<PAGE> 1
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 March 31, 2000
TOWNPAGESNET.COM PLC
11 MARKET SQUARE, ALTON
HAMPSHIRE, GU34 1HD, UK
(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 20 Pages
Exhibit Index Appears on Page 19
<PAGE> 2
TOWNPAGESNET.COM PLC
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements (Unaudited) 3-5
Condensed Consolidated Balance Sheets March 31, 2000 and
December 31, 1999................................................ 3
Condensed Consolidated Statements of Operations
Three Months ended March 31, 2000 and 1999....................... 4
Condensed Consolidated Statement of Cash Flows Three Months ended
March 31, 2000 and 1999.......................................... 5
Notes to Condensed Consolidated Financial Statements............. 6-10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 8-11
Item 3 Quantitative and Qualitative Disclosures about Market Risk....... 12-17
Part II OTHER INFORMATION
Item 1 Legal Proceedings................................................ 18
Item 2 Changes in Securities and Use of Proceeds........................ 18
Item 3 Defaults Upon Senior Securities.................................. 18
Item 4 Submission of Matters to a Vote of Security Holders.............. 18
Item 5 Other Information................................................ 19
Item 6 Exhibits and Reports on Form 6-K................................. 19
Exhibit Index............................................................ 19
Signatures............................................................... 20
</TABLE>
2
<PAGE> 3
TOWNPAGESNET.COM PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 2000
(1) unaudited unaudited
Amounts in pounds sterling Amounts in
US dollars
(Note 1)
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
pound pound
Cash and cash equivalents sterling 647,035 sterling 220,611 $ 351,257
Accounts receivable 5,355,865 3,296,992 5,249,474
Receivable from related party 5,542,477 5,422,329 8,633,433
Other receivables 274,225 861,513 1,371,701
Loan receivable 1,522,000 1,537,000 2,447,211
Prepaid expenses 127,116 273,129 434,876
Other Current Assets 215,500 409,393 651,836
Total current assets 13,684,218 12,020,967 19,139,788
Equipment and fixtures
Motor Vehicles 169,025 160,163 255,012
Computer equipment 1,160,328 1,407,615 2,241,205
Furniture and fixtures 249,436 381,417 607,292
Equipment 1,932,077 2,065,554 3,288,775
3,510,866 4,014,749 6,392,284
Less: Accumulated depreciation 1,105,333 1,335,026 2,125,628
2,405,533 2,679,723 4,266,656
Intangible assets, net of accumulated amortization of
pound sterling 1,518,665 ($2,418,018) 12,771,196 12,104,340 19,272,530
pound pound
sterling 28,860,947 sterling 26,805,030 $ 42,678,974
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: pound pound
Bank overdraft sterling 299,749 sterling 201,861 $ 321,403
Accounts payable 2,638,837 1,851,746 2,948,355
Accrued expenses and other liabilities 767,379 481,131 766,057
Accrued interest -- -- --
Taxes and social security payable 448,177 918,539 1,462,498
Deferred income 3,431,866 3,993,191 6,357,959
Current portion of obligations under capital lease 139,414 639,191 1,017,720
Amounts payable under Web site design agreements 1,284,821 1,217,358 1,938,277
Debenture loans from stockholder -- -- --
Total current liabilities: 9,010,243 9,303,017 14,812,269
Deferred income, long term portion 994,073 1,006,664 1,602,811
Long term portion of obligations under capital lease 102,849 96,684 153,940
Minority interests 96,734 122,516 195,070
STOCKHOLDERS EQUITY
Preferred stock 850,000 850,000 1,353,370
Ordinary shares 95,840 95,840 152,596
Additional paid-in capital 21,183,537 21,183,537 33,728,428
Accumulated deficit (3,472,329) (5,853,228) (9,319,510)
Total shareholders' equity 18,657,048 16,276,149 25,914,884
pound pound
sterling 28,860,947 sterling 26,805,030 $ 42,678,974
</TABLE>
(1) Derived from audited financial statements contained in the Company's Annual
Report to Stockholders on Form 20-F for the fiscal year ended December 31, 1999.
