UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 6-K
----------------
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
TownPagesNet.com plc
WELTON HOUSE, MILL LANE, ALTON
HAMPSHIRE, GU34 1HD, UK
+44 (0)1420 543 468
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [ X ] Form 40-F [ ]
Indicate by check mark whether the Registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b) :
Page 1 of 23 Pages
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TOWNPAGESNET.COM PLC
TABLE OF CONTENTS
Page
Financial Information:
Condensed Consolidated Balance Sheets as of September 30, 2000 3
(unaudited) and December 31, 1999
Condensed Consolidated Statements of Operations for the nine months 4-5
ended September 30, 2000 and 1999 (unaudited) and the three months ended
September 30, 2000 and 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months 6
ended September 30, 2000 and 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements 7-11
Management's Discussion and Analysis of Financial Condition and Results
of Operations 12-20
Disclosures about Market Risk 21
Other Information:
Legal Proceedings 22
Changes in Securities and Use of Proceeds 22
Defaults upon Senior Securities 22
Other Information 22
Signatures 23
2
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<TABLE>
TOWNSPAGESNET.COM PLC
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 2000
----------- ---------- -------------
Amounts in Pounds Sterling Amounts in
US Dollars
(Note 1)
(Unaudited) (Unaudited)
----------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents (pound) 647,035 (pound) 4,457,391 $ 6,525,174
Accounts receivable 5,355,865 2,343,083 3,430,039
Receivable from related party 5,542,477 637,315 932,966
Other receivables 274,225 165,075 241,654
Loan receivable 1,522,000 1,567,000 2,293,931
Loan receivable related parties -- 3,725,455 5,453,693
Prepaid expenses 127,116 301,068 440,733
Other current assets 215,500 310,983 455,247
------------------ ---------- ------------
Total current assets 13,684,218 13,507,370 19,773,437
Equipment and fixtures
Motor vehicles 169,025 197,407 288,984
Computer equipment 1,160,328 1,321,895 1,935,119
Furniture and fixtures 249,436 428,828 627,762
Equipment 1,932,077 2,959,506 4,332,421
------------------ ---------- ------------
3,510,866 4,907,636 7,184,286
Less accumulated depreciation 1,105,333 1,347,230 1,972,210
------------------ ---------- ------------
2,405,533 3,560,406 5,212,076
Intangible assets, net of accumulated amortization of 12,771,196 11,116,553 16,273,522
(pound)3,075,258 ($4,501,870)
------------------ ---------- ------------
(pound) 28,860,947 (pound) 28,184,329 $ 41,259,035
================== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdraft (pound) 299,749 (pound) 273,816 $ 400,839
Related party short term loan -- 1,900,000 2,781,409
Accounts payable 2,638,837 2,751,500 4,027,921
Accrued expenses and other liabilities 767,379 351,287 514,244
Taxes and social security payable 448,177 478,514 700,496
Deferred income 3,431,866 2,742,161 4,014,250
Current portion of obligations under capital lease 139,414 408,809 598,455
Amounts payable under Web site design 1,284,821 -- --
Other payables -- 724,398 1,060,446
------------------ ---------- ------------
Total current liabilities: 9,010,243 9,630,485 14,098,060
Deferred income, long term portion 994,073 472,210 691,268
Long term portion of obligations under capital lease 102,849 890,894 1,304,180
Minority interests 96,734 13,875 20,312
STOCKHOLDERS' EQUITY
Preferred stock 850,000 850,000 1,244,315
Ordinary shares 95,840 100,330 146,874
Additional Paid-In Capital 21,183,537 21,823,494 31,947,741
Accumulated other comprehensive loss -- (4,098) (5,999)
Accumulated deficit (3,472,329) (5,592,861) (8,187,389)
------------------ ---------- ------------
Total shareholders' equity 18,657,048 17,176,865 25,145,215
------------------ ---------- ------------
(pound) 28,860,947 (pound) 28,184,329 $ 41,259,035
================== ========== ============
</TABLE>
See accompanying notes.
3
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<TABLE>
TOWNSPAGESNET.COM PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1999 2000 2000
--------- --------- -----------
Amounts in Pounds Sterling Amounts in
US Dollars
(Note 1)
--------------------------------------------------------
REVENUES
<S> <C> <C> <C>
Advertising revenues (pound) 300,231 (pound) 3,352,676 $ 4,907,983
Contract revenues and other 4,731,608 780,654 1,142,799
Contract revenues from related parties 556,142 1,291,404 1,890,486
------------------- ------------------ -------------
Total revenues 5,587,981 5,424,734 7,941,268
COST OF REVENUES
Maintenance and hosting costs 463,865 1,107,723 1,621,596
Cost of contract revenues and other 2,763,609 1,459,708 2,136,867
Advertising and commission costs 177,980 3,040,607 4,451,144
------------------- ------------------ -------------
Total cost of revenues 3,405,454 5,608,038 8,209,607
GROSS PROFIT / (LOSS) 2,182,527 (183,304) (268,339)
OPERATING EXPENSES:
Sales and marketing 762,750 352,178 515,554
Research and development 364,931 432,474 633,097
General and administrative 1,124,423 3,888,619 5,692,548
Depreciation 71,219 697,265 1,020,726
Amortization 197,953 2,218,623 3,247,843
------------------- ------------------ -------------
Total operating expenses 2,521,276 7,589,159 11,109,768
LOSS FROM OPERATIONS (338,749) (7,772,463) (11,378,107)
Interest expense (64,228) (90,767) (132,873)
Interest income 146,718 66,346 97,123
Other income 4,371 4,833 7,075
Gain on sale of investment - 5,267,995 7,711,818
Gain on closure of web channels - 264,443 387,118
Foreign exchange gain - 96,823 141,739
------------------- ------------------ -------------
LOSS BEFORE INCOME TAXES (251,888) (2,162,790) (3,166,107)
PROVISION FOR INCOME TAXES - - -
------------------- ------------------ -------------
LOSS BEFORE MINORITY INTEREST (251,888) (2,162,790) (3,166,107)
Minority interests - 42,258 61,861
=================== =================== =============
NET LOSS (pound) (251,888) (pound) (2,120,532) $ (3,104,246)
=================== =================== =============
BASIC AND DILUTED NET LOSS PER SHARE (pound) (0.04) (pound) (0.22) $ (0.32)
=================== =================== =============
SHARES USED IN COMPUTING BASIC AND DILUTED NET
LOSS PER SHARE 6,345,244 9,743,411 9,743,411
=================== =================== =============
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
TOWNPAGESNET.COM PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1999 2000 2000
-------------- --------------- --------------
Amounts in Pounds Sterling Amounts in
US Dollars
(Note 1)
-------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
Advertising revenues (pound) 295,949 (pound) 1,231,454 $ 1,802,726
Contract revenues and other 1,269,030 356,744 522,238
Contract revenues from related parties 157,039 634,430 928,741
---------------- ----------------- -------------
Total revenues 1,722,018 2,222,628 3,253,705
COST OF REVENUES:
Maintenance and hosting costs 111,663 361,367 529,005
Cost of contract revenues and other 561,075 336,675 492,859
Advertising and commission costs 177,980 1,164,979 1,705,412
---------------- ----------------- -------------
Total cost of revenues 850,718 1,863,021 2,727,276
