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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO , 19 .
--------------- ------------ -----
Commission file number : 000-24695
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TOWNE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Georgia 62-1618121
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3950 Johns Creek Court, Suite 100, Suwanee, Georgia 30024
(Address of principal executive
offices and zip code)
(678)-475-5200
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days (1) Yes [X] No [ ]; (2) Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 27,164,011 shares
outstanding at August 11, 1999.
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TOWNE SERVICES, INC.
INDEX TO FORM 10-Q
PAGE
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PART I CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1999 3
Condensed Consolidated Statements of Operations for the Three
Months and Six Months ended June 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
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 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
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PART I.
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TOWNE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 and JUNE 30, 1999
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,060,284 $ 32,333,082
Accounts receivable, net of allowance
for uncollectible accounts of $415,065 and $428,792
at December 31, 1998 and June 30, 1999, respectively 4,338,478 6,931,745
Notes receivable from employees 167,305 258,909
Other 393,732 1,254,264
------------ ------------
Total current assets 18,959,799 40,778,000
------------ ------------
PROPERTY AND EQUIPMENT, net 3,452,987 7,107,684
NOTES RECEIVABLE FROM EMPLOYEES 81,565 --
GOODWILL, net 14,955,414 14,451,686
OTHER INTANGIBLES, net 1,134,614 1,021,153
OTHER ASSETS, net 100,249 172,608
------------ ------------
$ 38,684,628 $ 63,531,131
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 221,763 $ 3,469,635
Accrued liabilities 1,511,148 1,875,297
Accrued compensation 1,198,391 1,836,030
Accrued termination costs 497,910 355,699
Current portion of long-term debt 5,274,000 320,915
------------ ------------
Total current liabilities 8,703,212 7,857,576
------------ ------------
LONG TERM DEBT 55,000 819,317
REDEEMABLE COMMON STOCK 534,000 --
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 20,000,000 shares authorized, 0 and 20,000
issued and outstanding at December 31, 1998 and June 30, 1999, respectively -- 1,880,000
Common stock, no par value; 50,000,000 shares authorized, 19,651,390 and
26,407,906 issued and outstanding December 31, 1998 and June 30, 1999,
respectively 53,520,084 82,042,453
Warrants outstanding 41,000 161,000
Accumulated deficit (24,168,668) (29,229,215)
------------ ------------
Total shareholders' equity 29,392,416 54,854,238
------------ ------------
$ 38,684,628 $ 63,531,131
============ ============
The accompanying notes are an integral part of these balance sheets.
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TOWNE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 and 1999
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
REVENUES $ 3,848,581 $ 7,933,968 $ 7,405,535 $ 15,427,428
COSTS AND EXPENSES:
Costs of processing, servicing and support 995,707 1,596,866 1,932,835 3,115,856
Research and development 264,987 207,369 541,011 456,209
Sales and marketing 2,890,866 4,905,722 5,321,428 10,248,554
Stock compensation expense 36,338 36,339 6,007,928 72,678
Acquisition expense -- 2,286,400 -- 2,343,316
General and administrative 1,164,908 2,675,819 3,002,190 4,698,539
------------ ------------ ------------ ------------
Total costs and expenses 5,352,806 11,708,515 16,805,392 20,935,152
------------ ------------ ------------ ------------
OPERATING LOSS (1,504,225) (3,774,547) (9,399,857) (5,507,724)
------------ ------------ ------------ ------------
OTHER EXPENSES:
Interest (income) expense, net 76,743 (40,674) 152,032 (112,741)
Other expense (income) 252 -- 252 --
Financing costs for stock issued to nonemployees -- -- 323,000 --
------------ ------------ ------------ ------------
Total other expenses 76,995 (40,674) 475,284 (112,741)
------------ ------------ ------------ ------------
Loss before income taxes (1,581,220) (3,733,873) (9,875,141) (5,394,983)
------------ ------------ ------------ ------------
Benefit for income taxes -- (240,000) (34,000) (354,000)
NET LOSS $ (1,581,220) $ (3,493,873) $ (9,841,141) $ (5,040,983)
============ ============ ============ ============
PREFERRED STOCK DIVIDENDS -- -- (5,108,000) --
ACCRETION OF WARRANTS WITH REDEMPTION FEATURE (284,000) -- (495,000) --
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1,865,220) $ (3,493,873) $(15,444,141) $ (5,040,983)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