See accompanying notes
3
<PAGE> 4
TOWNPAGESNET.COM PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------
1999 2000 2000
-----------------------------------------------------------------------------
Amounts in pounds sterling Amounts in
US dollars
<S> <C> <C> <C> <C> <C>
Revenues:
pounds pounds
Advertising revenues sterling 21,121 sterling 1,068,287 $ 1,700,927
Contract revenues and other 835,912 99,595 158,575
Contract revenues from related parties 512,548 356,386 567,438
-----------------------------------------------------------------------------
Total revenues 1,369,581 1,524,268 2,426,940
Cost of revenues:
Maintenance and hosting costs 76,352 325,981 519,027
Cost of contract revenues and other 892,921 161,970 257,889
Advertising and commission costs 19,653 1,044,917 1,663,717
-----------------------------------------------------------------------------
Total cost of revenues 988,926 1,532,868 2,440,633
Gross profit (loss) 380,655 (8,600) (13,693)
Operating expenses:
Sales and marketing 85,887 86,866 138,308
Research and development 15,746 112,012 178,346
General and administrative 212,317 1,260,019 2,006,202
Depreciation 15,987 229,693 365,717
Amortization -- 687,964 1,095,376
-----------------------------------------------------------------------------
Total operating expenses 329,937 2,376,554 3,783,949
Income (loss) from operations 50,718 (2,385,154) (3,797,642)
Interest expense (42,552) (9,968) (15,871)
Interest income 582 17,692 28,168
Other income 43 10,178 16,205
Foreign exchange gain -- 12,135 19,321
Minority Interests -- (25,782) (41,050)
-----------------------------------------------------------------------------
Income (loss) before income taxes 8,791 (2,380,899) (3,790,869)
Provision for income taxes -- -- --
-----------------------------------------------------------------------------
pounds pounds
Net income (loss) sterling 8,791 sterling (2,380,899) $(3,790,869)
=============================================================================
pounds pounds
Basic and diluted net income (loss) per share sterling 0.02 sterling (0.25) $ (0.40)
=============================================================================
Shares used in computing basic and
diluted net income (loss) per share 5,000,000 9,583,936 9,583,936
=============================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
TOWNPAGESNET.COM PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1999 2000 2000
--------------------------------------------------------------------
Amounts in pounds sterling Amounts in
US dollars
(Note 1)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES pounds pounds
Net income (loss) sterling 8,791 sterling (2,380,900) $(3,790,869)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 15,987 229,693 365,717
Amortization of goodwill -- 687,964 1,095,376
Changes in operating assets and liabilities:
Accounts receivable (533,012) 2,058,873 3,278,139
Receivable from related party -- 120,148 191,300
Unbilled receivables (369,828) -- --
Other receivables 200 (587,288) (935,080)
Prepaid expenses and other current assets (251,936) (339,906) (541,198)
Accounts payable 336,956 (787,091) (1,253,206)
Accrued expenses and other liabilities (77,271) (260,466) (414,714)
Accrued interest 42,552 -- --
Taxes and social security payable 81,848 470,362 748,911
Deferred income (191,583) 573,916 913,789
Amounts payable under Web site design agreements 557,841 (67,463) (107,415)
--------------------------------------------------------------------
Net cash used in operating activities (379,457) (282,157) (449,250)
--------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures (39,140) (503,883) (802,283)
Purchase of subsidiaries -- (21,108) (33,608)
--------------------------------------------------------------------
Net cash used in investing activities (39,140) (524,991) (835,891)
--------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debenture loan from shareholder 430,000 -- --
Repayment of overdrafts -- (97,888) (155,857)
Issuance of note receivable -- (15,000) (23,883)
Proceeds from capital leases -- 501,062 797,791
Payments on capital lease obligations -- (7,450) (11,862)
Contributions from minority interest -- -- --
--------------------------------------------------------------------
Net cash provided by financing activities 430,000 380,724 606,189
--------------------------------------------------------------------
Net increase in cash and cash equivalents 11,403 (426,424) (678,951)
Cash and cash equivalents at the beginning of the period 33,868 647,035 1,030,208
--------------------------------------------------------------------
Cash and cash equivalents at the end of the period pounds pounds
sterling 45,271 sterling 220,611 $ 351,257
====================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid -- 9,968 $ 15,871
====================================================================
</TABLE>
See accompanying notes
5
<PAGE> 6
NOTES TO 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 March 31, 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 as included in the Company's Form 20-F for the
year ended December 31, 1999 as filed with the Securities and Exchange
Commission on April 14, 2000.
