Filed by Towne Services, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 of the
Securities Exchange Act of 1934 Subject Company:
Towne Services, Inc. Commission File No. 000-24695
The following is the text of (1) a press release issued by Towne Services, Inc.
on March 16, 2001 regarding its financial results from the fourth quarter of
2000 and (2) the transcript of a conference call with Towne Services held on
March 16, 2001 at 9:00 a.m. CST to discuss its fourth quarter 2000 results and
the previously announced merger discussions with Private Business, Inc.
FOR IMMEDIATE RELEASE
CONTACT: G. LYNN BOGGS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(678) 475-5200
TOWNE SERVICES, INC. ANNOUNCES
FOURTH QUARTER AND YEAR-END 2000 RESULTS
SUWANEE, Ga. (March 16, 2001) -- Towne Services, Inc. (Nasdaq/NM: TWNE) today
reported financial and operating results for the fourth quarter and year ended
December 31, 2000.
Showing a 23% improvement in operating performance, the Company
reported an operating loss of $8.8 million, or $1.60 per share, for the year
ended December 31, 2000, compared with $11.5 million, or $2.35 per share, for
the prior year, and an operating loss of $2.2 million for the quarter ended
December 31, 2000, compared with $2.6 million for the same period last year. The
$2.2 million loss includes loss associated with the discontinued
CollectionWorks(TM) line of business.
Net revenues for the year ended December 31, 2000 totaled $25.3
million, compared with $29.8 million for the year ended December 31, 1999.
Adjusted revenues for the fourth quarter ended December 31, 2000 were $5.5
million, compared with $7.1 million for the same period last year.
All figures for the fourth quarter and year ended December 31, 2000
have been adjusted to reflect the one-for-five reverse split of the Company's
common stock, which was effected December 20, 2000. During the fourth quarter of
2000, the Company had one-time charges totaling $6.7 million, or $1.24 per
share. These non-recurring charges include costs associated with the disposition
of the CollectionWorks(TM) line of business, impairment of the goodwill from the
1999 purchase of Imaging Institute, the write-down of various capitalized
software development costs, and other non-cash adjustments.
"Towne Services made considerable progress in 2000 in enhancing our
operating systems, reducing expenses, improving customer retention and creating
a more efficient organization," commented Lynn Boggs, chairman of the board and
chief executive officer of Towne Services. "As these results reflect, we
addressed a number of one-time non-cash issues involving the revaluation of
assets during the fourth quarter that had a significant impact on the bottom
line, but should allow us to proceed in 2001 unencumbered by certain
non-performing assets.
"In addition to the significant progress we made in materially reducing
operating expenses and customer attrition in 2000, we also focused on reducing
both our total accounts receivable and, particularly, our aged past-due
receivable balances. Accounts receivable decreased from $5.3 million to $2.1
million for the year, a 60% improvement, and aged past-due accounts receivable
decreased 93% from $2.2 million to a mere $157,000 at the end of 2000. As a
result of these efforts and other organizational and structural changes we have
made over the past year, combined with a cash and short-term investments balance
in excess of $12.4 million at year-end, we believe we are now well positioned to
capitalize on the opportunities in the marketplace.
"As previously announced on March 13, 2001, the Company has signed a
letter of intent to engage in a strategic merger with Private Business, Inc.
(Nasdaq:PBIZ). The letter of intent provides that Towne's shareholders would own
approximately 36% of the surviving corporation's capital stock following
consummation of the merger. Final terms of the proposed transaction will be
disclosed upon the signing of a definitive agreement, which is expected by March
31, 2001. The merger is subject to customary closing conditions, including
approval by the shareholders of both companies, and is expected to close in the
first half of 2001.
"We are very excited about the many opportunities afforded by our
proposed merger with Private Business," added Boggs. "This partnership brings
together the two leading providers of e-commerce business and management tools
to banks and small businesses. We believe that as a result of the many financial
and operating synergies that will be realized with this business combination, as
well as the expanded market presence, this proposed merger will allow us to
better serve our customers. We believe the financial position of the combined
companies will enhance shareholder value."