GROSS PROFIT 871,300 359,607 526,429
OPERATING EXPENSES:
Sales and marketing 521,663 78,927 115,541
Research and development 192,602 146,351 214,244
General and administrative 746,712 1,302,415 1,906,605
Depreciation 35,811 180,930 264,864
Amortization 197,953 795,655 1,164,759
---------------- ----------------- -------------
Total operating expenses 1,694,741 2,504,278 3,666,013
LOSS FROM OPERATIONS (823,441) (2,144,671) (3,139,584)
Interest expense (7,705) (37,521) (54,926)
Interest income 77,602 38,912 56,963
Other income 3,350 3,050 4,466
Gain on sale on investment -- 5,267,995 7,711,818
Gain on closure of web channels -- 264,443 387,118
Foreign exchange gain -- 40,316 59,018
---------------- ---------------- ----------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (750,194) 3,432,524 5,024,873
PROVISION FOR INCOME TAXES -- -- --
---------------- ----------------- -------------
INCOME (LOSS) BEFORE MINORITY INTERESTS (750,194) 3,432,524 5,024,873
Minority interests -- 103,952 152,175
================ ================= ============
NET INCOME (LOSS) (pound) (750,194) (pound) 3,536,476 $ 5,177,048
================ ================= ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE (pound) (0.10) (pound) 0.35 $ 0.52
================ ================= ============
SHARES USED IN COMPUTING BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE 7,652,736 10,030,046 10,030,046
================ ================= ============
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
TOWNPAGESNET.COM PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1999 2000 2000
-------------------------------------------------------------
Amounts in Pounds Sterling Amounts in
US Dollars
(Note 1)
---------------------------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss (pound) (251,888) (pound) (2,120,532) $ (3,104,246)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 71,219 697,265 1,020,726
Amortization of goodwill 197,953 2,218,623 3,247,842
Gain on sale of investment -- (5,267,995) (7,711,818)
Changes in operating assets and liabilities:
Accounts receivable (9,102,743) 7,917,946 11,708,419
Receivable from related party -- (2,382,261) (3,487,391)
Prepaid expenses and other current assets 195,813 (160,284) (234,640)
Accounts payable 622,251 112,663 47,586
Accrued expenses and other liabilities (490,680) 610,546 893,779
Taxes and social security payable (267,379) 30,337 44,411
Deferred income (1,064,566) (1,211,568) (1,773,614)
Amounts payable under Web site design agreements -- (1,284,821) (1,880,849)
-------------------------------------------------------------
Net cash used in operating activities (10,090,020) (840,081) (1,229,795)
-------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures (322,441) (2,367,567) (3,465,882)
Purchase of subsidiaries (1,549,486) (444,223) (650,298)
Proceeds from sale of tangible fixed assets -- 17,801 26,059
-------------------------------------------------------------
Net cash used in investing activities (1,871,927) (2,793,989) (4,090,121)
-------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debenture loan from stockholder (832,190) -- --
Proceeds from overdraft facility -- (25,933) (37,964)
Proceeds from short term loan -- 1,900,000 2,781,409
Net proceeds from issuance common stock 10,498,619 -- --
Net proceeds from issuance common stock - BuyersGuide -- 4,499,045 6,586,152
Income of common stock 5,879,888 -- --
Proceeds from sale of capital leases -- 1,161,911 1,700,922
Payments under capital lease obligations -- (104,472) (152,935)
Contributions from minority interests -- 13,875 20,312
-------------------------------------------------------------
Net cash provided by financing activities 15,546,317 7,444,426 10,897,896
-------------------------------------------------------------
Net increase in cash and cash equivalents 3,584,370 3,810,356 5,577,980
Cash and cash equivalents at the beginning of the period 33,868 647,035 947,195
-------------------------------------------------------------
Cash and cash equivalents at the end of the period (pound) 3,618,238 (pound) 4,457,391 $ 6,525,175
=============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid (pound) 74,565 (pound) 90,502 $ 132,486
=============================================================
</TABLE>
See accompanying notes.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements apply to
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated upon consolidation.
The unaudited condensed consolidated financial statements have been prepared by
the Company and reflect all adjustments, which consist only of normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the interim periods presented. The results of operations for the
three months ended September 30, 2000, and the nine months ended September 30,
2000, are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire year ending December 31, 2000. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations. A condensed consolidated statement
of comprehensive loss has not been presented because the components of
comprehensive loss are not material.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements on that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
These unaudited condensed consolidated financial statements and notes included
herein should be read in conjunction with the Company's audited consolidated
financial statements and notes included in the Company's Form 20-F for the year
ended December 31, 1999.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. These financial statements
do not comprise the Company's "statutory accounts" within the meaning of Section
240 of the UK Companies Act 1985 ("the Act"). Statutory accounts for the year
ended December 31, 1999, on which the auditors report was unqualified, have been
delivered to the Registrar of Companies for England and Wales.
The financial statements expressed in pounds sterling as of and for the periods
ended September 30, 2000 have been translated into U.S. dollars, solely for the
convenience of the reader, at the noon buying rate on September 30, 2000 of
pound sterling 1 = $1.4639. These translations should not be construed as
representations that the pound sterling amounts actually represent U.S. dollar
amounts or that they could be converted into U.S. dollars at the rate indicated
or at any other rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's contract revenues are derived principally from services performed
under development contracts for the design, coordination, and integration of the
customer's content and links into the TownPages directory. Fees for these
services are recognized as the service is performed. These fees are recognized
as revenue once the related activities have been performed and/or the customer's
web links are available on the Town Pages directory.
Revenues from website design agreements are recognized using the percentage of
completion method where reliable estimates of costs to complete the contracts
are available. If reliable estimates of costs to complete are not available, the
completed contract method is used. There were no unbilled receivables as of
September 30, 2000. Unbilled receivables were billed in accordance with billing
schedules specified in the contracts to which they relate.