The financial statements expressed in pounds sterling as of March 31, 2000 were
translated into U.S. dollars, solely for the convenience of the reader, at the
noon buying rate on March 31, 2000 of pound sterling 1 = $1.5922. 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 on 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.
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 TownPages directory.
6
<PAGE> 7
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 the contracts are not
available, the completed contract method is used. There were no unbilled
receivables as of March 31, 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 March 31, 2000 the
Company's cash equivalents were comprised of pound sterling 220,611 ($321,257)
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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We make certain forward-looking statements in this Form 6-K and in documents
incorporated by reference 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 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; the
renegotiation of our contract with NCR Limited; 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 state 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 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 TownPages 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, TownPages UK Limited, provides new media related
services to both consumers and businesses. Its business is divided into four
inter-related segments: the TownPages information service which provides
comprehensive, up-to-date, locally-focused information about specified towns
8
<PAGE> 9
and cities in the United Kingdom; the TownPages touch-screen kiosks; Web
channels and Web site design services; and business-to-business new media
services.
Since our initial public offering, we have completed four acquisitions of
companies we believe present significant opportunities in addition to offering
technologies and/or expertise complementary to our business. The first three
acquisitions were of UK companies. The fourth company acquired is a US company.
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 March 31, 2000, the
WWW.CO.UK Limited group of companies contributed pound sterling 605,853
($964,639) to net revenues.
In September 1999, we completed the acquisition of Morbria Limited and its
subsidiaries. Morbria and its subsidiaries provide Web site design, advertising,
marketing and communications services. The Morbria acquisition had the effect of
doubling our Web site design personnel. For the three months ended March 31,
2000, the Morbria Limited group of companies contributed pound sterling 661,992
($1,054,024) to net revenues.
In October 1999, we acquired Buyersguide Limited, an Internet-based
business-to-government company. For the three months ended March 31, 2000,
Buyersguide Limited contributed pound sterling 204,754 ($326,009) to net
revenues. Although the first quarter of the year is traditionally the least
buoyant as local government sets its budgets each April for the following fiscal
year, new business orders were approximately pound sterling 453,000
(approximately $721,000) in the three months ended March 31, 2000 compared to
approximately pound sterling 266,000 (approximately $424,000) in the previous
quarter, an increase of 70%. For accounting revenue recognition purposes, these
advertising contracts are recognized ratably over the term of the contracts, in
this case one year terms.
In November 1999, we acquired Research Sales, Inc. Research Sales is an online
polling and market research company. Our kiosks and Web site provide additional
opportunities for data collection for the Research Sales, Inc. Portrait of
America Web site. We also intend to develop a Portrait of the UK Web site with
Research Sales that would in turn provide additional content for our TownPages
information service. Research Sales, Inc. is still in its infancy and
contributed just pound sterling 3,454 ($5,499) to net revenues in the three
months ended March 31, 2000.
We have incorporated the results of operations of these subsidiaries for the
full quarter ended March 31, 2000. Our stated net loss is after a charge of
pound sterling 687,964 ($1,095,376) arising from amortization of goodwill
arising from the acquisitions.
We have revised the business strategy of TownPages UK Limited whereby we have
scaled back the kiosk roll-out program. As of April 30, 2000, 108 TownPages
touch-screen kiosks were installed and operating in various locations throughout
the United Kingdom. By the end of July 2000, we plan to install approximately
200 additional free-of-charge kiosks in key towns and cities in the United
Kingdom, and across two of the UK's main railway networks. Agreements have been
entered into with the local authorities of a number of key cities for the
installation of kiosks, including Edinburgh, the capital of Scotland, Belfast,
the capital of Northern Ireland, Southampton, a large city in England, and
several major London Boroughs/Councils. In addition, an agreement has also been
entered into with one UK rail company - Connex South Central, and a letter of
intent received from Virgin rail, to make our free-access, locally-focused
information service available across their whole railway network, from Southern
England to Scotland. These agreements represent the first of a new type of
arrangement for our kiosks
9
<PAGE> 10
with commercial third parties which we are now aggressively pursuing, providing
us a high-profile base from which to market our services.
