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 June 30, 1999
TownPagesNet.com plc
11 MARKET SQUARE, ALTON
HAMPSHIRE, UK, GU34 1HD
(011) 44 1420 543 468
Indicate by check mark whether the registrant files or will file annual
reports under cover of 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) :
N/A
Page 1 of 23 Pages
Exhibit Index Appears on Page 22.
<PAGE>
TOWNPAGESNET.COM PLC
TABLE OF CONTENTS
PAGE
----
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) .................3-6
Consolidated Balance Sheets June 30, 1999 and
December 31, 1998 ...............................................3
Consolidated Statements of Operations
Three Months ended June 30, 1999 and 1998 .....................4
Six Months ended June 30, 1999 and 1998 .......................5
Consolidated Statement of Cash Flows Six Months ended
June 30, 1999 and 1998 ..........................................6
Notes to Consolidated Financial Statements ....................7-9
Item 2. Management's Discussion and Analysis Statements Condition
and Results of Operations ......................................10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ....................................................18
Part II OTHER INFORMATION
Item 1. Legal Proceedings ..............................................20
Item 2. Changes in securities and Use of Proceeds ......................20
Item 3. Defaults Upon Senior Securities ................................20
Item 4. Submission of Matters to a Note of Security Holders ............20
Item 5. Other Information ..............................................20
Item 6. Exhibits and Reports on Form 6-K ...............................21
Exhibit Index ..........................................................22
Signatures .............................................................23
2
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TOWNPAGESNET.COM PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999 1999
------------------ ------------------- ------------
(unaudited) (unaudited)
Amounts in
Amounts in Pounds Sterling US Dollars
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (pounds) 33,868 (pounds) 9,031,059 $ 14,237,464
Accounts receivable 590,350 4,459,868 7,030,982
Receivable from related party 235,000 352,500 555,716
Unbilled receivables 422,872 -- --
Other receivables 1,700 1,700 2,680
Prepaid expenses 223,313 34,727 54,747
------------------ ------------------- ------------
Total current assets 1,507,103 13,879,854 21,881,589
Equipment and fixtures
Computer equipment 136,140 214,369 337,952
Furniture and Fixtures 14,677 26,905 42,415
Equipment 37,894 37,894 59,740
------------------ ------------------- ------------
188,711 279,168 440,107
Less accumulated depreciation 63,883 99,291 156,531
------------------ ------------------- ------------
124,828 179,877 283,576
------------------ ------------------- ------------
Total assets (pounds) 1,631,931 (pounds) 14,059,731 $ 22,165,165
================== =================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (pounds) 248,108 (pounds) 754,512 $ 1,189,489
Accrued expenses and other liabilities 127,099 64,519 101,715
Accrued interest 106,203 -- --
Taxes and social security payable 49,239 32,610 51,409
Deferred income 228,244 94,044 148,260
Amounts payable under Web site design
agreements 411,969 2,140,810 3,374,987
Debenture loans from stockholder 1,682,190 176,798 278,722
------------------ ------------------- ------------
Total current liabilities 2,853,052 3,263,293 5,144,582
Commitments
Stockholders' Equity (Net Capital Deficiency)
9% Series A redeemable convertible preferred stock
(pound)1 par value, 5,000,000 shares authorized 850,000 1,340,025
Ordinary shares:
(pound)0.01 par value; 20,000,000 shares
authorized, 7,200,000 issued 50,000 72,000 113,508
Additional Paid-In Capital 122,500 10,769,752 16,978,513
Accumulated deficit (1,393,621) (895,314) (1,411,463)
------------------ ------------------- ------------
Total stockholders' equity (net capital
deficiency) (1,221,121) 10,796,438 17,020,583
------------------ ------------------- ------------
(pounds) 1,631,931 (pounds) 14,059,731 $ 22,165,165
================== =================== ============
</TABLE>
See accompanying notes.