Towne Services will hold a conference call to discuss this press
release today at 10:00 a.m. Eastern time. Investors will have the opportunity to
listen to the conference call over the Internet by going to
www.towneservices.com or by going to the following web site -
www.streetevents.com - at least fifteen minutes early to register, download, and
install any necessary audio software. For those who cannot listen to the live
broadcast, a replay will be available at these sites shortly after the call
through the end of business on April 16, 2001.
Towne Services, Inc., based in the metropolitan Atlanta area, is a
leading provider of services and products that process sales and payment
information and related financing transactions for small and mid-sized retail
and commercial businesses and banks in the United States. The Company delivers
these services and products on-line by linking its business and bank customers
to its processing systems using the Internet and telecommunications lines.
Towne's systems also act as a hub, or electronic gateway, through which
customers can access a variety of e-commerce business and management tools
provided by Towne and its strategic alliances.
THIS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING THOSE RELATING TO TOWNE'S OPERATIONS, REVENUE, ECONOMIC
PERFORMANCE, BUSINESS PROSPECTS, MANAGEMENT AND FINANCIAL CONDITION. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FOLLOWING FACTORS, AMONG OTHERS:
WHETHER TOWNE CAN GROW ITS CUSTOMER BASE AS PLANNED; COMPETITIVE MARKET
PRESSURES IN THE FINANCIAL TECHNOLOGY SECTOR; THE POSSIBLE NEGATIVE EFFECTS OF
LAWSUITS FILED AGAINST TOWNE; WHETHER TOWNE WILL CONTINUE TO SATISFY STOCK
MARKET LISTING STANDARDS; MARKET ACCEPTANCE OF NEW PRODUCTS AND SERVICES; AND
OTHER FACTORS DISCUSSED UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS" IN TOWNE'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. IN
ADDITION, THERE ARE POTENTIAL RISKS AND UNCERTAINTIES RELATING TO TOWNE'S
PROPOSED MERGER WITH PRIVATE BUSINESS, INCLUDING, BUT NOT LIMITED TO, THE
RESULTS OF EACH PARTY'S DUE DILIGENCE INVESTIGATION, THE ABILITY OF THE PARTIES
TO REACH A MUTUALLY ACCEPTABLE MERGER AGREEMENT, AND OTHER FACTORS. IF AN
AGREEMENT IS REACHED, THE PARTIES WILL BE REQUIRED TO FILE DOCUMENTATION WITH
THE SEC CONCERNING THE TRANSACTION.
WE URGE INVESTORS TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, WHEN THEY BECOME AVAILABLE, BECAUSE
THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. INVESTORS WILL BE ABLE TO
OBTAIN THESE DOCUMENTS FREE OF CHARGE AT THE SEC'S WEBSITE, WWW.SEC.GOV. PLEASE
READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING A DECISION
CONCERNING THE MERGER.