As part of this strategic change, greater emphasis is being placed our Web
channels and Web site design services. We have entered into approximately 20
channel development contracts. We have refocussed our Web site design services
to place more importance on the long term benefits available from e-commerce
revenue sharing and similar arrangements, rather than simply the short term
revenue derived from the contractual design of the channels. We have therefore,
in consultation with our channel partners, re-evaluated the opportunities that
exist to commercially exploit the benefits of our new data centers with regard
to hosting, e-commerce functionality, intra channel synergy, and the development
of multi-channel applications including the ability to become a Payment Solution
Provider. As a result, we have spent a considerable amount of time in this first
quarter redefining the back-end design of these channels and therefore feel it
prudent not to recognize any revenue for the period with regard to the channels.
However, the redefinition should significantly reduce the overall cost of
developing these sites and result in more sustainable ongoing revenue
generation.
As anticipated, we have incurred a net loss for the three months ended March 31,
2000. It is anticipated that we may incur net losses for the foreseeable future
as we continue our infrastructure development program. Performance will depend,
in part, on the amount and rates of growth in our net revenue from e-commerce
and advertising. 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, 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.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations data
for the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
Three months Ended March 31,
1999 2000
% %
<S> <C> <C>
Revenues:
Advertising revenues 2% 70%
Contract and other
revenues 61% 7%
Contract revenues from
related parties 37% 23%
--- ---
Total Revenues: 100% 100%
Cost of Revenues:
Maintenance and hosting
costs 6% 21%
Cost of contract revenue
& other 65% 11%
Advertising and
commission costs 1% 69%
--- ---
Total Cost of Revenue: 72% 101%
--- ---
Gross Profit (loss) 28% (1)%
Operating Expenses:
Sales and marketing 6% 6%
Research and
development 1% 7%
General and
administrative 16% 83%
Depreciation 1% 15%
Amortization -% 45%
--- ---
Total Operating Expenses 24% 156%
--- ---
Income (loss) from operations 4% (157)%
Interest expense (3)% (1)%
Interest income -% 1%
Other income -% 1%
Foreign exchange
gain 1%
Minority Interests (1)%
=== ===
Net profit (loss) 1% (156)%
=== ===
</TABLE>
11
<PAGE> 12
NET REVENUE
Total net revenue for the three months ended March 31, 2000 was pound sterling
1,524,268 ($2,426,940), an increase of pound sterling 154,687 ($246,293) from
revenues of pound sterling 1,369,581 for the three months ended March 31, 1999.
The increase was primarily due to the contribution from our recently acquired
subsidiaries. We have not recognized any revenue in respect of the web channels
work in Town Pages UK Limited. Of the total net revenues, pound sterling
1,476,053 ($2,350,172) or 97% was derived from these new subsidiary
undertakings. We anticipate that revenues will continue to increase in the
future as deferred revenue is released into the figures and revenue from our
large web contracts is recognized.
ADVERTISING REVENUE
Advertising revenue increased to pound sterling 1,068,287 ($1,700,927) for the
three months ended March 31, 2000 from pound sterling 21,121 for the three
months ended March 31, 1999.
The increase was mainly due to the inclusion of a full quarter's results from
each of the acquisitions. We anticipate that advertising revenues will increase
in the future as the advertising focused subsidiaries actively pursue their
expansion plans.
CONTRACT REVENUE AND OTHER
Contract and other revenues decreased to pound sterling 455,981 ($726,013), of
which pound sterling 356,386 ($567,438) are with a related party, for the three
months ended March 31, 2000, from pound sterling 1,348,460 for the three month
period ended March 31, 1999.
As described above, during the first quarter of this year we have realigned our
web channel development strategy within our Town Pages UK Limited subsidiary
principally to target the longer term benefits of e-commerce revenue and hosting
opportunities. This necessitates a longer development process. For this reason,
we feel it prudent not to recognize any revenues from web channel development
during this quarter. The contract revenues for the three months ended March 31,
2000 were therefore derived in their entirety from one of the recently acquired
subsidiaries. We anticipate that contract revenues will increase in the future
as web channel development undertaken by Town Pages UK Limited is again
recognized.
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 the TownPages
service of locally-focused content.