3
<PAGE>
TOWNPAGESNET.COM PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1999 1999
----------------- ----------------- -----------
Amounts in
Amounts in Pounds Sterling US Dollars
<S> <C> <C> <C>
Revenues
Advertising revenues (pounds) 6,210 (pounds) 4,282 $ 6,750
Contract revenues and other 5,568 3,462,578 5,458,755
Contract revenues from related parties -- 399,103 629,186
----------------- ----------------- -----------
Total revenues 11,778 3,865,963 6,094,691
Cost of revenues
Maintenance and hosting costs 19,000 352,201 555,245
Cost of contract revenues and other 2,202,534 3,472,295
----------------- ----------------- -----------
Total cost of revenues 19,000 2,554,735 4,027,540
----------------- ----------------- -----------
Gross Profit/(Loss) (7,222) 1,311,228 2,067,151
Operating expenses:
Sales and marketing 176,481 241,087 380,074
Research & development 79,443 172,329 271,677
General and administrative 273,713 377,711 595,461
Depreciation 9,971 35,408 55,820
----------------- ----------------- -----------
Total operating expenses 539,638 826,535 1,303,032
Income(loss) from operations (546,860) 484,693 764,119
Interest expense (29,672) (56,523) (89,109)
Interest Income 1,126 69,116 108,961
Other income 1,821 1,021 1,610
----------------- ----------------- -----------
Net Income (Loss) (pounds) (573,585) (pounds) 498,307 $ 785,581
================= ================= ===========
Net profit (loss) per share
basic and diluted (pounds) (0.11) (pounds) 0.09 $ 0.13
================= ================= ===========
Weighted average shares
outstanding 5,000,000 5,692,818 5,692,818
================= ================= ===========
</TABLE>
See accompanying notes.
4
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TOWNPAGESNET.COM PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1999 1999
------------------ ------------------ -----------
Amounts in
Amounts in Pounds Sterling US Dollars
<S> <C> <C> <C>
Revenues
Advertising revenues (pounds) 5,390 (pounds) 2,184 $ 3,444
Contract revenues and other 5,568 2,344,198 3,695,627
Contract revenues from related parties -- 150,000 236,475
------------------ ------------------ -----------
Total revenues 10,958 2,496,382 3,935,546
Cost of revenues
Maintenance and hosting costs 19,000 219,521 346,075
Cost of contract revenues and other -- 1,372,802 2,164,223
------------------ ------------------ -----------
Total cost of revenues 19,000 1,592,323 2,510,297
------------------ ------------------ -----------
Gross Profit/(Loss) (8,042) 904,059 1,425,249
Operating expenses:
Sales and marketing 161,456 141,966 223,810
Research & development 68,808 141,458 223,009
General and administrative 140,466 167,240 263,653
Depreciation 4,990 19,421 30,617
------------------ ------------------ -----------
Total operating expenses 375,720 470,085 741,089
Income(loss) from operations (383,762) 433,974 684,160
Interest expense (29,672) (13,971) (22,026)
Interest Income 1,126 68,534 108,044
Other income 1,821 978 1,542
------------------ ------------------ -----------
Net Income (Loss) (pounds) (410,487) (pounds) 489,515 $ 771,722
================== ================== ===========
Net profit (loss) per share basic
and diluted (pounds) (0.08) (pounds) 0.07 $ 0.12
================== ================== ===========
Weighted average shares
outstanding 5,000,000 6,378,022 6,378,022
================== ================== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
TOWNPAGESNET.COM PLC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Six months ended June 30,
1998 1999 1998 1999
------------------- ------------------- ------------ ------------
Amounts in Pounds Sterling Amounts in US Dollars
<S> <C> <C> <C> <C>
Cashflows from operating activities
Net income (loss) (pounds) (573,585) (pounds) 498,307 $ (904,257) $ 785,581
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 9,971 35,408 15,719 55,820
Changes in assets and liabilities:
Accounts receivable (4,997) (3,869,518) (7,878) (6,100,295)
Accounts receivable from related party -- (117,500) (185,239)
Prepaid expenses and other current assets (4,335) 611,458 (6,833) 963,964
Accounts payable 99,971 506,404 157,605 798,346
Accrued liabilities (46,425) 1,409,229 (73,189) 2,221,650
------------------------------------------ ----------------------------
Net cash used in operating activities (519,399) (926,212) (818,833) (1,460,173)
------------------------------------------ ----------------------------
Cash flows from investing activities
Purchases of property and equipment (132,514) (90,457) (208,909) (142,605)
------------------------------------------ ----------------------------
Net cash used in investing activities (132,514) (90,457) (208,909) (142,605)
------------------------------------------ ----------------------------
Cash flows from financing activities
Proceeds from sale of common stock -- 10,669,252 -- 16,820,076
Proceeds from (Repayments of) long-term debt 643,561 (655,392) 1,014,574 (1,033,225)
Increase in short term deposits -- -- -- --
Repayment of capital lease obligations -- -- -- --
------------------------------------------ ----------------------------
Net cash provided by financing activities 643,561 10,013,860 1,014,574 15,786,850
------------------------------------------ ----------------------------
Net increase in cash and cash equivalents (8,352) 8,997,191 (13,167) 14,184,072
Cash and cash equivalents at beginning of period 12,868 33,868 20,286 53,393
------------------------------------------ ----------------------------
Cash and cash equivalents at end of period (pounds 4,516 (pounds) 9,031,059 $ 7,119 $ 14,237,465
========================================== ============================
</TABLE>
See accompanying notes.