The Company's advertising revenues are derived principally from short-term
advertising contracts which are recognized ratably over the term of the
contract. Certain advertising contracts contain a guaranteed number of
"impressions" (a view of an advertisement by a customer). To the extent that the
impression deliveries are falling short of the guarantees, the Company defers
recognition of the corresponding revenues.
Subscription revenues are for the set-up of customers on the TownPages
directory. These fees are recognized ratably over the term of the subscription
period, which is generally one year.
Deferred revenue is primarily comprised of payments received from web site
design contracts in advance of revenue recognition and billings in excess of
recognized revenue relating to advertising contracts.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. Such amounts are
stated at cost, which approximates market value. As of September 30, 2000 the
Company's cash equivalents were comprised of pound sterling 4,457,391
($6,525,174) of bank deposits.
GOODWILL
The Company amortizes goodwill from the acquisitions of its subsidiaries on a
straight line basis over its estimated economic useful life of five years.
Goodwill is included under the caption Intangible Assets.
The Company operates in a highly technological industry with relatively low
entry market barriers. Due to the fast moving nature of the Internet market, the
Company does not believe that goodwill will have a useful economic life of more
than five years. The carrying value of goodwill will continually be reviewed for
impairment to ensure that the carrying value of the goodwill does not exceed its
recoverable amount.
NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share is calculated using the weighted
average number of common shares outstanding. Diluted net income (loss) per share
is computed using the weighted average number of common shares outstanding and
dilutive common stock equivalents outstanding during the period.
8
<PAGE>
2. RELATED PARTY LOAN
As at September 30, 2000, the Company has received a short term loan of
(pound)1,900,000 ($2,781,409) from Kevin R. Leech, one of its directors and
major shareholders. The loan bears interest at 2% above the UK base rate, which
is 6% as at September 30, 2000, and is repayable from on the earlier of January
5, 2002 or receipt of proceeds from the realization of any of our investments.
3. SEGMENTAL INFORMATION
Our businesses are organized, managed and internally reported as separate
services and products segments which are reportable under SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
We have determined that we have five principal businesses: (1) Avatar
Interactive (formerly known as Town Pages UK Limited) which provides new media
related services, (2) WWW which is an internet provider of cinema information
and advertising services, (3) Morbria which provides web site design services,
(4) Buyers Guide which publishes the internet based Local Authority and Public
Service "Buyers Guide", and (5) Research Sales which is an internet based
polling and market research firm. In addition, those expenses not directly
attributal to any of the foregoing have been categorized (6) General Corporate,
this primarily comprises amortisation of goodwill and certain head office costs.
BUSINESS SEGMENT INFORMATION
(pounds sterling in
thousands)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1999 2000 1999 2000
----- ----- ----- -----
Net Sales
Avatar Interactive 1,362 129 5,228 280
WWW 293 676 293 1,846
Morbria 67 994 67 2,352
Buyers Guide - 419 - 937
Research Sales - 4 - 10
General Corporate - - - -
----- ----- ----- -----
Total Company 1,722 2,222 5,588 5,425
Operating income
Avatar Interactive (384) (895) (13) (3,318)
WWW (29) 284 (29) (114)
Morbria 11 43 11 (16)
Buyers Guide - 30 - (86)
Research Sales - (613) - (1,508)
General Corporate (421) (994) (308) (2,730)
----- ------ ---- ------
Total Company (823) (2,145) (339) (7,772)
Net interest income (expense) 70 1 83 (25)
Net other income(expense) 3 5,680 4 5,676
----- ----- ---- -----
Income (Loss) before income taxes (750) 3,536 (252) (2,121)
==== ===== ==== ======
The above table is based on management estimates and includes differences to
U.S. generally accepted accounting principles, including estimates of costs and
allocation of overheads between divisions.
9
<PAGE>
4. BUYERS GUIDE INITIAL PUBLIC OFFERING
On July 24, 2000, the Company announced that its subsidiary, Buyers Guide Plc,
had been admitted to trade on the Alternative Investment Market ("AIM") of the
London Stock Exchange following the raising of approximately (pound)5 million
($7.3 million) from institutions at an offering price of (pound)0.29 ($0.44).
On the same date, the authorized capital of Buyers Guide was increased to
120,000,000 of which 87,250,000 was outstanding upon closing of the offering.
The Company agreed to sell 13,087,500 Ordinary Shares, representing 15 per cent
of the increased share capital, to Ci4net.com, Inc., a company in which one of
our directors and major shareholder, Kevin R. Leech, is chairman and a
significant shareholder, at the offering price. Under the terms of that
agreement, Ci4net.com, inc. was obligated to pay the consideration of
approximately (pound)3.80 million, (approximately $5.74 million), to the Company
on or before August 25, 2000. This amount was not received.
Subsequent to the initial agreement, by mutual consent this transaction was
varied to a sale of 4,482,759 Ordinary Shares of BuyersGuide, representing 5.14
per cent (down from 15%) of the increased share capital for a consideration of
(pound)1.3 million, ($1.9 million)
A further 17,248,000 Ordinary Shares of Buyers Guide Plc, representing
approximately 19.8 per cent of the increased share capital of Buyers Guide Plc,
has been issued fully paid for cash pursuant to the offering to Institutions.
Following the offering and admission to trading, the Company owns 65,519,241
Ordinary Shares of Buyers Guide Plc, representing approximately 75.1 per cent of
the increased share capital. The gain arising from the disposal of approx 24.9%
is recorded under the caption gain on sale of investment on our condensed
consolidated statement of operations.
5. ACQUISTION OF 24.7 COLOUR LIMITED
On August 31, 2000, Morbria Limited, one of the Company's subsidiaries,
completed the acquisition of 75.01% of 24.7 Colour Limited formerly known as
Cornbrook Percision Colour (CPC) Limited, a sheetfed print company. As
consideration for the acquisition of the 75.01% shareholding, Morbria infused
(pound)222,000 ($325,000) worth of assets into 24.7 Colour. This created
(pound)227,549, ($333,110) goodwill in Morbria.
6. RELATED PARTY TRANSACTION
On September 30, 2000, the Company announced that it had reached a financial
resolution with Ci4net.com, Inc., a company in which one of our directors and
major shareholder, Kevin R. Leech, is chairman and a significant shareholder, to
address all outstanding financial obligations between the respective companies.
This resolution was finalized and agreed on December 12, 2000.