TOWNE SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ --------------------------
2000 1999 2000 1999
------------- ------------- ------------- ---------
(UNAUDITED) (UNAUDITED)
REVENUES $ 5,476,000 $ 7,096,000 $ 25,276,000 $ 29,774,000
COSTS AND EXPENSES:
Processing, servicing and support 2,487,000 2,126,000 7,589,000 7,338,000
Research and development - - - 536,000
Sales and marketing 3,264,000 4,663,000 16,268,000 20,014,000
Stock compensation expense 36,000 36,000 33,000 145,000
Acquisition expense - - - 2,343,000
General and administrative 1,873,000 2,916,000 10,160,000 10,947,000
------------- ------------- ------------- -------------
TOTAL COSTS AND EXPENSES $ 7,660,000 $ 9,741,000 $ 34,050,000 $ 41,323,000
------------ ------------ ------------ ------------
OPERATING LOSS $ (2,184,000) $ (2,645,000) $ (8,774,000) $ (11,549,000)
------------ ------------ ------------ ------------
OPERATING LOSS PER SHARE $ (0.40) $ (0.49) $ (1.60) $ (2.35)
OTHER (INCOME) EXPENSES:
Interest expense (income), net (182,000) (276,000) (1,093,000) (711,000)
Other expense (income), net (1) 6,792,000 - 9,119,000 1,324,000
------------- ------------- ------------- --------------
Total other expenses $ 6,610,000 $ (276,000) $ 8,026,000 $ (613,000)
------------ ------------ ------------ -------------
NET LOSS BEFORE TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ (8,795,000) $ (2,369,000) $ (16,800,000) $ (12,162,000)
Cumulative effect of an accounting change - 3,183,000 - 3,183,000
Provision for income taxes 173,000 576,000 187,000 222,000
NET LOSS $ (8,967,000) $ (6,128,000) $ (16,987,000) $ (15,567,000)
PREFERRED STOCK DIVIDENDS $ 40,000 $ 40,000 $ 160,000 $ 94,000
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (9,007,000) $ (6,168,000) $ (17,147,000) $ (15,661,000)
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS PER COMMON SHARE $ (1.66) $ (1.13) $ (3.14) $ (3.19)
============ ============= ============= =============
Weighted Average Common Shares Outstanding 5,439,413 5,439,519 5,467,138 4,906,680
============= ============= ============= ==============
(1) Other expenses include costs associated with the disposition of
CollectionWorks(TM), impairment of the goodwill from the purchase of
Imaging Institute, the write-down of various capitalized software
development costs, and other non-cash adjustments.
REFER TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND QUARTERLY REPORTS ON FORM
10-Q FOR MORE DETAILED FINANCIAL STATEMENTS AND RELATED NOTES.
-END-
TRANSCRIPT OF TOWNE SEVICES, INC. CONFERENCE CALL HELD ON MARCH 16, 2001 at
9:00 a.m. CST.
Moderator: Mr. Lynn Boggs 03-16-01/9:00 am CT
Confirmation #54.865
TOWNE SERVICES, INC.
MODERATOR: MR. LYNN BOGGS
MARCH 16, 2001
9:00 AM CT
Operator: Good day, everyone, and welcome to this Towne Services,
Incorporated conference call. Today's call is
being recorded.
At this time for opening remarks and introductions, I
would like to turn he conference over to the Chairman and
Chief Executive Officer, Mr. Lynn Boggs. Please go ahead,
sir.
Lynn Boggs: Thank you. Good morning and thank you for joining us
today.
I would like to welcome you to the Towne Services
quarterly conference call. With me on the call today is
Henry Baroco, President and Chief Operator Officer of
Towne Services, and Randy Vosler, Senior Vice President
and Chief Financial Officer.
The purpose of this call is to review the company's
financial and operating result for the fourth quarter and
year ended December 31, 2000. We issued a news release
earlier this morning, and each of you should have received
a copy of the release and the accompanying financial
summary.
I will begin the call with some brief comments about the
company's operations in the fourth quarter. And then Randy
will provide a more detailed account of financial results.
We will then be happy to take any questions.
Before I get started, I would like to read a transcript
that the lawyers provided us to read to you all concerning
this call. During the course of this call we'll attempt to
update you on our anticipations for 2001 and make several
forward-looking statements. Anything we say concerning
Towne's projections, expectations and beliefs for our
future operations, growth, prospects, strategies, business
and financial condition constitutes forward-looking
statements.
Actual results may differ materially from those expressed
or implied by such forward looking statements due to many
factors including whether Towne can grow its customer base
as planned, competitive market pressures in the financial
technology sector, the possible negative effects of
lawsuits filed against Towne, market acceptance of new
products and services and other factors discussed under
management's discussion and analysis of financial
condition and results of operations disclosure regarding
forward-looking statements in Towne's filings with the
SEC.