6
<PAGE>
TOWNPAGESNET.COM PLC
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS
TownPagesNet.com plc produces and delivers TownPages, an Internet-based
interactive service organized to provide comprehensive, locally-focused
information about specified towns and cities. The Company was incorporated in
England and Wales on July 31, 1998 as Town Pages Holdings plc. The Company
acquired all of the share capital of Town Pages UK Limited (formerly known as
Town Pages Limited) on December 15, 1998. The Company's name was changed to
TownPagesNet.com plc and its subsidiary's name was changed to Town Pages UK
Limited in April 1999.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the Company and
its wholly owned subsidiary, Town Pages UK Limited, a company incorporated and
based in the United Kingdom. All intercompany transactions and balances have
been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
3. 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 Town Pages 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 web site 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. Revenues under web site design
agreements were (pound)2,494,198 ($3,932,103) for the three months ended June
30, 1999 and (pound)3,861,681 ($6,087,940) for the six months ended June 30,
1999. This amount included unbilled receivables of nil. Unbilled receivables
will be billed in accordance with billing schedules specified in the contracts
to which they relate.
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.
The Company's advertising revenues are derived principally from short-term
advertising contracts which are recognized ratably over the term of the
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TOWNPAGESNET.COM PLC
Notes to Financial Statements (Continued)
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.
The financial statements expressed in pounds sterling as of June 30, 1999
were translated into United States Dollars, solely for the convenience of the
reader, at the prevailing exchange rate at June 30, 1999 of (pound)1 = $1.5765.
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.
4. INITIAL PUBLIC OFFERING
On May 5, 1999, the Company completed an initial public offering of
2,200,000 American Depositary Shares at an initial price to the public of $10.00
per share, resulting in net proceeds to the Company (after deducting
underwriters discounts and commissions and offering expenses) of approximately
$16.8 million.
5. INTERIM FINANCIAL INFORMATION
The consolidated financial statements at June 30, 1999 and 1998 and for
the three and six month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements at June 30, 1999 should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Registration Statement on Form F-1
declared effective by the Securities and Exchange Commission on April 30, 1999.
The results of operations for the three and six month periods ended June 30,
1999 are not necessarily indicative of the results for the entire year ending
December 31, 1999.
6. 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 June 30, 1999
the Company's cash equivalents were comprised of (pound)9,011,801 ($14,207,104)
of short term deposits.
7. 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 loss per share
is computed using the weighted
8
<PAGE>
TOWNPAGESNET.COM PLC
Notes to Financial Statements (Continued)
average number of common shares outstanding and dilutive common stock
equivalents outstanding during the period. A reconciliation of the numerators
and denominators used in the basic and diluted net income/(loss) per share
amounts is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1999 1998 1999
------------------ ------------------ ------------------ ------------------
In thousands, except per share data
<S> <C> <C> <C> <C>
Net income/(loss) (pounds) (414) (pounds) 490 (pounds) (574) (pounds) 498
================== ================== ================== ==================
Shares used in per share calculation 5,000,000 6,378,022 5,000,000 5,692,818
Basis and diluted net loss per share (pounds) (0.08) (pounds) 0.07 (pounds) (0.11) (pounds) 0.09
================== ================== ================== ==================
</TABLE>
8. SUBSEQUENT EVENTS
On July 22, 1999, the Company announced that it had completed the
acquisition of WWW.CO.UK Ltd. and its subsidiaries, Summerfield Publishing Ltd,
and The Platinum Club, for (pound)4 million (approximately $6 million) in cash
and stock. Under the agreement, the Company has acquired WWW.CO.UK for
approximately (pound)2.5 million (approximately $4 million) in the Company's
stock and (pound)1.5 million (approximately $2.4 million) in cash, with an
additional earnout payable within the next two years if WWW.CO.UK meets a series
of agreed performance targets.
On August 2, 1999, the Company signed a letter of intent to acquire 100%
of the share capital of Manchester-based Morbria Limited and its two
wholly-owned subsidiaries, The Graphic Palette Company Limited and Centri
Communications Limited, for approximately (pound)4.5 million ($7.2 million) in
the Company's common stock.
Glen Investments Limited, an investment vehicle owned by Kevin R Leech, is
currently the majority owner of Morbria Limited. Mr. Leech is the majority
stockholder and a director of TownPagesNet.com plc.