Maintenance and hosting costs increased to pound sterling 325,981 ($519,027) for
the three months ended March 31, 2000, from pound sterling 76,352 for the three
months ended March 31, 1999.
12
<PAGE> 13
The increase in maintenance and hosting costs was primarily due to the costs
associated with the installation and maintenance of additional TownPages kiosks
and hosting costs in respect of channels including the continued development of
our data centers. We installed a further 21 kiosks during the quarter and
anticipate that these costs will continue to grow in absolute amounts for the
foreseeable future as we pursue our expansion plan.
COSTS OF CONTRACT REVENUES AND OTHER
Cost of contract and other revenues consists primarily of certain Web site
design and related operating costs.
Cost of contract and other revenues decreased to pound sterling 161,970
($257,889) for the three months ended March 31, 2000, from pound sterling
892,921 for the three months ended March 31, 1999.
This decrease was attributable to the corresponding revenues not being
recognized in respect of the web channel development operations as outlined
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 sterling 1,044,917
($1,663,717) for the three months ended March 31, 2000 from pound sterling
19,653 for the three months ended March 31, 1999.
The increase was due to the direct selling costs with regard to the advertising
sales operations of the recently acquired 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 these 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 increased to pound sterling 86,866 ($138,308) for
the three months ended March 31, 2000, from pound sterling 85,887 for the three
months ended March 31, 1999.
We anticipate that sales and marketing expenses will increase in the future as
we pursue our expansion and branding strategy and hire additional sales and
marketing personnel.
13
<PAGE> 14
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 increased to pound sterling 112,012 ($178,346)
for the three months ended March 31, 2000, from pound sterling 15,746 for the
three months ended March 31, 1999.
The increase in research and development expenses 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 web sites, and costs associated
with undertaking the expanded web channel development strategy.
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 sterling 1,260,019
($2,006,202) for the three months ended March 31, 2000, from pound
sterling 212,317 for the three months ended March 31, 1999.
The increase in general and administrative expenses was primarily due to the
inclusion of the recently acquired subsidiaries for the full quarter, 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 compliance purposes. 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.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses increased to pound sterling 917,657
($1,461,093) for the three months ended March 31, 2000, from pound
sterling 15,987 for the three months ended March 31, 1999.
Of the charge for the three months ended March 31, 2000, pound sterling 687,964
related to amortization of goodwill arising from acquisitions. There was no
equivalent in the three months ended March 31, 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 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.
14
<PAGE> 15
INTEREST AND OTHER INCOME/EXPENSE, NET
Interest and other income/expenses, net includes income from our cash and
investments and expenses related to our financing obligations. Interest and
other income, net amounted to pound sterling 17,902 ($28,502) for the three
months ended March 31, 2000, compared to a net expense of pound sterling 41,927
for the three months ended March 31, 1999.
The turnaround was primarily due to the repayment of the debenture loan and
interest receivable on loans we have advanced from the proceeds of our initial
public offering.
FOREIGN EXCHANGE GAIN
The foreign exchange gain amounted to pound sterling 12,135 ($19,321) for the
three months ended March 31, 2000. There was no equivalent in the prior year.
The gain resulted from an appreciation in the dollar rate against the pound
sterling during the quarter. We do not anticipate similar one off gains or
losses in the foreseeable future.
NET LOSS
Due primarily to the realignment of the web channel development strategy and
consequent non recognition of revenue from that source, allied to a substantial
increase in operating expenses to finance our continued development, increased
penetration of existing markets and expansion into additional markets during the
three months ended March 31, 2000, as compared to the three months ended March
31, 1999, a net loss of pound sterling 2,380,899 ($3,790,869) was recorded for
the three months ended March 31, 2000, as compared to a net profit of pound
sterling 8,791 for the three months ended March 31, 1999.
We anticipate that losses may continue to arise on an annual and quarterly basis
for 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 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 pound sterling
10,708,677 ($17,294,512), net of offering costs. At March 31, 2000, we had cash
and cash equivalents and short-term investments of pound sterling 220,611
($351,257) as compared to pound sterling 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.
15
<PAGE> 16
Net cash used in operating activities for the three months ended March 31, 2000
and 1999 was pound sterling 303,265 ($482,857) and pound sterling 380,724,
respectively. Cash used in operating activities in the quarter ended March 31,
2000 was primarily the result of the substantial operating loss incurred, and a
reduction in accounts payable. However, this was offset by a large decrease in
accounts receivable and an increase in deferred income generated by the
attendant increase in sales activity.