In exchange for the sale of 5.14 per cent of its Buyers Guide PLC subsidiary,
(see Initial Public Offering note 4), and settlement of the monies owed to
Planet Edge Limited, a wholly owned subsidiary of Ci4net.com Inc., of
approximately (pound)360,000 (approximately $527,000), the Company has received
full and final settlement in respect of the balance outstanding on the large web
channel contracts of approximately (pound)1.6 million, (approximately $2.3
million).
In addition, the Company has received settlement of the amounts owed to two of
its subsidiaries, Graphic Palette Limited and Centrix Communications Limited, of
approximately (pound)623,000, (approximately $912,000), and had transferred to
its beneficial ownership the sum of (pound)524,000, ($767,000), previously
loaned from Ci4net.com Inc., to UKPropertyChannel Limited, a company in which
the Company has a 10% shareholding as at September 30, 2000.
The consideration for the balance owing to the Company arising from this
resolution that has not already been settled in cash as at September 30, 2000,
approximately (pound)1.5 million, (approximately $2.2 million), will be settled
by the issue of 1,098,280 shares of ordinary shares in Ci4net.com, Inc based on
a price of $2.00 per share, representing the closing price of the Ci4net.com
common stock as traded on the Over the Counter Bulletin Board on December 12,
2000. This amount is recorded as a receivable from a related party as at
September 30, 2000.
10
<PAGE>
This amount is recorded as a receivable from a related party as at September 30,
2000.
7. SUBSEQUENT EVENTS
On November 16, 2000, the company's primary subsidiary, Town Pages UK Limited,
officially changed its name to Avatar Interactive Limited.
As previously mentioned, the board has restructured and refocused the company in
order to stem and eventually eradicate the losses, including the appointment of
a new board of directors to run the subsidiary at operating level and a
realignment of the kiosk business focus.
The appointment of the new directors was made to strengthen Avatar Interactive's
management team and to provide greater focus and accountability to the
TownPagesNet.com PLC board. In tandem with the appointment of the new directors
and the realignment of the company's business, the restructuring eliminated 12
positions, equivalent to roughly 20% of the workforce. The remaining personnel
were relocated to the Welton House office in Alton, resulting in the closure of
the Market Square and Warrington offices, further reducing overhead.
The termination costs amounted to (pound)50,000 ($73,000).
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We make certain forward-looking statements in this Form 6-K within the meaning
of section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended, relating to our financial
condition, profitability, liquidity, resources, business outlook, proposed
acquisitions, market forces, corporate strategies, contractual commitments,
capital requirements and other matters. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. To comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ substantially from the anticipated
results or other expectations expressed in our forward-looking statements. When
words and expressions such as: "believes," "expects, " "anticipates,"
"estimates," "plans," "intends," "objectives," "goals," "aims," "projects,"
"forecasts," "possible," "seeks," "may," "could," "should," "might," "likely,"
"enable," or similar words or expressions are used in this form 6-K, as well as
statements containing phrases such as "in our view," "there can be no
assurance," "although no assurance can be given," or " there is no way to
anticipate with any certainty," forward-looking statements are being made in all
of these instances. These forward-looking statements speak as of the date of
this Form 6-K.
Various risks and uncertainties may affect the operation, performance,
development and results of our business and could cause future outcomes to
differ materially from those set forth in our forward-looking statements,
including the following factors: our change in business strategy; our growth
strategies; anticipated trends in the industry; our ability to enter into
additional Web site design contracts; our relationships with our customers;
general market and economic conditions; our ability to finance our future
business requirements; the ability to successfully integrate acquired companies
and businesses; management retention and development; changes in Federal and
sate laws and regulations; as well as the risks, uncertainties and other factors
described from time to time in our SEC filings and reports.
We undertake no obligation to publicly update or revise any forward-looking
statements as a result of future developments, events and conditions outside of
our control. New risk factors emerge from time to time and it is not possible
for us to predict all such risk factors, nor can we assess the impact of all
such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ significantly from
those forecast in any forward-looking statements. Given these risks and
uncertainties, investors should not overly rely or attach undue weight to our
forward-looking statements as an indication of our actual future results.
OVERVIEW
We were incorporated in England and Wales on July 31, 1998 under the name
TownPages Holdings plc. We acquired all of the share capital of Town Pages UK
Limited on December 15, 1998. Our name was changed to TownPagesNet.com plc in
April 1999.
We successfully completed our initial public offering on May 5, 1999, when we
sold American Depositary Shares representing 2,200,000 ordinary shares. The net
proceeds from that offering have primarily been used to make strategic
acquisitions to enhance our growth and provide working capital to roll out our
infrastructure expansion plans.
Our primary subsidiary, Avatar Interactive Limited, (formerly Town Pages UK
Limited), provides new media related services to both consumers and businesses.
It has recently been restructured with a significant realignment of business
focus. See below for further details.
In July 1999, we completed the acquisition of the WWW.CO.UK Limited group of
companies. The WWW.CO.UK Limited companies provide cinema-related services from
Web site design through indoor cinema advertising. The acquisition strengthened
our sales personnel resources and also provided local community content for our
TownPages information service. For the three months ended September 30, 2000,
the
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WWW.CO.UK Limited group of companies contributed (pound)676,461 ($990,271) to
net revenues, compared to (pound)563,799 for the three months ended June 30,
2000. WWW's revenues are significantly impacted by the revenue recognition
policies as all their contracts are for a period of two to three years.
In September 1999, we completed the acquisition of Morbria Limited and its
subsidiaries. Morbria and its subsidiaries provide Website design, advertising,
marketing and communications services. The Morbria acquisition had the effect of
doubling our Web site design personnel. On August 31, 2000, Morbria completed
the acquisition of 75.01% of 24.7 Colour Limited, a sheetfed print company with
annual revenues that amounted to approximately (pound)1.2 million, ($1.8
million), last year. Established in 1987, 24.7 Colour possesses a solid
long-standing client base. The opportunity presented by this acquisition is an
increase in profitability by combining 24.7 Colour and Graphic Palette's repro
division. Despite the recent advances of technology, it is our belief that there
will always be a market for conventional print. The growth area will be in
personalization and direct mail. The long-term aim is to create Manchester's
first top quality `one-stop print house', which will be able to handle client
requirements from concept and design right through to personalization and direct
mailing. In the future, clients will be able to have an entire job completed in
house, including all mailings. The objective of Morbria is to create a true
`multi media group' encompassing each media area of potential within the
advertising, marketing and communications arena. Morbria now consists of The
Graphic Palette Company Limited, Centrix Communications Limited, and 24.7 Colour
Limited.
For the three months ended September 30, 2000, the Morbria Limited group of
companies contributed (pound)994,076 ($1,455,228) to net revenues, of which 24.7
Colour Limited contributed (pound)133,025 ($194,735) in the one month since
purchase, compared to (pound)696,052 for the three months ended June 30, 2000.
