PHRM.L Regulatory News (PHRM)

19 Apr 2006 07:00

To be embargoed until 7.00am on 19 April, 2006 121Media, Inc (the "Company" or the "Group") Preliminary results for the year ended 31 December 2005 121Media, Inc. ("121Media"), the AIM listed online contextual advertisingcompany, announces its preliminary results for the financial year ended 31December 2005.Highlights * Group turnover increased by 25% to $5.2 million for 12 months to 31 December 2005 (2004: $4.17 million); Operating losses were $3.3 million (2004 loss: $0.03 million), as a result of the significant investment in the PageSense Javascript application necessary to support the repositioning of the business. * Significant re-orientation of the business to take advantage of opportunities in the Internet Service Provider (ISP) marketplace; * Strengthening of the Board and senior management team to capitalise fully on the opportunities that exist for 121Media; * As of today partnership agreements in place with 10 entities (4 as at 31 December 2005) representing a user base in excess of one million internet users, including 2 major US municipal wireless projects; * Advanced discussions currently under way with a significant number of large ISPs representing a potential pipeline of more than 70 million internet users; * $4.2 million (before expenses) raised from UK and US institutions in February 2006 to capitalise on the ISP partnering opportunity. Kent Ertugrul, Chief Executive, commented;"Increasingly, Internet Service Providers are cast in the role of publicutilities, with on/off control of the "pipe," and little opportunity for growthbeyond that of the Internet itself. I am gratified to see that our newtechnology is turning that perception on its head."Our Directors feel that 121Media's PageSense application, developed with afocused effort throughout 2005, creates a wide range of possibilities for ISPsand could become the cornerstone of future revenue models and customercommunication strategies for the industry."With our success to date in advancing discussions with most of the largestISPs in the United States, we expect to see a major shift beginning in 2006toward new advertising focused revenue streams for ISPs and great success for121Media."Validation of this belief is to be found in many places, not least in therecent announcement by Carphone Warehouse that it will be offering freebroadband in the UK and the resulting statement by a Merrill Lynch analyst that"we think free broadband is on the way"."The investments we have made during 2005 and early 2006 are already showingbenefits, with 10 partnerships in place as of today representing well in excessof one million internet users once fully rolled out, and advanced discussionstaking place with a significant number of very large ISPs representing in totala potential pipeline of more than 70 million users. Included in this list ofagreements signed are entities responsible for municipal wireless projects intwo major cities in the United States."We are confident that the steps we have taken in 2005 leave our business verywell placed to deliver significant growth in shareholder value in 2006 andbeyond."121Media, Inc. 0870 405 7727 Kent Ertugrul, CEO Tim Bowen, CFO John East & Partners Limited 020 7628 2200 John East/Simon Clements Edelman Financial PR 020 7344 1243 Jo Sheldon/Paul Lockstone 121Media, Inc (the "Company" or the "Group") Preliminary results for the year ended 31 December 2005 Chairman's StatementResults and dividendI am pleased to announce the results for the year ended 31 December 2005.Overall the Group made much progress during its first year of trading on theAlternative Investment Market ("AIM"), including repositioning the business totake advantage of the fast moving Internet Service Provider ("ISP")marketplace.Turnover for the Group for the year to 31 December 2005 increased by 25% to$5.2 million (2004: $4.17 million). Operating losses were $3.3 million (2004loss: $0.03 million), as a result of the significant investment in thePageSense Javascript application necessary to support the repositioning of thebusiness.Losses before taxation were $3.3 million (2004 loss: $0.04 million). Losses pershare were 0.44 cents (2004: 0.01 cents).The Board is not recommending the payment of a dividend in respect of 2005. Itis the Board's intention to commence the payment of dividends as soon aspracticable, and to pursue a progressive but prudent dividend policythereafter.Strategy and business updateIn early 2005, it became clear to the Directors that a strategic opportunityexisted for 121Media to enter into revenue sharing contracts with ISP's toprovide them with a highly targeted contextual advertising solution. As pricingpressure and new forms of access drive internet connectivity pricing downwards,advertising will become an increasingly important element of ISPs' revenuemodels. In this context, we believe that the benefits of 121Media's PageSenseJavascript application will become increasingly compelling to them.Our PageSense Javascript application analyses the meaning and context of a webpage being viewed by a user in real time, allowing us to deliver targetedadvertisements to that user. By marketing our PageSense solution to ISPs, wecan enable targeted advertisements to be delivered to each ISP's user base. Inreturn, the ISPs earn a share of the advertising revenue which we