Also, as we previously announced on March 13, 2001, we
have entered, through a letter of intent, to merge with
Private Business, Inc. Final terms of the proposed merger
transaction will be disclosed upon the signing of a
definitive agreement which is expected by March 31, 2001.
We may make forward-looking statements regulated to this
transaction in this call. Anything we say concerning our
intent, belief or expectations with respect to the merger
with Private Business constitutes forward-looking
statements.
Actual results may differ materially from those expressed
or implied by such forward-looking statements due to many
factors including, among other things, risk that the
parties swill be unable to reach a mutually acceptable
merger agreement or whether regulatory clearances or
shareholder approval might not be obtained in a timely
manner or at all.
Following this conference call we will file a transcript
of this meeting with the SEC. If the merger agreement is
executed, Towne will also file additional documentation
with the SEC discussing these matters.
From a strategic perspective, 2000 was a very important
year for Towne. And while we did not meet all of
management's expectations, we're extremely pleased with
the significant progress we have made.
From an operating standpoint, we continue to see the
benefits of the organizational and structural changes we
have implemented since the beginning of last year. As we
have mentioned on our previous calls, management's primary
focus in 2000 was on restructuring our core operations and
creating the infrastructure to position the company for
future growth.
Although a number of these initiatives took considerable
time, we felt that it was necessary to first address these
before we could move forward. We have now addressed the
critical issues with respect to our core business
operations and believe we are positioned to take advantage
of opportunities in the marketplace.
As our results for the fourth quarter reflect, we
addressed a number of financial issues we felt were
necessary in order to have a clean start for 2001. As
such, we incurred approximately $6.7 million in one-time
charges during the fourth quarter that impacted our bottom
line.
We believe we have made significant progress in many key
areas. As a result of internal changes made over the past
year, we have significantly reduced our annual operating
expenses and improved our sales program. We have
significantly improved customer service and have,
therefore, seen higher customer retention. These
initiatives allow us to manage our business more
efficiently and, more importantly, provide us with the
ability to grow and service our customer base.
As announced earlier this week, we've executed a letter of
intent to engage in a strategic merger with Private
Business based in Brentwood, Tennessee. Private Business,
like Towne, provides technology-driven solutions to help
banks manage their accounts receivable financing for small
businesses. We are very excited to be entering into this
transaction with Private Business and believe this merger
is in the best interest of our company and our
shareholders.
We believe there are a number significant financial and
operating synergies that will be immediately realized with
the merge of the two leading companies in the electronic
transaction processing industry. We continue to believe
that Towne Services offers a compelling value with our
exclusive electronic gateway that securely links Towne's
customers, banks, businesses and consumers, to a network
of products and services.
While we believe we have a proven product and superior
technology, our sales efforts over the past year have not
met our expectations. We believe this merger offers the
opportunity to leverage the strength of Private Business's
sales organization and tap into their nationwide network
of community banks and thousands of small businesses
across the United States.
With our joint customer base of over 1600 banks under
contract and over 8000 merchants, we will enjoy an
expanded market presence as the leading provider of
e-commerce business and management tools to banks and
small businesses. We are also excited about the
substantial cross-selling opportunities with the
combination of our product lines.
Additionally, with over $12.4 million in cash and cash
equivalents as of December 31, 2000, we bring additional
financial strength to help deleverage the balance sheet of
the combined companies. More importantly, we believe the
substantial economies of the merger will create an
efficient and more profitable organization and enhance
shareholder value.
I would now to turn the call over to Randy Vosler, who is
our CFO, who will provide additional comments about
financial results and operations for the quarter and the
year. Randy?
Randy Vosler: Thanks, Lynn.
As noted in our press release, the company showed
significant operating improvement during the quarter.
Total operating expenses during the quarter before
one-time charges were $7.7 million, a significant
improvement compared with operating expenses of $9.7
million for the fourth quarter of 1999.
As Lynn mentioned, as a result of our organizational and
structural changes, we significantly reduced overall
operating expenses last year. Total operating expenses in
2000 were $34 million compared with $41 million in '99.
