the
amount and timing, an unfavorable resolution of this matter could materially adversely affect the Company's future results or expenses in a particular period. The Company has not included any
provision for any liability in its consolidated financial statements that may result from this proceeding.

Also,
from time to time, the Company is involved in legal actions incurred in the ordinary course of business. While the ultimate outcome of these matters is not determinable, the
Company does not believe that the resolution of these matters will have a material adverse effect on its future results or expenses in a particular period.

O.    Stockholders' Equity

On November 11, 1999, the Company issued 100,000 shares of its Series A 10% Convertible Preferred Stock, stated value $100 per share, for
$10 million in cash to VBI Corporation, the Company's majority shareholder. As part of the transaction, VBI Corporation also received an option to acquire an additional 100,000 of the Company's
Series A 10% Convertible Preferred on the same terms. VBI Corporation exercised the option on June 30, 2000. The Company repurchased all 200,000 shares of the preferred stock during the
fiscal year ended January 31, 2003.

P.    Subsequent Event

On June 23, 2003, a subsidiary of the Company ("Protegrity") acquired substantially all the assets of Protegrity Research & Development AB, a
subsidiary of Protegrity Inc. Protegrity is engaged in providing data protection and security solutions and is in the process of changing its name.

F-27

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EXHIBIT INDEX

The following exhibits are filed herewith or incorporated herein by reference:

|Exhibit: |  | Description                                                                                                                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1      |  | Amended and Restated Articles and Memorandum of Association of Xcelera (filed as Exhibit 1.1 to Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2001 and incorporated herein by reference)                                     
|1.2      |  | Certificate of Designation of Series A 10% Convertible Preferred Stock of Xcelera (filed as Exhibit 2 to the Registrant's Report on Form 6-K, dated for the month of November 1999 and incorporated herein by reference)                                     
|1.3      |  | Amendments to Certificate of Designation of Series A 10% Convertible Preferred Stock of Xcelera (filed as Exhibit 1.3 to Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2001 and incorporated herein by reference)            
|4.1      |  | Common Stock Purchase Agreement dated as of March 22, 2000 among Mirror Image, Xcelera and Exodus (filed as Exhibit 2.01 to Exodus's Current Report on Form 8-K, dated as of March 22, 2000 and incorporated herein by reference)                            
|4.2      |  | Common Stock Purchase Agreement dated as of March 22, 2000 between Xcelera and Exodus (filed as Exhibit 2.02 to Exodus's Current Report on Form 8-K, dated as of March 22, 2000 and incorporated herein by reference)                                        
|4.3      |  | First Amended and Restated Investors' Rights Agreement dated as of April 21, 2000 among Mirror Image, Xcelera and Exodus (filed as Exhibit 3 to the Registrant's Report on Form 6-K, dated for the month of April 2000 and incorporated herein by
reference) 
|4.4      |  | Right of First Refusal and Co-Sale Agreement dated as of April 21, 2000 among Mirror Image, Exodus and Xcelera (filed as Exhibit 4 to the Registrant's Report on Form 6-K, dated for the month of April 2000 and incorporated herein by reference)           
|4.5      |  | Registration Rights Agreement dated as of April 21, 2000 among Exodus, Mirror Image and Xcelera (filed as Exhibit 5 to the Registrant's Report on Form 6-K, dated for the month of April 2000 and incorporated herein by reference)                          
|4.6      |  | Voting Agreement dated as of April 21, 2000 between Xcelera and Exodus (filed as Exhibit 6 to the Registrant's Report on Form 6-K, dated for the month of April 2000 and incorporated herein by reference)                                                   
|4.7      |  | Note Purchase Agreement, dated January 31, 2000, by and between Xcelera and Hewlett-Packard Company (filed as Exhibit 2.7 to the Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2000 and incorporated herein by
reference)    
|4.8      |  | Registration Rights Agreement dated as of January 31, 2000, between Xcelera and Hewlett-Packard Company (filed as Exhibit 2.8 to the Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2000 and incorporated herein by
reference)
|         |  |                                                                                                                                                                                                                                                              

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|4.9    |  | Convertible $30,000,000 Promissory Note, dated January 31, 2000, granted by Xcelera to Hewlett-Packard (filed as Exhibit 2.9 to the Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2000 and incorporated herein by
reference)                                                                                                          
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.10   |  | Amendment, dated March 16, 2000, by and between Xcelera and Hewlett-Packard Company, amending the Note Purchase Agreement and the Convertible $30,000,000 Promissory Note granted by Xcelera to Hewlett-Packard (filed as Exhibit 2.10 to the Registrant's
Annual Report on Form 20-F for the fiscal year ended January 31, 2000 and incorporated herein by reference)
|4.11   |  | Settlement and Amendment Agreement dated as of September 25, 2001 between Xcelera and Hewlett-Packard (filed as Exhibit 4.11 to the Registrant's Annual Report on Form 20-F for the fiscal year ended January 31, 2002 and incorporated herein by
reference)                                                                                                          
|4.12   |  | Agreement, dated as of July 31, 2000, among Xcelera, JAM Investment Ltd. and Kahnberget Holding, Ltd. (filed as Exhibit 1 to the Registrant's Report on Form 6-K, dated for the month of October 2000 and incorporated herein by reference)                                                                                                                           
|10.a.1 |  | Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                              
|10.a.2 |  | Certification of Executive Vice President and Treasurer (principal financial and accounting officer)                                                                                                                                                                                                                                                                  
|10.a.3 |  | Consent of BDO Seidman, LLP                                                                                                                                                                                                                                                                                                                                           
|10.a.4 |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                      

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