generate,thereby allowing them to offer more competitive connection fees to theircustomers. This relationship model is made possible by 121Media's precisiontargeting, which results in an acceptable level of targeted advertising beingshown to users with the potential to generate value for the advertiser, andtherefore the ISPs.Following a significant re-orientation towards this opportunity, and away fromthe Group's previous business model of desktop distribution, we made veryencouraging progress in the second half of the year with our ISP partneringstrategy. As at April 2006, we have signed agreements with ten entities toimplement our PageSense technology, and have now established relationships withmost of the largest US ISPs. A number of the signed partnerships are currentlyin testing phase, and the full revenue benefits are expected to flow during2006.BoardDuring the course of the past year, we have significantly strengthened ourBoard and our senior management team.In December, David Gwozdz, who had joined us earlier in the year as Senior VicePresident, Business Development and Sales, was appointed to the Board as aDirector. David was one of the founding team of DoubleClick, the previouslyNASDAQ-listed internet advertising solutions corporation.Also in December, Tim Bowen joined the Group and was appointed to the Board asa Director and as Chief Financial Officer. Tim has over 10 years experience ofmanaging fast growing, IT-related businesses.At the same time, David Mattey stepped down from his role as Non-ExecutiveDirector due to his expanding business interests elsewhere. Ahmet Can steppeddown from his position as a Director, but remains with the Company as SeniorVice President, Corporate Development. We are very grateful to both David andAhmet for their contributions to 121Media at Board level. Earlier in 2005,Jordan Mitchell left the Group to pursue other interests.I am confident that our Board now has the right experience and breadth ofskills to capitalise fully on the significant opportunities that exist for121Media.PeopleWe have invested in our people and sales infrastructure during the year, inparticular building our US sales and marketing presence, and now have in placean experienced team to deliver on the ISP opportunity.On behalf of the Board, I would like to thank them all for their significantcontribution to 121Media's strategic and operational progress during 2005.2006 prospectsThe losses in 2005 reflect the significant levels of investment during theyear.In January 2006, the Group raised $4.2 million (before expenses) by way of aplacing with UK and US-based institutional investors, to ensure that we cancapitalise fully on the ISP partnering opportunity for our PageSense Javascriptapplication.We believe that 121Media is now extremely well positioned as the current soleprovider of a turnkey technology to introduce high value, targeted advertisingtechnology to companies in the business of Internet connectivity and that,during 2006, the Group will play a leading role in the development of newrevenue models for these ISPs. We are very encouraged by the success in signingagreements with ISPs to date.We therefore look forward to a year of continued strategic, operational andfinancial progress, and remain highly confident of the long-term prospects forthe Group.David SvendsenChairman18 April 2006CHIEF EXECUTIVE OFFICER'S REPORTDuring the year under review, we repositioned the Group to take advantage of asignificant opportunity to partner with Internet Service Providers usingPageSense Javascript technology. These partnerships allow Internet ServiceProviders ("ISPs") to tap into a major new source of advertising revenue at atime of increasing need for greater margins.Our technology currently enjoys a strong competitive advantage in the ISPspace, and during 2005 we devoted considerable effort and investment to ensurethat we are properly positioned to exploit this market-leading position.The ISP market opportunity121Media's PageSense application allows us to deliver contextual advertisingsolutions directly to users of Internet Service Providers (ISP), allowing ISPsfor the first time to directly participate in the online advertising market asadvertisers in their own right.The ISP marketplace is undergoing considerable turmoil at present. Dialupproviders are facing a rapidly shrinking user base as the market migrates tobroadband; ADSL providers' margins are shrinking rapidly as they engage in aprice war and their traditional telephony business comes under threat fromVoice Over IP; and cable providers are losing market share to ADSL providersbased upon price. Substantial discounts are now being offered by ISPs trying toboth attract new users and maintain their existing user base. Furthermore,examples of free wired broadband are starting to appear as evidenced byCarphone Warehouse's recent announcement in the UK.In addition, all of these segments are directly threatened by the growingmomentum of city-wide wireless networks, which provide a wi-fi broadbandconnection, often free, to entire cities - a recent example being the award ofa contract to Google to blanket San Francisco with free wi-fi coverage, paidfor by advertising from local businesses. There are currently 115 citiesactively deploying citywide municipal wireless in the US, and this model isstarting to migrate to Europe. The trend strongly suggests