Q2 Results
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``Encouraging progress'' among subsidiary Application Companies and in development as business
accelerator
Net Shepherd Inc. (CDNX: WEB) today reviewed its operational and financial performance for the
second quarter of 2000.
``Net Shepherd made encouraging progress through its application companies (AppCos) during the
second quarter'' said Don Sandford, President and CEO of Net Shepherd Inc.. ``Following the
announcement made at the Annual General Meeting on July 13, we have also taken a number of steps
to focus Net Shepherd on accelerating the development of the companies in which we have an
interest.''
``The milestones achieved during Q2 by our AppCos, in particular Answers.com and ktopia have
contributed to the building of shareholder value in these investments'', continued Sandford. ``We
expect to be able to demonstrate this increasing value through strategic alliances and third party
funding in the coming quarters.''
``The market entry strategies of the AppCos began to come to fruition during the second quarter and
both Answers.com and ktopia are accelerating into the commercial marketplace,'' said Sandford. ``In
June, Answers.com announced a commercial deal with GE Plastics, bringing with it a Master Services
Agreement that will help to open the door to hundreds of other companies in the GE family.
Answers.com is well positioned to help GE meet its strategic objective of providing quality service,
sales and support online through Customer Web Centres for each of its businesses. Ktopia also had a
very successful first six months of operation, generating approximately C$150,000 in revenue from
test customers.''
``As the AppCos continue to progress, they will have opportunities to participate in business
combinations that strengthen their position in their market spaces,'' commented Sandford. ``As a
result, we will be actively evaluating strategic alliances for the AppCos that may lead them to being
funded by third parties in the future.''
At our recent Annual General Meeting, we announced that Net Shepherd will be moving forward with
a mission to accelerate technology companies,`` said Sandford. ''This will build on our achievements
to date in growing the assets and value of our AppCos in the USA. Shareholders will be given the
opportunity to participate directly in the underlying success of the group's investments through the
distribution of a portion of the group's holdings in a company at the time of a liquidity event, such as
an IPO. As we said at the AGM, the Board intends to provide additional detail to shareholders on this
policy by the middle of September 2000.``
``Shareholders will be given the opportunity to participate directly in the underlying success of the
group's investments through the distribution of a portion of the group's holdings...''
``An agreement for the sale of Strategy Bridge was closed with FinTech Services Ltd. on July 31,
2000. Net Shepherd received approximately three million common shares in FinTech in exchange for
the shares of Strategy Bridge,'' said Sandford. ``The Board intends to look at dividending out a portion
of its holding of FinTech, as the first example of this distribution strategy.''
``In line with the expectations discussed at the Annual General Meeting, the financial results for the
six months of 2000 reflect the first full quarter of amortization of the goodwill and purchased
intangible assets associated with the acquisition of ClickChoice in March 2000, as well as the
increased operational costs of the AppCos as they have effected their market entry strategies,''
reminded Sandford. ``Net Shepherd has made significant investments in its AppCos as they utilize the
cash required to acquire customers. Selling, general and administrative costs of the group as a whole
grew from C$1.6 million in the six months ended June 30, 1999 to C$12.1 million for the
corresponding period in 2000. This increase is directly attributable to the fact that the financials,
although consolidated in Net Shepherd, reflect the costs of five individual companies, namely
Answers.com, ktopia, ClickChoice, Strategy Bridge and the operational activities of Net Shepherd
itself. Breaking it down by AppCo, selling, general and administrative costs in the current year's six
month period amounted to C$4.6 million for Answers.com, C$0.8 million for ktopia, $3.4 million for
ClickChoice, C$1.1 million for Strategy Bridge, and C$2.2 million for Net Shepherd. In contrast, in
1999, the C$1.6 million of selling, general and administrative costs were entirely that of Net
Shepherd.''