In October 1999, we acquired Buyers Guide Limited, an Internet-based
business-to-government company. Buyers Guide PLC was admitted to trade on the
Alternative Investment Market of the London Stock Exchange following the raising
of approximately (pound)5 million ($7.3 million) from institutions.
Additionally, we sold a further 5.14% stake to Ci4net.com, Inc. Following these
transactions, we retain ownership of approximately 75.1% of Buyers Guide PLC and
have realized a profit of approximately (pound)5.3 million ($7.7 million) from
the sale of shares in Buyers Guide PLC to date.
For the three months ended September 30, 2000, Buyers Guide contributed
(pound)418,977 ($613,340) to net revenues compared to (pound)312,674 for the
three months ended June 30, 2000, an increase of 34%. For accounting revenue
recognition purposes, these advertising contracts are recognized ratably over
the term of the contracts, in this case the vast majority being one year
contracts.
In November 1999, we acquired Research Sales, Inc. Research Sales is an online
polling and market research company. Our kiosks and Website provide additional
opportunities for data collection for the Research Sales, Inc. Portrait of
America website. We also intend to develop a Portrait of the UK website with
Research Sales that would in turn provide additional content for our TownPages
information service. Research Sales, Inc. is an early stage company and
contributed (pound)3,701 ($5,418) in the three months ended September 30, 2000,
similar to its revenues for the three months ended June 30, 2000.
Our net profit for the three months ended September 30, 2000 is after a charge
of (pound)795,655 ($1,164,759) from the amortization of goodwill arising from
these acquisitions. Amortization of goodwill for the nine months ended September
30, 2000 totals (pound)2,218,623, ($3,247,843), which is roughly equivalent to
the net loss recorded in the period.
A significant proportion of the operating loss for the three months ended
September 30, 2000 has again been incurred by our Avatar Interactive Limited,
subsidiary.
As previously mentioned, the board has restructured and refocused the company in
order to stem and eventually eradicate the losses, including the appointment of
a new board of directors to run the subsidiary at operating level and a
realignment of the kiosk business focus.
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The appointment of the new directors was made to strengthen Avatar Interactive's
management team and to provide greater focus and accountability to the
TownPagesNet.com PLC board. In tandem with the appointment of the new directors
and the realignment of the company's business, the restructuring eliminated 12
positions, equivalent to roughly 20% of the workforce. The remaining personnel
were relocated to the Welton House office in Alton, resulting in the closure of
the Market Square and Warrington offices, further reducing overhead.
Avatar Interactive will now concentrate on three main business areas:
E-business solutions: the B2B market in the UK represents an extremely large
commercial opportunity. A recent survey into the impact of e-commerce on small
and medium enterprises in the UK has revealed that investment in this sector is
set to rise to (pound)3.8 billion ($5.6 billion) over the next twelve
months,(per Durlacher Research Limited) In order to exploit this market's
potential, Avatar Interactive has partnered with InterShop, one of the world's
leading e-commerce software suppliers, a relationship that has already
successfully fostered new business. Furthermore, the company is in a strong
position to offer full service capabilities utilizing the data center for
hosting both e-solutions and kiosk applications.
Kiosk solutions: the company plans to utilize its experience in the design and
building of kiosk applications based on the development of its own Wide Area
Kiosk Network, which remains the largest in the UK with 203 touch screen kiosks
installed and operational as at October 31, 2000. The company will exploit this
knowledge by developing applications for third parties.
Kiosk network: based upon information provided by our kiosk hosts, approximately
124 million people walk past our current network of kiosks in a year. This
represents an outstanding opportunity for advertisers to use an interactive
medium to reach a large audience. It is the company's intention to maximize the
revenue potential of this medium and at the same time increase usage of the
kiosks by developing a `free to browse' kiosk model. Trials are planned to take
place in a major city in the UK in the near future. This model will allow users
to view any information they desire through the kiosk in addition to the
TownPages Information Service. Avatar Interactive will be the first company to
offer free unrestricted access to the Internet via a kiosk in the UK, thereby
presenting an excellent media opportunity.
This new strategy has already resulted in meaningful business gains including
work for The National Trust, The Met Office, Spinlock and Bass Breweries. The
most significant of these is the recent award of consultancy work for The
National Trust. The Trust is a national body that controls over 612,000 acres of
countryside in the UK plus more than 200 buildings and gardens of outstanding
interest and importance. Avatar Interactive was selected from among 18 agencies
to complete this work.
The company has also been able to renegotiate the contract with NCR, previously
the exclusive kiosk supplier. The contract provided for NCR to supply Town Pages
with 3,500 Ci20 Internet enabled touch screen kiosks. The agreement required
Town Pages to purchase a pre defined number of these specific kiosks at
specified time intervals in line with the company's original business plan.
Failure to meet the terms of that agreement could have resulted in a penalty to
the company totaling approximately (pound)700,000 ($1,025,000). The realignment
of business objectives rendered the original agreement inappropriate. Avatar
Interactive intends to continue to use NCR as a kiosk supplier and is now able
to offer kiosks from NCR's entire product range. This is consistent with the new
business direction offering bespoke kiosk solutions.
Another of the major results of the restructuring has been the decision to
formally bring to a close our work on the web channel design contracts. We have
concluded that continued work on these was not to our commercial advantage
moving forward. A financial resolution to conclude these contracts has been
reached with our major customer and forms part of the overall settlement
described in detail in note 6 to the accounts. This resolution has resulted in a
one-off gain of (pound)264,443 ($387,118) in the three months to September 30,
2000.
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UKPropertyChannel.com Limited, which provides a portal for estate agents
(realtors) in the UK and Ireland and in which we hold a 10% stake as at
September 30, 2000, has mostly exclusive three year notice contracts with over
2,000 realtors to provide them with e-commerce solutions. Under these
agreements, UKPropertyChannel has the rights to include all properties on the
UKPropertyChannel national property Website. The national Website currently has
approximately 1,400 of these branches live and a database of approximately
55,000 properties. Revenues will be obtained from the contractual rights to sell
banner advertising within the sites. Advertising sales commenced in February
2000, and orders have totaled approximately pound (pound)1,130,500 ($1,655,000).
Ongoing negotiations which are likely to increase our equity stake in
UKPropertyChannel.com Limited are still taking place. Our ownership interest is
currently accounted for under the cost method of accounting.