that all majormetropolitan areas will have universal free or low-cost broadband wirelessaccess within a few years, suggesting that current, subscription-based, ISPrevenue models is are not sustainable in the medium term.At a time when the costs associated with bandwidth are rising, ISP revenuesare, therefore, under considerable margin pressure. This is particularly truefor those with substantial capital investments to recover.Until recently, ISPs have generally not viewed advertising as a key revenuestream, largely because the number of advertisements required to generatemeaningful levels of revenue were incompatible with a quality user experience.The combination of high value per advertisement resulting from 121Media'stargeting capability and the changing economic and competitive landscape iscausing these assumptions to be revisited, in the process creating asignificant opportunity for the Group.Following extensive development work over the past two years, 121Media'sPageSense technology offers a unique ability to interpret all of the contenttransmitted to an ISP's user base in real time, while completely preserving theanonymity of the user. This, combined with our ability to show advertisementsto users only between web domains, and our operational and advertising salescapability, provides ISPs with a turnkey solution for delivering highlytargeted advertising.As a result of these developments, ISPs can shift from being a simple "pipe"connecting people to the internet to being a broadcaster of known content ableto target advertising directly to users independently of web sites themselves.In addition to the ability to tap into advertising revenue inventory betweenthird party web sites, implementation of the PageSense solution brings with itvaluable additional opportunities such as showing messaging to the ISP's userbase aimed at reducing churn, as well as improving security and the overalluser experience. It also substantially improves advertising revenue on theISP's portal page through knowledge of the specific user base being targeted.Revenue modelISP's using our PageSense technology can therefore begin to view themselves asanalogous to a television broadcaster broadcasting billions of web pages or"channels". Knowledge of these channels is a precondition to showingadvertising. The Directors believe that combining this information with theGroup's operational and ad sales capability as well as its ability to showadvertising only between web domains through its proprietary Bridge Ad formatcreates a turnkey revenue solution for ISPs amounting to $1 to $2 per activeusers per month.We see an addressable market measured in many tens of millions of users in theUnited States alone with an even larger international market and our focus isnow fully on business development, beginning in the United States. In Novemberwe announced our first ISP partnership and, as mid April, we had signed tensuch partnerships, with a total potential user base in excess of one millionsubscribers. We are pleased with the results of our first implementations andexpect that, as the number of implementations increases, adoption willaccelerate. We are in advanced discussions with a significant number of verylarge ISPs and this pipeline represents a user base in excess of 70 millionusers.Operational reviewDuring the course of 2005, as the scale and potential of the ISP opportunitybecame increasingly clear, it also became apparent that no matter how carefullythe Group followed best practices, a combination of public perception and legaland technological challenges would limit the ultimate potential for growth fromthe desktop advertising model. Although revenue from desktop advertising hadformed the basis for the Group's historical earnings, the decision wastherefore taken in the last quarter of 2005 to shift the Group's focus awayfrom the desktop and towards the Group's Javascript PageSense technology.Shifting from the desktop to the ISP market requires a different level andquality of infrastructure across the Group. Accordingly, the New York officehas become the centre of operations with many key appointments now made,creating a senior management team fully capable of converting the opportunityahead of us. Our Moscow office remains the centre for software development andwe are fortunate to have such a dedicated team creating pioneering intellectualproperty for the Group. In addition, a research team featuring two professorsfrom Technion, the leading Israeli technical institute, is assisting in thedevelopment of advanced methods for the automatic interpretation of textualcontent.To help fund this re-orientation of the business, we raised $4.2 million(before expenses) through a placing with UK and US based institutionalinvestors in February 2006. We expect it to take between three and six monthsfor revenue to flow from the bulk of an ISP's target user base, and thereforethat significant revenue will only begin to flow in the second half of theyear. When taking into account the significant recent investment and increasein monthly overhead and the exit from the desktop model, we expect to report aloss for 2006.We enjoy a very strong competitive head start as a result of our development ofthe PageSense technology but, over time, the competitive landscape willinevitably become more challenging. Success in maintaining our leadershipposition