On August 5, 1999 the Company signed a letter of intent to acquire 100% of
the equity of Bowden Publishing for a multiple of Bowden's 1999 net profits
payable in the Company's common stock. Based in Newcastle-Upon-Tyne, Bowden
publishes the Internet-based Local Authority & Public Service Buyers Guide
(www.buyersguide.co.uk), which attracts approximately 3,500 advertisers on the
website annually.
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On August 13, 1999 the Company signed an agreement with NCR Limited under
which NCR will manufacture, supply and maintain 3,500 free Internet access
kiosks. The kiosks will be placed in high traffic areas across the UK. These
free Internet access kiosks will be co-marketed by NCR and TownPages
exclusively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" CONTAINS TREND ANALYSES AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. ALL STATEMENTS, TREND ANALYSES AND OTHER INFORMATION CONTAINED
HEREIN RELATIVE TO MARKETS FOR TOWNPAGESNET.COM PLC's SERVICES AND
PRODUCTS AND TRENDS IN REVENUE, AS WELL AS OTHER STATEMENTS INCLUDING SUCH
WORDS AS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT," "GOAL,"
AND "INTEND" AND OTHER SIMILAR EXPRESSIONS CONSTITUTE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND
ECONOMIC RISKS DESCRIBED IN THIS REPORT.
OVERVIEW
TownPagesNet.com plc operates TownPages(R), an interactive online local
content network providing comprehensive, up-to-date locally focused information
about towns and cities in the United Kingdom in a graphically pleasing format.
The TownPages(R) network of sites is aggregated in Local and National sections.
The Local network consists of detailed community information on 1300 towns
and cities throughout the UK. This information includes in-depth community
information provided by local governments as well as information concerning
local news, events, tourist attractions, hotels, restaurants, public transport,
shopping, real estate listings, employment opportunities, arts and entertainment
events, sports, weather, recreational activities, business, and professional
services. TownPages(R) also features chat rooms and message boards.
The National network consists of vertical e-commerce channels which
benefit from the traffic derived from consumers seeking local information.
TownPages(R) facilitates channel usage by providing common features and
functionability within each channel including experts, chatrooms, message boards
and other services.
10
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To enable TownPages(R) to potentially reach all consumers in the UK
marketplace, we have commenced a strategic plan to roll out approximately 3,450
free internet access kiosks in selected locations throughout the UK. We are
currently in the process of negotiating a contract with a partner with the
ability to manufacture and market free Internet access kiosks. When this
contract has been concluded, we intend to officially launch the national roll
out of the TownPages(R) service.
We believe that our free-to-use Internet access kiosks are a
distinguishing feature of the TownPages(R) service. Our kiosks currently enable
the consumer to use the TownPages(R) service in public locations. The next
generation of our kiosks will have a greater capability and will include the Web
based free e-mail service which will be available to everyone who becomes a
TownPages(R) member. In the future each kiosk will also be able to facilitate
e-commerce as they will have the ability to read credit cards as well as the
ability to print. We believe that our branded free-to-use Internet access kiosks
in prominent locations across the UK will be an invaluable promotional tool
promoting the TownPages(R) brand, and that they could be the initial entry point
to the Internet for a large number of UK consumers. Our service is also
accessible through standard Internet connections to the TownPages Web site at
www.townpagesnet.com or www.townpages.co.uk.
Two of the vertical e-commerce Web channels are now active, with 19 under
construction. Our vertical e-commerce development strategy is intended to
leverage our online expertise with traditional businesses with relevant
experience in their particular vertical marketplaces. We offer a fully
integrated web channel development program on a contract basis to enable large
businesses to enter the e-commerce marketplace and to have a vertical channel
exclusively on the TownPages(R) service. We derive advertising revenues from the
large web channels. We have agreed to e-commerce revenue sharing and joint
ventures with channels recently signed. We expect to derive such revenues from
future vertical e-commerce channel arrangements.
The Company was incorporated in England and Wales on July 31, 1998 as Town
Pages Holdings plc. We acquired all of the share capital of Town Pages UK
Limited (formerly known as Town Pages Limited) on December 15, 1998. The
Company's name was changed to TownPagesNet.com plc and our subsidiary's name was
changed to Town Pages UK Limited in April 1999. Our subsidiary was incorporated
on November 5, 1995. All references to operations and financial condition for
all fiscal periods prior to December 15, 1998 are to the operations and
financial condition of Town Pages UK Limited
From inception through June 1998, we had minimal sales and our operating
activities related primarily to developing necessary computer infrastructure,
recruiting personnel, raising capital and initial planning and development of
the TownPagesNet.com site. From July 1998 we commenced commercial operations
when we carried out a pilot of our Local TownPages service in
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two towns in the UK. Simultaneously we began marketing to find clients for our
vertical e-commerce channels.