In addition, we also reduced our accounts receivable and
past-due balances. Accounts receivable decreased from $5.3
million in 1999 to $2.1 million in 2000, a 60%
improvement. And aged past-due accounts receivable
decreased 93% from $2.2 million to $157,000 at the end of
the year.
We believe we have significantly strengthened our balance
sheet. And with over $12.4 million in cash or $2.27 a
share at the end of the year, we believe we are
well-positioned for the next stage of our growth.
As we stated in our third quarter conference call, the
company reinitiated its sales efforts beginning October 1.
I'm happy to report today that from October 1 through
December 31 we recorded a 14.2% increase in revenues for
Towne Credit and Towne Finance, the company's original
core products.
A significant amount of the declining in revenue during
the fourth quarter is attributable to the discontinuation
of the sales efforts of our CollectionWorks line of
business. Although this discontinuation had a negative
impact on revenues for the fourth quarter, we believe that
the decision to dispose of CollectionWorks as of 12/31
will add over $1 million in earnings to the company in
fiscal year 2001.
All figures for the fourth quarter and year ended December
31, 2000 have been adjusted to reflect the 1 for 5 reverse
split of the company's common stock which was affected
December 20, 2000.
The company is pleased to report that during the fourth
quarter we repurchased approximately 357,000 shares of our
outstanding stock for about $629,000. Considering the
progress we have made, we believe this is a very good use
of our corporate funds and reflects our confidence in the
company's future.
I'll now turn the call back over to Lynn.
Lynn Boggs: Thanks, Randy.
We'll now open the call up for question and answer period.
Operator: Today's question and answer session will be conducted
electronically. If you do wish to ask a question, please
press the star key followed by the digit 1 on your
touch-tone phone. We will come to you in the order that
you signal.
We'll pause for a moment to assemble our roster.
Our first question will come from Bob (Anderson) with
PaineWebber.
Bob (Anderson): Lynn, good morning.
Lynn Boggs: Morning, Bob.
Bob (Anderson): Can you expand a little bit on the merger and
how it will affect - or how you will affect with your
balance sheet your new company and the balance sheets that
(unintelligible)?
Lynn Boggs: Bob, from the standpoint of the merger itself,
obviously we're still in the - although we've spend a
significant time together doing due diligence between the
two parties, the next two weeks we've got accounting,
legal work going on to follow-up on that due diligence and
some business issues.
But as one of the advantages I think you can see right off
the top is there's - we ended the year with $12.4 million
in cash. We would hope we would go into the merger with a
significant amount of cash which we think will - both
parties think will help deleverage the balance sheet of
the combined companies and reduce the debt that would be
outstanding.
Other than that, we hope to close the definitive agreement
by the 30th of March. And as soon as we do that, we will
turn around and have an announcement of a joint conference
call to tell you more of the details. And I think we're
going to hold off on that until we finalize that
definitive agreement on the 30th.
Bob (Anderson): So you're not able to say anything now or do you not know
anything now as far as management also?
Lynn Boggs: We're not prepared today - we're going to spend the
next two weeks continuing the due diligence. We actually
have a session scheduled the second week from now to talk
about all the issues of business side of it, although
we've addressed some of the major ones. But I don't think
we're prepared until that time to release all that
information until we finish the due diligence.
Bob (Anderson): Thank you.
Operator: We'll go next to Jim Brown, Brown Investment Group.
Jim Brown: Hey good morning, Lynn.
Lynn Boggs: Good morning, Jim. How are you today?
Jim Brown: I'm fine, hope you are.
What does this do for the stock buyback? Can you comment?
Lynn Boggs: Obviously with the stock buyback that we had in
place, with a merger of this magnitude being announced to
the public market, we would not be out in the marketplace
today buying stock. We don't want to obviously be
front-running any shareholders that want to buy or sell.
So therefore, we will stay out of the market during this
period of time.