It is anticipated that we may incur net operating losses for the foreseeable
future as we continue to accelerate our development program and absorb the
effects of the restructuring. Performance will depend, in part, on the amount
and rates of growth in our net revenue from Website design services,
advertising, and our new business areas. We expect operating expenses to
increase, especially in the areas of corporate governance and sales and
marketing including brand promotion. To the extent that these expenses are not
accompanied by an increase in net revenue and positive cash flows from
operations, our business, results of operations, and financial condition could
be materially adversely affected. We will need to increase our quarterly net
revenue to achieve profitability. We believe that period-to-period comparisons
of our operating results are not meaningful and that you should not rely upon
the results for any period as an indication of future performance.
EFFECT OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS
Much of our revenues are derived from contracts which span a period of time. As
detailed in footnote 1 to the financial statements, we recognize the revenues
ratably over the term of the contracts. For Avatar Interactive, Morbria and
Buyers Guide, this is generally over one year. For WWW, this is generally over
two or three years. Conversely, the corresponding costs are recognized as they
are incurred.
The deferred income figures, short-term and long-term, as stated in the Balance
Sheet, give an indication of the revenues not yet recognized in the Statement of
Operations.
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RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
Total revenues: % % % %
Advertising 17 55 5 62
Contract & other revenues . . . . . . . 74 16 85 14
Contract revenues from related parties 9 29 10 24
--- --- --- ---
Total revenues 100 100 100 100
Cost of revenues:
Maintenance & hosting costs 6 16 8 20
Cost of contract revenue & other 33 15 50 27
Advertising and commission costs 10 53 3 56
---- --- --- ---
Total cost of revenue 49 84 61 103
---- --- --- ---
Gross profit 51 16 39 (3)
Operating expenses:
Sales and marketing 11 6 7 8
Research and development 30 4 14 6
General and administrative 44 59 20 72
Depreciation 2 8 1 13
Amortization 12 36 3 41
---- --- --- ---
Total operating expenses 99 113 45 140
---- --- --- ---
Net Income(Loss) from operations (48) (97) (3) (143)
Interest income 5 2 - 1
Interest expense (1) (2) (1) (2)
Other income - 249 - 102
Foreign exchange gain - 2 - 2
Minority interests - 5 - 1
---- ---- ---- ----
Net Income(Loss) (44)% 159% (4)% (39)%
==== ==== ==== ====
NET REVENUE
Total net revenue for the three months ended September 30, 2000 was
(pound)2,222,628, ($3,253,705), an increase of (pound)500,610 over revenues of
(pound)1,722,018 for the three months ended September 30, 1999.
Total net revenue for the nine months ended September 30, 2000 was
(pound)5,424,734, ($7,941,268), a decrease of (pound)163,247 on revenues of
(pound)5,587,981 for the nine months ended September 30, 1999.
It is unrealistic to compare results from the two periods. The figures to
September 30, 1999 almost entirely comprise revenues from the Web channel
development contracts. As detailed above, we have not recognized revenues from
these contracts in the nine months ended September 30, 2000, and have now
brought them to a conclusion. Conversely, the revenues in the period ended
September 30, 2000, include full contributions from all of the subsidiaries
acquired in 1999 whereas the revenues for the period ended September 30, 1999,
include partial contributions from WWW and Morbria, both of whom were acquired
during the third quarter 1999, only.
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The revenues reported this year consist roughly two thirds advertising sales and
one third web design services. A more appropriate comparison is the quarter
ended September 30, 2000, compared to the quarter ended June 30, 2000, where net
revenues increased by (pound)544,790 ($797,518) or approximately 32% from
(pound)1,677,838, ($2,456,187).
As described earlier, our advertising sales are recognized ratably over the term
of the contracts. We expect our reported revenues to increase in future
quarters, partly as a result of deferred income being released to reported
revenues.
ADVERTISING REVENUE
Advertising revenue increased to (pound)1,231,454, ($1,802,726) in the three
months ended September 30, 2000 from (pound)295,949 in the three months ended
September 30, 1999 and in the nine months ended September 30, 2000 increased to
(pound)3,352,676, ($4,907,983) from (pound)300,231 in the nine months ended
September 30, 1999.
The increase was mainly due to the inclusion in fiscal 2000 of results from all
of the companies acquired during 1999 compared to only partial contributions at
this stage last year. We anticipate that advertising revenues will increase in
the future for the reasons outlined in Net Revenue above.
CONTRACT REVENUE AND OTHER
Contract and other revenues decreased to (pound)991,174, ($1,450,979), of which
(pound)634,430, ($928,741), are with related parties, for the three months ended
September 30, 2000, from (pound)1,426,069 for the same three month period ended
September 30, 1999. In the nine months ended September 30, 2000, contract and
other revenues fell to (pound)2,072,058, ($3,033,285), of which
(pound)1,291,404, ($1,890,486), are with related parties, from (pound)5,287,750,
for the same nine month period ended September 30, 1999.
As described above, we have not recognized any revenues in connection with the
Web channel development contracts during fiscal 2000. This contrasts with the
nine months ended September 30, 1999, where virtually all of the reported
revenues were derived from the channels contracts. All contract revenues
reported for the nine months ended September 30, 2000 were derived from Web site
design services.
We expect our contract revenues to increase as we refocus our Avatar Interactive
Limited subsidiary in this area, although the increase may not filter through in
significant measure until 2001.
MAINTENANCE AND HOSTING COSTS
Maintenance and hosting costs consist primarily of Internet connection charges,
Web site equipment leasing costs, repair and maintenance of equipment and
systems, collection, development, and processing for display on Town Pages of
locally-focused content.
Maintenance and hosting costs increased to (pound)361,367 ($529,005), for the
three months ended September 30, 2000, from (pound)111,663 for the three months
ended September 30, 1999. In the nine months ended September 30, 2000,
Maintenance and hosting costs increased to (pound)1,107,723, ($1,621,596), from
(pound)463,865 for the nine months ended September 30, 1999.
The increase is attributable to two main factors. First, the fiscal 2000 figures
include costs associated with all of the subsidiaries acquired in 1999. Those
subsidiaries acquired after September 30, 1999, will not appear in the
comparative figures. Secondly, we have rolled out additional TownPages kiosks
during fiscal 2000. We anticipate that these costs will continue to grow in
absolute amounts for the foreseeable future as we pursue our expansion plans and
continue to roll out kiosks.
COSTS OF CONTRACT REVENUES AND OTHER
Cost of contract and other revenues consists primarily of certain Web site
design costs and related operating costs.