Net cash used in investing activities for the three months ended March 31, 2000
and 1999 was pound sterling 503,883 ($802,283) and pound sterling 39,140,
respectively. Cash used in investing activities in this quarter was primarily
related to the purchase of further kiosks and the continued development of our
data centers.
Net cash provided by financing activities for the three months ended March 31,
2000 and 1999 was pound sterling 478,612 ($762,046), and pound sterling 430,000
respectively. Cash provided by financing activities in the three months ended
March 31, 2000 was primarily attributable to a finance lease taken out to fund
the purchase of equipment.
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.
ITEM 3. 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 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.
16
<PAGE> 17
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.
17
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS FROM IPO
On May 5, 1999, the Securities and Exchange Commission declared
effective our Registration Statement on Form F-1 (File No. 333-72075). Pursuant
to this Registration Statement, we completed our initial public offering of
2,200,000 of our ordinary shares represented by ADSs at an initial public
offering price of $10.00 per share. Our initial public offering was managed by
Dirks & Company, Inc., J.P. Turner & Company, L.L.C., and Security Capital
Trading, Inc.
Net proceeds to us from our initial public offering, after calculation
of the underwriters' discount and commission of $1,870,000 and offering expenses
of $2,835,488, totaled $17,294,512. Of these expenses, $33,315 was paid to C W
Fellowes Limited, for professional services rendered in connection with the
offering, a company whose shareholders include Simon Ward, one of our directors.
No other expenses incurred in our initial public offering were direct or
indirect payments to our directors, officers, general partners or their
associates, to persons owning ten percent or more of any class of our equity
securities or to our affiliates.
From the net proceeds of the offering, $2,584,000 was paid to retire
indebtedness owed by us to a company controlled by Kevin R. Leech, our majority
stockholder and one of our directors.
As of March 31, 2000, we have used the remainder of the proceeds. In
connection with the acquisition of WWW.CO.UK Limited, we paid a cash
consideration of approximately $2,422,000, extended a loan to the sellers of
approximately $2,059,000 and paid the sellers approximately $363,000 in the form
of an additional loan. The loans are to be repaid upon registration of the
ordinary shares issued to the WWW sellers. A loan of approximately $2.75 million
was paid in connection with the acquisition of Morbria to retire that company's
indebtedness to a bank. The majority stockholder of Morbria was an investment
company owned by Kevin R. Leech, our majority stockholder and one of our
directors. Approximately $1.1 million has been advanced to Research Sales, Inc.
as working capital loans to enable it to accelerate its start up operations and
build its infrastructure. The remaining $6 million was used to purchase
equipment to support the growth of our business including the development of our
own data center and the procurement of kiosks, the expansion of in-house
resources to support our Web site solutions division including the rental of
additional premises, and other general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 6-K
On April 14, 2000, the Company filed a report on form 6-K reflecting
the pro forma effect of certain acquisitions made during fiscal 1999 by the
Company.
Exhibit Index
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule*
- ----------------
* filed herewith
19
<PAGE> 20
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: May 17, 2000
REGISTRANT:
TOWNPAGESNET.COM PLC
By: /s/ Richard I. Walker
---------------------
Richard I. Walker
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> POUND STERLING
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.5922
<CASH> 220,611
<SECURITIES> 0
<RECEIVABLES> 8,802,709
<ALLOWANCES> 83,388
<INVENTORY> 0
<CURRENT-ASSETS> 12,020,967
<PP&E> 4,014,749
<DEPRECIATION> 1,335,021
<TOTAL-ASSETS> 26,805,030
<CURRENT-LIABILITIES> 9,303,017
<BONDS> 0
95,840
850,000
<COMMON> 0
<OTHER-SE> 21,183,537
<TOTAL-LIABILITY-AND-EQUITY> 26,805,030
<SALES> 0
<TOTAL-REVENUES> 1,526,268
<CGS> 0
<TOTAL-COSTS> 1,532,868
<OTHER-EXPENSES> 2,376,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,968
<INCOME-PRETAX> (2,380,899)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,380,899)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,380,899)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