``We are currently financing operations from cash flow and a C$15 million standby line of credit. At
June 30, 2000, C$13.5 million of this line of credit was unused, providing sufficient resources to see
the group through to the beginning of 2001, based on the plans as at the end of the quarter,'' explained
Sandford. ``These plans include a considerable reduction in direct overheads, consistent with the
transformation of the business that we announced at the Annual General Meeting. Costs are being
reduced through a combination of strategies such as integrating organizations, maximizing software
development in low cost centres such as India, strategic alliances and sharpening the focus of our
AppCos. Planned cost reductions have already been implemented and we are on track to bring down
the burn rate of the group as a whole. Further reductions in direct overheads are expected in
subsequent periods as the transformation of the business is completed, the direct operations of the
group are moved into the AppCos, and additional funding for the AppCos is obtained from third
parties.``
``Net Shepherd as a group has made significant progress through the second quarter of 2000,''
commented Sandford. ``In addition, we believe that the changes that we have made to our strategy
and cost base will better allow us to adapt to the existing market conditions and to maximize the
future benefits to our shareholders. We expect to make a number of announcements about progress at
both Net Shepherd and the AppCos in the coming months.''
``We welcome the opportunity to discuss these matters with our shareholders,'' concluded Sandford.
``We will therefore be holding one of our quarterly Net Shepherd Investor Forum teleconferences at
2.30 pm Calgary time on Monday, September 18, 2000. We will send out a reminder and further
details closer to the date. The details will also be available on our website (www.netshepherd.com).
On this date we will have news to share of developments in the implementation of our business
accelerator strategy, the business progress of our AppCos and the policies and practices surrounding
our proposed dividend distribution strategy. I hope that people will be able to join us.''
Full details of the figures for the first six months are given in the following Financial Statements.
NET SHEPHERD INC.
Consolidated Statements of Loss and Deficit
Six Months Ended June 30,
(Unaudited)
---------------------------------------------------------------
2000 1999
$ $
-------------------------
REVENUE 2,293,579 2,302,809
COST OF SALES 1,126,574 1,664,469
---------------------------
1,167,005 638,340
---------------------------
EXPENSES
Selling, general and administrative 12,106,347 1,561,216
Research and development costs 4,527,909 -
Capital and intangible assets
depreciation 1,546,693 110,164
Loss on dilution of interests in
consolidated subsidiaries 91,579 -
Non-controlling interests in loss
of consolidated subsidiaries (35,104) -
----------------------------
18,237,424 1,671,380
----------------------------
LOSS BEFORE GOODWILL AMORTIZATION (17,070,419) (1,033,040)
GOODWILL AMORTIZATION (3,951,800) (99,682)
----------------------------
NET LOSS (21,022,219) (1,132,722)
DEFICIT, BEGINNING OF PERIOD (10,008,614) (5,041,313)
----------------------------
DEFICIT, END OF PERIOD (31,030,833) (6,174,035)
============================
LOSS PER SHARE BEFORE GOODWILL
AMORTIZATION (0.27) (0.03)
GOODWILL AMORTIZATION PER SHARE (0.07) (0.01)
----------------------------
NET LOSS PER SHARE (0.34) (0.04)
============================
NET SHEPHERD INC.