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Cost of contract and other revenues decreased to (pound)336,675, ($492,859), for
the three months ended September 30, 2000, from (pound)561,075 for the three
months ended September 30, 1999. In the nine months ended September 30, 2000,
Cost of contract and other revenues decreased to (pound)1,459,708, ($2,136,867)
from (pound)2,763,609 in the nine months ended September 30, 1999.
The decrease was due to the corresponding revenues not being recognized in
respect of the Web channel development operations as detailed above.
ADVERTISING AND COMMISSION COSTS
Advertising and commission costs consist primarily of the salaries and related
costs, including commission, of direct sales staff.
Advertising and commission costs increased to (pound)1,164,979, ($1,705,412),
for the three months, and (pound)3,040,607, ($4,451,144), for the nine months
ended September 30, 2000, compared to (pound)177,980 for the three and nine
months ended September 30, 1999.
The 1999 comparatives comprise only a partial contribution from WWW whereas the
2000 figures include the relevant costs of all subsidiaries.
Unlike the advertising revenue which is deferred over the period of the
contract, all direct costs are recognized up front. We would expect these costs
to grow in absolute terms in the future as the expansion plans of the
subsidiaries are actively pursued.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of salaries of marketing
personnel, advertising and other marketing related expenses. Sales and marketing
expenses also include personnel costs and costs associated with our advertising
and telesales campaigns in the United Kingdom.
Sales and marketing expenses decreased to (pound)78,927, ($115,541) for the
three months ended September 30, 2000, from (pound)521,663 for the three months
ended September 30, 1999. In the nine months ended September 30, 2000, Sales and
marketing expenses decreased to (pound)352,178, ($515,554) from (pound)762,750
in the nine months ended September 30, 1999.
This decrease in sales and marketing costs is primarily due to the bringing of
our marketing operations in house. For the nine months ended September 30,1999,
we were a new entity within both the UK and US market places and relied heavily
on the utilization of UK and US Marketing agencies.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses include expenses associated with the
development of services, products and our Web site and consist principally of
personnel costs. These costs have been charged to research and development
expenses as incurred.
Research and development expenses decreased to (pound)146,351, ($214,244), for
the three months ended September 30, 2000, from (pound)192,602 for the three
months ended September 30, 1999. In the nine months ended September 30, 2000,
Research and development expenses increased to (pound)432,474, ($633,097) from
(pound)364,931 in the nine months ended September 30, 1999.
The decrease in the three months ended September 30, 2000, was primarily due to
a cutback in the number of personnel in Avatar Interactive. The increase in the
nine months ended September 30,2000 was primarily due to the attendant increases
in the number of personnel involved in the development of each of the companies
within the group's own Websites, in particular our Research Sales, Inc.
subsidiary which is still at a developmental stage.
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GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries and related
costs for general corporate functions, including finance, accounting and IT,
facilities and legal and other fees for professional services.
General and administrative expenses increased to (pound)1,302,415, ($1,906,605),
in the three months ended September 30, 2000, from (pound)746,712 for the three
months ended September 30, 1999. In the nine months ended September 30, 2000,
General and administrative expenses increased to (pound)3,888,619, ($5,692,548),
from (pound)1,124,423 in the nine months ended September 30, 1999.
The increase in general and administrative expenses was primarily due to the
inclusion of the recently acquired subsidiaries, and also increases in the
number of personnel to support the growth of our business, increases in
recruiting costs related to filling key senior executive positions and costs
associated with the increase in professional fees required for SEC and general
corporate governance purposes. We expect that we will incur additional general
and administrative expenses for the foreseeable future as we hire additional
personnel and incur additional expenses related to the growth of the business
and our operations as a public company.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses increased to (pound)976,585,
($1,429,623), for the three months ended September 30, 2000, from (pound)233,764
for the three months ended September 30, 1999. In the nine months to September
30, 2000, Depreciation and amortization expenses increased to (pound)2,915,888,
($4,268,569), from (pound)269,172 in the nine months to September 30, 1999.
Of the charge for the three and nine month periods ended September 30, 2000,
amortization of goodwill arising from the acquisitions was (pound)795,655 and
(pound)2,218,623 respectively, compared to (pound)197,953 for the three and nine
months ended September 1999.
The increase in the depreciation of fixed assets has principally arisen from the
charge on assets acquired with the subsidiaries, the greater number of kiosks
purchased and installed, and the development of our data centers. We expect this
cost to increase further in the future as we roll out more kiosks and continue
to develop our infrastructure.
INTEREST AND OTHER INCOME/EXPENSE, NET
Interest and other income/expense, net includes income from our cash and
investments and expenses related to our financing obligations.
Interest and other expense, net amounted to a net income of (pound)4,441,
($6,503), for the three months ended September 30, 2000, compared to net income
of (pound)73,247 for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, the net expense was (pound)19,588, ($28,675),
compared to net income of (pound)86,861 for the nine months ended September 30,
1999.
The turnaround is primarily due to two factors. Our initial public offering took
place in the second quarter of 1999 and we had substantial funds on deposit at
that time. Additionally, in fiscal 2000, we have entered into finance leases to
fund the purchase of equipment.
We would expect the net expense to increase as we carry interest on the finance
leases for complete periods going forward.
FOREIGN EXCHANGE GAIN
In the three and nine month periods to September 30, 2000, the foreign exchange
gains amounted to (pound)40,316, ($59,018), and (pound)96,823, ($141,739),
respectively. There was no equivalent in the prior year.
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The gains resulted from an appreciation in the US dollar rate against the pound
sterling during the period.
GAIN ON SALE OF INVESTMENT
In the three and nine month periods to September 30, 2000, the gain on sale of
investment amounted to (pound)5,267,995, ($7,711,818). There was no equivalent
in the prior year.
This gain is wholly attributable to the gain realized on the sale of 24.91% of
our shareholding in our BuyersGuide subsidiary.
GAIN ON CLOSURE OF WEB CHANNELS
In the three and nine month periods to September 30, 2000, the gain on closure
of web channels amounted to (pound)264,443, ($387,118). There was no equivalent
in the prior year.
This gain is as a result the decision to formally bring to a close our work on
the web channel design contracts. We have concluded that continued work on these
was not to our commercial advantage moving forward. A financial resolution to
conclude these contracts has been reached with our major customer and forms part
of the overall settlement described in detail in note 6 to the accounts. We do
not anticipate similar one off gains in the foreseeable future.
NET INCOME (LOSS)
We have recorded a net profit of (pound)3,536,476, ($5,177,048), for the three
months ended September 30, 2000, and a net loss of (pound)2,120,530,
($3,104,246), for the nine months ended September 30, 2000, as opposed to net
losses of (pound)750,194 and (pound)251,888 in the corresponding periods in
1999.