From inception through June 30, 1999, we generated total net revenue of
approximately (pound)5,000,650 ($7,883,525).
We have achieved profitability in the last six months. However we
anticipate that we may incur net losses for the foreseeable future as we
commence our national marketing and roll out program. Our performance will
depend, in part, on the amount and rates of growth in our net revenue from
e-commerce and advertising. We expect our operating expenses to increase
significantly, especially in the areas of sales and marketing and brand
promotion. To the extent that these expenses are not accompanied by an increase
in net revenue, our business, results of operations and financial condition
could be materially adversely affected. We will need to increase our quarterly
net revenue to achieve ongoing profitability. We cannot guarantee that we will
sustain 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. Our business,
results of operations and financial condition will be materially and adversely
affected if:
o net revenue does not grow at anticipated rates;
o increases in operating expenses are not offset by commensurate increases
in net revenue; or
o we are unable to adjust operating expense levels in light of net revenue.
To date, we have entered into various business and technology
acquisitions, license arrangements and strategic alliances in order to build our
communities, provide community-specific content, generate additional traffic,
increase the number of members and establish additional sources of net revenue.
We intend to continue making acquisitions to increase online reach and
membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites through
which we market our services. Acquisitions carry numerous risks and
uncertainties, including:
o difficulties in integrating operations, personnel, technologies, products
and the information systems of the acquired companies;
o diversion of management's attention from other business concerns;
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o risks of entering geographic and business markets in which we have little
or no prior experience; and
o potential loss of key employees of acquired entities.
We cannot guarantee that we will be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. A failure to successfully integrate acquired entities or assets could
have a material adverse effect on our business, results of operations and
financial condition. In addition, we cannot guarantee that we will be successful
in identifying and closing transactions with potential acquisition candidates.
We successfully completed our initial public offering on May 5, 1999, when
we sold American Depositary Shares representing 2,200,000 shares of the our
common stock. We are using the net proceeds from that offering to roll out our
TownPages(R) free-to-use Internet access kiosks. We are also using those
proceeds to make strategic acquisitions to enhance our growth. TownPages(R) now
includes information concerning 1300 towns and cities throughout the UK. As of
June 30, 1999 we have signed agreements with 7 councils (local governments in
the UK) and have installed 19 free-to-use Internet access kiosks. Since June 30
we have signed agreements with a further 5 councils and are negotiating with
another 20 councils.
With regard to our national e-commerce vertical web channels we have
signed contracts for 11 additional channels during the quarter, with a combined
contract value of $9.4 million, bringing our national channel contracts up to
21, plus 4 channels which we will develop and operate ourselves. During the
quarter we also entered into a letter of intent to acquire a Cinema Channel
which we subsequently acquired on July 22, 1999. This is the first acquisition
the Company has made of a vertical channel. We intend to actively seek
acquisitions as well as to develop channels for clients, so as to develop our
vertical e-commerce web channel strategy.
The channels that we now have signed are a car channel; a travel channel;
a health channel; a shopping channel; a fashion channel; an auction channel; a
financial services and information channel; a homeware channel; a gardening
channel; a bygonetimes channel; a leisure channel; a lifetime dedication
channel; a toy channel; a pet channel; a language channel; a shipping channel;
an angling channel; a wedding channel; a royal family channel; a sports channel;
and a cooking channel. Our goal is to have 50 e-commerce web channels within 18
months.
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<PAGE>
The additional channel contracts have generated substantial web design
revenues and, as a result, we had revenues of (pound)2,496,382 ($3,935,546) for
the second quarter ending June 30, 1999, as compared with revenues of (pound)
1,369,581 ($2,159,146) for the first quarter ending March 31, 1999, an increase
of (pound)1,126,801 ($1,776,402) or 82%. For the second quarter we had net
income of (pound)498,307 ($785,581). As of June 30, 1999, we had
(pound)9,031,059 ($14,237,464) cash and cash equivalents.