Consolidated Balance Sheets
(June 30 Numbers Unaudited)
---------------------------------------------------------------
June 30, December 31, June 30,
2000 1999 1999
$ $ $
-----------------------------------
ASSETS
CURRENT
Cash and cash equivalents 2,643,324 6,029,542 2,503,289
Short-term investments 598,105 152,959 -
Accounts receivable 741,314 1,224,573 892,103
Prepaid expenses 716,198 120,309 60,333
-----------------------------------
4,698,941 7,527,383 3,455,725
Prepaid software development
costs 7,350,500 - -
Capital assets 3,967,406 614,789 358,921
Purchased intangible assets 18,083,829 - -
Goodwill 64,787,116 1,921,776 714,384
Deferred acquisition costs - 262,771 -
-----------------------------------
98,887,792 10,326,719 4,529,030
===================================
LIABILITIES
CURRENT
Accounts payable and accrued
liabilities 5,965,666 729,735 525,431
Note payable 187,007 - -
Deferred revenue - 46,421 -
-----------------------------------
6,152,673 776,156 525,431
Long-term debt 1,480,600 - -
Non-controlling interests
in consolidated subsidiaries 2,543,543 - -
-----------------------------------
10,176,816 776,156 525,431
-----------------------------------
SHAREHOLDERS' EQUITY
Convertible loan payable - 7,216,500 -
Share capital 119,741,809 12,342,677 10,177,634
Deficit (31,030,833)(10,008,614) (6,174,035)
-----------------------------------
88,710,976 9,550,563 4,003,599
-----------------------------------
98,887,792 10,326,719 4,529,030
===================================
NET SHEPHERD INC.
Consolidated Statements of Cash Flows
Six Months Ended June 30,
(Unaudited)
---------------------------------------------------------------
2000 1999
$ $
----------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss (21,022,219) (1,132,722)
Adjustments for:
Capital and intangible assets
depreciation 1,546,693 110,164
Goodwill amortization 3,951,800 99,682
Loss on dilution of interests
in consolidated subsidiaries 91,579 -
Non-controlling interests in loss
of consolidated subsidiaries (35,104) -
---------------------------
(15,467,251) (922,876)
Changes in non-cash working
capital 2,709,195 135,350
---------------------------
(12,758,056) (787,526)
---------------------------
FINANCING
Issuance of share capital, net of
issue costs 6,846,274 3,104,067
Issuance of note payable 187,007 -
Proceeds from long-term debt 1,480,600 -
Issuance of non-controlling
interests in consolidated
subsidiaries 2,526,210 -
---------------------------
11,040,091 3,104,067
---------------------------
INVESTING
Sale of short-term investments 27,084 204,483
Net cash acquired on acquisition
of subsidiary 700,616 -
Purchase of capital assets (2,395,953) (182,255)
---------------------------
(1,668,253) 22,228
---------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (3,386,218) 2,338,769
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,029,542 164,520
---------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 2,643,324 2,503,289
===========================
Background Notes:
Net Shepherd Inc (NSI) is an Internet-based technology management company that accelerates the
development of the companies in which it has an interest. NSI has proprietary technology and
know-how that enables businesses to collect information and perform work of commercial value by
using communities of people connected to the Internet. These services have paradigm-breaking speed
and cost advantages over alternative solutions. Many of NSI's holdings apply this technology and are
therefore known as Application Companies (AppCos). NSI currently has four AppCos: Answers.com,
ktopia, Strategy Bridge and ClickChoice.com. NSI builds up the assets and valuations of the AppCos
and then takes them through liquidity events, such as mergers, sales or IPOs, subsequently distributing
a portion of the holdings as dividends to shareholders.
NSI is traded on the Canadian Venture Exchange under the symbol WEB.
Information and statements in this document, other than historical information, should be considered
forward-looking and reflect management's current views of future events and financial performance
that involve a number of risks and uncertainties. Factors that could cause actual results to differ
materially include, but are not limited to, the following: general economic conditions and
developments within the Internet and Intranet industries; product development and technology
changes; competition and pricing pressures; length of the sales cycle; variability of sale order flow
and the management of growth.
``THE CANADIAN VENTURE EXCHANGE HAS NEITHER APPROVED NOR DISAPPROVED
THE INFORMATION CONTAINED HEREIN.''
For further information contact:
Don Sandford President & CEO Net Shepherd Inc 1324, 17th Avenue SW Calgary, Alberta T2T 5S8,
Canada Phone: (403) 218 8913 Fax: (403) 232 6711 E-mail: don.sandford@netshepherd.com
Website: www.netshepherd.com
SOURCE: Net Shepherd Inc.
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