will depend upon achieving the highest possible standard of executionacross all of the key fields of business development, ad sales and operations,software development, account management, and financial controls andprocedures. With that in mind, we will continue to invest in our team further.The unique qualities of our technology, the strategic and operational progresswe have made to date, and the strength of the executive team we have puttogether, combine to give the Board confidence that our chosen strategy willdeliver substantial shareholder value over time.Kent ErtugrulChief Executive Officer18 April 2006CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 DECEMBER 2005 Notes 2005 2004 $ $ Group Turnover 5,207,136 4,165,203 Cost of sales (2,171,486) (2,217,898) Gross Profit 3,035,650 1,947,305 Sales and Administrative expenses (6,182,798) (2,063,848) (Loss)/profit on foreign exchange (174,184) 82,262 Operating Loss (3,321,332) (34,281) Interest receivable 15,695 12 Interest payable and similar (27,962) (10,961)charges Loss on ordinary activities before (3,333,599) (45,230)taxation Tax on loss on ordinary activities - (130) Loss for the financial year (3,333,599) (45,360) Earnings / (loss) per share - 2 (0.44) (0.01)basic and diluted (cent) CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2005 2005 2004 $ $ $ $ Fixed Assets Tangible assets 504,803 676,591 Current Assets Debtors 1,975,086 2,641,929 Cash at bank and in hand 570,533 878,327 2,545,619 3,520,256 Creditors Amounts falling due (973,422) (508,000) within one year Net current assets 1,572,197 3,012,256 Total Assets less 2,077,000 3,688,847current liabilities Creditors: Amounts falling due (76,714) -after one year Net assets 2,000,286 3,688,847 Capital and reserves Called up share capital 8,190 7,104 Share premium account 6,734,601 4,731,608 Other reserves 410,351 769,392 Profit and loss account (5,152,856) (1,819,257) Shareholders' funds 2,000,286 3,688,847CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 Notes 2005 2004 $ $ Net cash outflow from operating a (1,921,916) (1,923,196)activities Returns on investments and servicing b (11,956) (10,949)of finance Taxation c - (130) Capital expenditure and financial d (288,321) (898,349)investment Cash outflow before financing (2,222,193) (2,832,624) Financing e 1,914,399 3,695,310 (Decrease)/increase in cash in the f (307,794) 862,686period Notes to the cash flow statement for the year ended 31 December 2005a. Reconciliation of operating loss to net cash outflow from operatingactivities 2005 2004 $ $ Operating loss (3,321,332) (34,281) Depreciation 560,109 230,503 Issue of warrants - 527,604 Exchange difference taken to reserves (174,221) - Decrease/(increase) in debtors 566,532 (2,653,187) Increase in creditors 446,996 6,165 Net cash outflow from operating activities (1,921,916) (1,923,196)b.Returns on investments and servicing of finance 2005 2004 $ $ Interest received 16,006 12 Interest paid (27,962) (10,961) Net cash outflow from returns on investments and (11,956) (10,949)servicing of finance c. Taxation 2005 2004 $ $ Taxation - (130)d. Capital expenditure and financial investment 2005 2004 $ $ Payments to acquire tangible fixed assets (388,321) (898,349) Receipts from sale and leaseback 100,000 - Net cash outflow for capital expenditure (288,321) (898,349)e. Financing 2005 2004 $ $ Issue of equity share capital 1,086 2,179 Share premium on issue of equity share capital 2,002,993 3,793,131 Capital element of finance lease 95,140 - Issue of Warrants (184,820) - Other short term loans - (100,000) Net cash inflow from financing 1,914,399 3,695,310 f. Analysis of changes in net funds At 1 Jan Cash flows At 31 2005 December 2005 $ $ $ Net cash: Cash at bank and in hand 878,327 (307,794) 570,533 878,327 (307,794) 570,533 Debt: Debts falling due within one year - (18,426) (18,426) Debts falling after one year - (76,714) (76,714) - (95,140) (95,140) Net Funds 878,327 (402,934) 475,393Notes to the Unaudited Preliminary Results for the year ended 31 December, 20051. Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985.The Company is incorporated in the US state of Delaware and is not subject tothe requirements of the Companies Act 1985, however accounts have been preparedin accordance with United Kingdom generally accepted accounting practice.The consolidated balance sheet as at 31 December 2005 and the consolidatedprofit and loss account, consolidated cash flow statement and associated notesfor the year have been extracted from the Group's audited financial statementson which the auditors provided an unqualified report.2. Loss per shareThe calculation of the basic loss per share and diluted loss per share is basedon the loss attributable to ordinary shareholders of $3,333,599 (2004: $45,360)divided by the weighted average number of shares in issue during the year.The weighted average number of shares used in the calculation are set outbelow: - Year ended 31 December 2005 Year ended 31 December 2004 Number of shares Number of shares 7,491,507 5,400,638 3. DividendsThe Directors are not proposing the payment of a dividend in respect of theyear ended 31 December 2005.4. Copies of the annual report and accounts will be sent to shareholdersshortly and will also be available at the Company's UK principal office, GoldenCross House, 8 Duncannon Street, London WC2N 4JF.END121 MEDIA INC