Jim Brown: Second point, where will company be domiciled, Atlanta or
Nashville?
Lynn Boggs: That will be part of the due diligence during the next two
weeks. And we'll make those announcements when we finish
the letter of intent - or excuse me, the definitive
agreement.
Jim Brown: Thank you.
Operator: As a reminder to our audience, if you do wish to ask a
question, that's star, 1 on your touch-tone phone at this
time.
Gentlemen, it seems we have no questions standing by on
our question roster. I'd like to turn things back to you
for any additional or closing comments.
Lynn Boggs: Thank you. You all, we appreciate the calls in this
morning. We would like to give you more information about
the merger. We're extremely excited from Towne's
perspective. And I think I can speak for Private Business,
they feel the same way.
Private Business is a great company with three people that
founded that company. we have the highest regard for them.
And we think it makes great partners for us going into the
future. And we think from a shareholder standpoint it will
be outstanding.
In about two weeks, hopefully by the 30th of the month, we
will sign a definitive agreement and make an announcement
at that point in time as to the additional factors that
you all are asking for.
We appreciate your support of Towne Services and look
forward to pursuing a new strategic direction, our
proposed merger with Private Business. We are confident
this merger will crate an efficient and more profitable
organization and position us for great growth in the
future.
Thank you very much.
Operator: Thank you for your participation on today's call. You may
now disconnect at this time.
END
TOWNE PLANS TO FILE A FORM 10-K WITH THE SEC ON OR ABOUT MARCH 30, 2001.
ADDITIONALLY, IF TOWNE AND PRIVATE BUSINESS ENTER INTO A MERGER AGREEMENT, THE
PARTIES PLAN TO FILE A REGISTRATION STATEMENT ON SEC FORM S-4 IN CONNECTION WITH
THE PROPOSED TRANSACTION, AND TOWNE AND PRIVATE BUSINESS EXPECT TO MAIL A PROXY
STATEMENT/PROSPECTUS TO THEIR SHAREHOLDERS CONTAINING INFORMATION ABOUT THE
TRANSACTION. THE FORM 10-K, REGISTRATION STATEMENT AND THE PROXY
STATEMENT/PROSPECTUS PROSPECTUS WILL CONTAIN IMPORTANT INFORMATION ABOUT TOWNE,
PRIVATE BUSINESS, THE TRANSACTION AND RELATED MATTERS, AN INVESTORS ARE URGED TO
READ THESE MATERIALS CAREFULLY WHEN THEY ARE AVAILABLE.
INVESTORS CAN OBTAIN FREE COPIES OF THESE DOCUMENTS THROUGH THE WEB SITE
MAINTAINED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION AT HTTP://WWW.SEC.GOV.
FREE COPIES OF THE PROXY STATEMENT/ PROSPECTUS AND THESE OTHER DOCUMENTS MAY
ALSO BE OBTAINED FROM TOWNE BY DIRECTING A REQUEST THROUGH THE INVESTORS
RELATIONS PORTION OF TOWNE'S WEB SITE AT HTTP://WWW.TOWNESERVICES.COM OR BY MAIL
TO TOWNE SERVICES, INC., 3950 JOHN'S CREEK COURT, SUITE 100, SUWANEE, GEORGIA
30024 ATTENTION: INVESTOR RELATIONS, TELEPHONE: (678) 475-5200.
Interests of Certain Persons in the Transaction.
The directors and executive officers of Towne and Private Business have
interests in the transaction, some of which may differ from, or may be in
addition to, those of their respective shareholders generally. The Proxy
Statement/Prospectus will describe the interests that Towne's and Private
Business' directors and executive officers have in the transaction. Both Towne
and Private Business will be, and certain of their directors, executive officers
and other members of their respective management and employees may be,
soliciting proxies from their shareholders in favor of the transaction. The
directors and officers of each party may be deemed to be participants in the
other party's solicitation of proxies. The Proxy Statement/Prospectus will
provide information concerning the participants.