The third quarter net profit is wholly attributable to the gain realized on the
sale of the investment as detailed above. We have continued to incur losses at
an operating level, although the rate of theses loses has slowed.
The increase in net losses for the nine month period compared to 1999 can be
attributed to several main reasons;
a) the realignment of the Web channels development strategy and consequent non
recognition of revenue from that source,
b) high goodwill amortization charge resulting from our acquisitions, and
c) the continued start up development of our Research Sales, Inc. subsidiary,
We anticipate that losses may continue to arise on an annual and quarterly basis
for the foreseeable future. Item b) above will continue to impact adversely upon
our results. Resolutions to items a) and c) above may impact favorably upon our
results at some stage in the future.
We expect to continue to make an operating loss in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed our operations primarily
through loans from Glen Investments, an investment vehicle owned by Kevin R.
Leech, a significant stockholder and one of our directors. On May 5, 1999, we
completed our initial public offering of American Depositary Shares representing
2,200,000 shares of our common stock. Proceeds from the offering were
(pound)10,708,677 net of offering costs. At September 30, 2000, we had cash and
cash equivalents and short-term investments of approximately (pound)4,457,391,
($6,525,174), as compared to (pound)647,035 at December 31, 1999.
TownPages does not use derivative financial instruments in its investment
portfolio. TownPages considers investments in highly liquid instruments
purchased with an original maturity of 90 days or less to be cash equivalents.
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Net cash used in operating activities for the nine months ended September 30,
2000 was (pound)840,081 ($1,229,795) and compared to net cash used of
(pound)10,090,020 for the nine months ended September 1999. Cash provided by
operating activities in the nine months ended September 30, 2000 was primarily
the result of a large reduction in accounts receivable as we collected in much
of the outstanding debts on the web channel contracts.
Net cash used in investing activities for the nine months ended September 30,
2000 and 1999 was (pound)2,793,989, ($4,090,121), and (pound)1,871,927
respectively. Cash used in investing activities in the nine month period ended
September 30, 2000 was primarily related to the purchase of further kiosks and
the completion of our data centers. We also paid contingent consideration of
(pound)250,000, ($378,250), with regard to our WWW subsidiary. From time to
time, we expect to evaluate the acquisition of products, businesses and
technologies that complement our business. These acquisitions may involve cash
investments.
Net cash provided by financing activities for the nine months ended September
30, 2000 and 1999 was (pound)7,444,427, ($10,897,896), and (pound)15,546,317
respectively. Cash provided by financing activities in the nine months ended
September 30, 1999 was primarily attributable to net proceeds from the issuance
of common stock. Cash provided by financing activities in the nine months ended
September 30, 2000 was largely due to the result of the initial public offering
of 19.77% of Buyers Guide plc, sale-leaseback transactions entered into in order
to finance some of the kiosks and a short term loan received from one of our
significant stockholders and directors, as detailed in footnote 2 to the
financial statements.
Although we will depend upon revenues from operations, we also intend to reduce
the cash burn rate. This process has started with the restructuring of Avatar
Interactive Limited. Furthermore, we intend to call upon borrowings from a
credit facility secured with our bankers, Hong Kong Shangai Banking Corporation,
for (pound)2.5 million ($3.6 million) to meet our capital expenditure
requirements and fund continuing operating losses. We also intend to realize
some of our investments. There is no assurance that we will achieve projected
revenues, that bank borrowings will be available to us on commercially
attractive terms or at all, or that the costs actually incurred to expand our
operations will not exceed our budget. Also, if we elect to expand our
operations outside the United Kingdom or to add services or other capabilities
not presently contemplated, either alone or with a strategic partner, revenues
from operations and any available bank borrowings may be insufficient to meet
our capital requirements for that expansion. If additional funds were to be
required for any of those reasons, we would be unable to complete our expansion
as planned and our business and financial condition would be seriously adversely
affected if we were unable to raise additional funds on acceptable terms, in
timely fashion, or at all. There is no assurance that any additional financing
will be available on commercially attractive terms, in timely fashion, in
sufficient amounts, or at all.
If we raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of TownPagesNet.com plc held by existing
shareholders, including holders of our ADSs, will be reduced and those
stockholders may experience significant dilution. In addition, new securities
may contain certain rights, preferences or privileges that are senior to those
of our ordinary shares and ADSs.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is principally confined to our short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk.
EFFECTS OF THE EURO
Under the terms of the Treaty on European Economic and Monetary Union, as of
January 1, 1999, the euro was introduced as a common currency among the eleven
members of the European Union that are participating in this phase of European
Economic and Monetary Union, commonly referred to as EMU. Although the
individual currencies of these countries will continue to be used until the end
of 2001, their exchange rates with the euro are fixed. The Euro is now being
used for
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transactions that do not involve payment using physical notes and coins
of the participating countries. The individual currencies will be replaced with
euro notes and coins at the start of 2002 when all countries participating in
the EMU are expected to operate with the euro as their exclusive common
currency.
The current government of the United Kingdom has stated that the United
Kingdom will not participate in EMU and adopt the euro until after the next
general election, at the earliest. We are currently working on the assumption
that the next general election will be in 2001 or 2002 and that the United
Kingdom will enter the EMU shortly thereafter following confirmation of the
government's decision through a referendum.
We do not currently operate in any countries that have adopted the euro and we
therefore do not face a significant currency or competitive exposure to the
euro. However, in the future we may expand into a number of these countries.
In the event that the United Kingdom adopts the euro, we would face a
number of costs in altering our accounting-related systems for the new currency,
although at present it is too early to estimate what these costs might be.
Adoption of the euro in the United Kingdom would also create greater
transparency between prices offered to our customers in different countries that
participate in EMU.
A significant amount of uncertainty exists as to the effect that the euro
will have on the marketplace. We are assessing the effect that the euro
introduction will have on our internal systems and the sale of our products and
services. We expect to take appropriate actions based on the results of this
assessment. Currently, we do not believe that the adoption of the euro by eleven
countries of the European Union will have an adverse impact on our liquidity or
financial condition.
OTHER INFORMATION
LEGAL PROCEEDINGS
None
CHANGES IN SECURITIES AND USE OF PROCEEDS
None
DEFAULTS UPON SENIOR SECURITIES
None
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
OTHER INFORMATION
None
EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 6-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 6-K to be signed on its behalf by
the undersigned thereto duly authorized.
Dated:
REGISTRANT:
TOWNPAGESNET.COM PLC
By:/s/Robert P. Bradshaw
--------------------------
Robert P. Bradshaw
Chief Executive Officer
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