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 Six Months
Ended June 30, Ended June 30,
1998 1999 1998 1999
---- ---- ---- ----
Total revenues: % % % %
Advertising 49 -- 53 --
Contract & Other Revenues 51 94 47 90
Contract Revenues from Related Parties -- 6 -- 10
Total revenues 100 100 100 100
Cost of revenues:
Maintenance & Hosting Costs 173 9 161 9
Cost of Contract Revenue & Other -- 55 -- 57
Total Cost of revenue 173 64 161 66
Gross profit (73) 36 (61) 34
Operating expenses:
Research and development 1473 6 1498 6
Sales and marketing 628 6 674 4
General and administrative 1282 7 2324 10
Depreciation 46 1 85 1
Total Operating expenses 3429 19 4582 21
Net Income/Loss from operations (3502) 17 (4643) 13
Interest income 10 3 10 2
Interest expense (271) (1) (252) (1)
Other 17 -- 15 --
Net Income/Loss (3746)% 20% (4670)% 13%
14
<PAGE>
NET REVENUE
Total net revenue for the three months ended June 30, 1999 was
(pound)2,496,382 ($3,935,546), an increase of approximately (pound)2,485,424
($3,918,271) over revenues of (pound)10,958 ($17,275) for the three months ended
June 30, 1998.
Total net revenue for the six months ended June 30, 1999 was
(pound)3,865,963 ($6,094,691), an increase of approximately (pound)3,854,185
($6,076,123) over revenues of (pound)11,778 ($18,568) for the six months ended
June 30, 1998.
The increase in net revenue was primarily due to the following three
factors: (A) an increase in the number of web development channel contracts that
have been signed up; (B) the expansion of our service; and (C) a broader product
offering and an increase in the frequency of visitors to the site attracting
additional advertisers.
ADVERTISING REVENUE
Advertising revenue decreased to (pound)2,184 ($3,444) in the three months
ended June 30, 1999 from (pound)5,390 ($8,497) in the three months ended June
30, 1998 and in the six months ended June 30, 1999 decreased to (pound)4,282
($6,750) from (pound)6,210 ($9,790) in the six months ended June 30,1998. The
decrease in advertising revenues resulted primarily from our increased focus on
completion of our initial public offering and implementation of our
infrastructure expansion plans. This decrease in advertising revenue is expected
to reverse in the next quarter as TownPages(R) commences its official national
launch. The percentage of our total net revenue attributable to advertising
revenue decreased to 0.1% in the three months ended June 30, 1999 from 49% in
the three months ended June 30, 1998 and decreased in the six months ended June
30,1999 to 0.1% from 53% in the six months ended June 30,1998. We installed a
further 11 kiosks in the quarter ended June 30, 1999. We anticipate that
revenues from this source will account for an increasing amount of net revenues
in the future.
CONTRACT REVENUE AND OTHER
Contract and other revenues increased to (pound)2,494,198 ($3,932,102), of
which (pound)150,000 ($236,475) are with a related party, for the 3 months ended
June 30 1999, from (pound)5,568 ($8,778) for the 3 month period ended June 30,
1998. In the six months ended June 30,1999 contract and other revenues increased
to (pound)3,861,681 ($ 6,087,941), of which (pound)399,103 ($629,186) are with a
related party, from (pound)5,568 ($8,778) for the six month period ended
June 30, 1998.
The increase was due to the commencement of 11 contracts for complex Web
site design services during the 3 months ended June 30, 1999. Revenues of
(pound)1,575,000 ($2,482,988) were recognized under these contracts to June 30,
1999. These 11 contracts accounted for 63% of total net revenues for the 3
months ended June 30, 1999. We anticipate that revenues from Web site design
services will form a lesser percentage of total revenues as advertising and
other services develop.
Our management performs ongoing credit evaluations of our customers'
financial condition and generally does not require collateral on accounts
receivable. When required, we maintain allowances for credit losses and those
losses have not been material to date. There was no allowance for doubtful
accounts as of either June 30, 1999 or December 31, 1998.
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MAINTENANCE AND HOSTING COSTS
Maintenance and hosting costs consist primarily of Internet connection
charges, Web site equipment leasing costs, purchase and installation of public
information point kiosks, repair and maintenance of equipment and systems,
collection, development, and processing for display on Town Pages(R) of
locally-focused content. Maintenance and hosting costs increased to
(pound)219,521 ($346,075) for the 3 months ended June 30, 1999, from
(pound)19,000 ($29,954) for the 3 months ended June 30, 1998. In the 6 months
ended June 30,1999, Maintenance and hosting costs increased to (pound)352,201
($555,245) from (pound)19,000 ($29,954) for the 6 months ended June 30, 1998.
The actual dollar increase in maintenance and hosting costs was primarily due to
the costs associated with the installation and maintenance of additional
TownPages(R) kiosks. We anticipate that those costs will continue to grow in
absolute amounts for the foreseeable future as we pursue our expansion plan.
COSTS OF CONTRACT AND OTHER REVENUES
Cost of contract and other revenues consists primarily of certain Web site
design costs and related operating costs. Cost of contract and other revenues
increased to (pound)1,372,802 ($2,164,223) for the 3 months ended June 30, 1999
from nil for the 3 months ended June 30, 1998. In the 6 months ended June
30,1999, Cost of contract and other revenues increased to (pound)2,202,534
($3,472,295) from nil in the 6 months ended June 30, 1998. The increase was due
to the commencement of 11 contracts for Web site design services during the
second quarter of 1999. Costs of (pound)866,250 ($1.365.643), directly related
to these contracts, were incurred in the quarter. We anticipate that those costs
will continue to grow in absolute amounts for the foreseeable future as we
pursue our expansion plan.
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, overhead costs, editorial costs, equipment depreciation and
supplies. These costs have been charged to research and development expenses as
incurred. Research and development expenses increased to (pound)141,458
($223,009) for the 3 months ended June 30, 1999, from (pound)68,808 ($108,476)
for the 3 months ended June 30, 1998. In the 6 months ended June 30,1999
research and development expenses increased to (pound)172,329 ($271,677) from
(pound)79,443 ($125,242) in the 6 months ended June 30, 1998. The dollar
increase in research and development expenses was primarily due to the roll-out
of TownPages and attendant increases in the number of personnel involved in the
development of our Web site. We expect that research and development expenses
will grow significantly in pounds sterling for the foreseeable future as we
pursue our expansion strategy and devote substantial resources to the
development of services, products and our Web site.
SALES AND MARKETING EXPENSES
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Sales and marketing expenses consist primarily of salaries of sales and
marketing personnel, commissions, advertising and other marketing related
expenses. Sales and marketing expenses also include personnel costs and costs
associated with our radio, bus, direct mailings, printed ads, film trailer
advertising and telesales campaigns in the United Kingdom. Sales and marketing
expenses decreased to (pound)141,966 ($223,810) for the 3 months ended June 30,
1999, from (pound)161,456 ($254,535) for the 3 months ended June 30, 1998. The
pounds sterling decrease occurred primarily because we de-emphasized advertising
sales and marketing efforts during this period while we focused on preparations
for our national roll-out, certain Web design contracts and acquisitions. In the
6 months ended June 30,1999 Sales and marketing expenses increased to
(pound)241,087 ($380,074) from (pound)176,481 ($278,222) in the 6 months ended
June 30, 1998. The pounds sterling increase in sales and marketing expenses was
primarily due to the roll-out of TownPages and attendant increases in the number
of sales personnel, increased sales commissions and increased expenses
associated with promotion and marketing efforts. We expect that sales and
marketing expenses will grow significantly in pounds sterling for the
foreseeable future as we pursue our expansion and branding strategy and hire
additional sales and marketing personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries and
related costs for general corporate functions, including finance, accounting,
facilities and legal and other fees for professional services. General and
administrative expenses increased to (pound)167,240 ($263,653) in the 3 months
ended June 30, 1999, from (pound)140,466 ($221,445) for the 3 months ended June
30, 1998. In the 6 months ended June 30, 1999 General and administrative
expenses increased to (pound)377,711 ($595,461) from (pound)273,743 ($431,556)
in the 6 months ended June 30, 1998. The pounds sterling increase in general and
administrative expenses was primarily due to 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
preparation and updating of our business plan. We expect that we will incur
additional general and administrative expenses in pounds sterling 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.
NET INCOME
Despite a substantial increase in operating expenses to finance our
continued development, increased penetration of existing markets and expansion
into additional markets our net revenues increased sufficiently for the 3 months
ended June 30, 1999, as compared to the 3 months ended June 30, 1998, to achieve
a profit of (pound)489,515 ($771,722) for the 3 months ended June 30, 1999, as
compared to a net loss of (pound)410,487 ($652,874) for the 3 months ended June
30, 1998 and a profit of (pound)498,307 ($785,581) for the six months ended June
30, 1999, as compared to a net loss of (pound)573,585 ($904,257) for the six
months ended June 30, 1998. We anticipate however that losses may arise on an
annual and quarterly basis until at least late in the year 2000.
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 Leech,
our majority 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 approximately
(pound)10,669,252 ($16,820,076), net of offering costs.
At June 30, 1999, we had cash and cash equivalents and short-term
investments of approximately (pound)9,031,059 ($14,237,464).
Net cash used in operating activities for the six months ended June 30,
1999 and 1998 was (pound)926,212 ($1,460,173) and (pound)519,399 ($818,832),
respectively. Cash used in operating activities in each period was primarily the
result of an increase in accounts receivable related to the expansion of web
contracts offset by an increase in current liabilities and accounts payable as a
result of the growth of our business.
Net cash used in investing activities for the six months ended June 30,
1999 and 1998 was (pound)90,457 ($142,605) and (pound)132,514 ($208,909),
respectively. Cash used in investing activities in each
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period was primarily related to purchases of fixed assets. From time to time, we
expect to evaluate the acquisition of products, businesses and technologies that
complement our business.
Net cash provided by financing activities for the six months ended June
30, 1999 and 1998 was (pound)10,013,960 ($15,786,850), and (pound)643,561
($1,014,574) respectively. Cash provided by financing activities in the three
months ended June 30, 1999 was primarily attributable to net proceeds from the
issuance of common stock. Cash used in financing activities in the six months
ended June 30, 1999 was related to retired indebtedness.
We believe that we have the financial resources needed to meet our
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we may need to sell additional equity or debt securities or obtain
additional credit facilities. The sale of additional equity or convertible debt
securities may result in additional dilution to our stockholders. We may not be
able to raise any such capital on terms acceptable to us or at all.
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.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the potential failures that computer systems
may incur as a result of the date change from 1999 to 2000. Many existing
computer programs use only two digits to identify a year in the date field.
These programs were designed without considering the impact of the upcoming
change of the century. As a result, computer systems using these programs may be
unable to properly recognize date-sensitive data resulting in the creation of
erroneous information or system failure.
We rely on telecommunications carriers to transmit our Internet traffic
over local and long distance networks. It is uncertain what impact the Year 2000
issue will have on the Internet and the Web, or on the ability of users to use
their computers to access our services, but major disruption is possible. A
possible worst case Year 2000 scenario for us would be if the telecommunications
carriers' systems failed. If their networks fail for an extended period of time
due to the Year 2000 issue, we will no longer be able to operate our business.
In the event our telecommunications carriers' systems are not Year 2000
compliant on a timely basis, we will seek services through carriers who are Year
2000 compliant. However, there is no assurance that this can be accomplished in
a cost-effective manner.
We have taken a number of steps to address the Year 2000 issue. We have
completed testing of our hardware, software and data sets according to Year 2000
compliance standards we
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established internally as the first phase of our Year 2000 compliance
certification process. As the next phase of our Year 2000 compliance
certification process, we are rechecking these systems in accordance with Year
2000 compliance standards officially established by the British Standards
Institute. As a parallel phase of our Year 2000 compliance certification
process, we are requesting and receiving certifications from the various vendors
of our hardware, software and microprocessor-embedded equipment that the
products they have provided to us are fully Year 2000 compliant. Where it is
necessary to achieve Year 2000 compliance, we are obtaining upgrades from these
vendors. Any failure by our vendors to resolve any Year 2000 issues on a timely
basis, or in a manner that is compatible with our systems, could significantly
damage our business and financial condition. In the event our vendors do not
become Year 2000 compliant on a timely basis, we will seek products and services
from vendors who are Year 2000 compliant. However, there can be no assurance
that this can be accomplished in a cost-effective manner.
Although our management expects to incur costs in correcting any Year 2000
issues arising as a result of our suppliers handling of their own Year 2000
issues, our management cannot currently estimate those costs. In the process of
testing our hardware, software, data sets and microprocessor embedded equipment,
we have not encountered any significant problems to date and expect to be fully
Year 2000 compliant by mid-1999. Based on our experience to date, we have only
budgeted approximately (pound)5,000 ($8,300) for completion of our Year 2000
remediation efforts. However, there can be no assurance that actual costs of
compliance will not significantly exceed this amount.
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 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.
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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.
PART II
Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
The effective date of the Company's registration statement, filed on Form
F-1 under the Securities Act of 1933 relating to the Company's initial public
offering of its securities, was April 30, 1999. American Depositary Shares
representing a total of 2,200,000 shares of the Company's common stock were sold
in an offering underwritten by Dirks & Co, Inc, JP Turner Securities LLC and
Security Capital Trading Inc. on May 5, 1999, at an initial public offering
price of $10.00 per share. The initial public offering resulted in gross
proceeds of (pound)13,954,964 ($22,000,000), (pound)3,307,712 ($5,214,608) of
which was applied to the underwriting discount and other floatation costs. As a
result, net proceeds of the offering to the Company were approximately
(pound)10,647,252 ($16,785,392).
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a vote of Security Holders
None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 6-k
(a) Exhibits
Exhibit Number Description
-------------- -----------
None None
(b) Reports on Form 6-K
None.
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Exhibit Index
Exhibit Number Description
-------------- -----------
None 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.
August 16, 1999
Registrant:
TownPagesNet.com plc
By: /s/Andrew Lyndon-Skeggs
-------------------------------------
President and Chief Executive Officer
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