PER COMMON SHARE:
Basic $ (0.12) $ (0.16) $ (1.03) $ (0.23)
============ ============ ============ ============
Diluted $ (0.12) $ (0.16) $ (1.03) $ (0.23)
============ ============ ============ ============
Weighted Average Common Shares Outstanding 15,372,128 21,994,027 15,037,281 21,913,816
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
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TOWNE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1999
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1998 1999
----------- ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(9,841,141) $ (5,040,983)
----------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensation expense recognized for stock option grants 6,057,590 72,678
Financing costs for stock issued to nonemployees 323,000 --
Depreciation 179,840 446,645
Amortization of intangibles and goodwill -- 817,693
Amortization of deferred financing fees 6,856 --
Amortization of debt discount 24,962 --
Provision for doubtful accounts 24,000 82,984
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable (422,374) (2,676,251)
Prepaid & other assets (197,993) (947,393)
Stock subscriptions receivable 377,500 --
Accounts payable (105,258) 2,789,810
Accrued liabilities 544,468 317,106
Accrued compensation 50,703 596,639
Accrued termination costs -- (81,377)
----------- ------------
Total adjustments 6,863,294 1,418,534
----------- ------------
Net cash used in operating activities (2,977,847) (3,622,449)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in notes receivable from employees (81,677) (10,039)
Acquisitions, net of cash acquired (510,000) (178,295)
Purchase of property and equipment, net (548,911) (3,153,110)
----------- ------------
Net cash used in investing activities (1,140,588) (3,341,444)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- 56,250
Repayment of debt (184,132) (5,137,000)
Proceeds from long-term borrowings 628,849 --
Proceeds from issuance of preferred stock 1,500,000 2,000,000
Proceeds from issuance of common stock 1,329,607 28,317,441
Repurchase of common stock (20,000) --
----------- ------------
Net cash provided by (used in) financing activities 3,254,324 25,236,691
----------- ------------
NET (DECREASE) INCREASE IN CASH (864,111) 18,272,798
CASH AND CASH EQUIVALENTS, beginning of period 3,643,439 14,060,284
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,779,328 $ 32,333,082
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ --
=========== ============
Cash paid for interest $ 44,539 $ 22,351
=========== ============
Stock subscription receivable $ 50,000 $ --
=========== ============
Acquisitions of property and equipment through capital leases $ -- $ 948,232
=========== ============
The accompanying notes are an integral part of these statements.
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TOWNE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
Towne Services, Inc. ("Towne Services" or the "Company") provides
services and products that process sales and payment information and related
financing transactions for small businesses and community banks in the United
States. The Company delivers these services and products online via an
electronic hub, or gateway, that links business and bank customers with the
Company and other providers of products and services that can benefit these
customers. The Company uses this electronic gateway to deliver a variety of
business and management solutions using internet and telecommunication
connections. The primary business capabilities we offer our customers include a
virtual credit card system and a merchandise forecasting system.
The virtual credit card system processes the in-house credit
transactions of small businesses and includes an automated receivables
management system that allows banks to quickly finance the working capital needs
of their small business customers. Towne Services' merchandise forecasting
system processes sales and inventory transactions of small businesses which
allow small business owners greater control over inventory levels and the
ability to make better inventory purchase decisions, in an effort to improve
cashflow and operating margins.
The Company's automated asset management systems are TOWNE CREDIT(R),
which processes consumer credit transactions for small and medium size retail
merchants, TOWNE FINANCE(R) and CASHFLOW MANAGER(SM), which process
business-to-business credit transactions for small commercial businesses, and
RMSA Forecast System, which processes sales and inventory transactions and
provides merchandising information for small specialty retail stores. Through
the use of the Company's products and services, small businesses can automate
certain manual processes, accelerate cash flow, provide better customer service,
reduce paperwork and shift many other administrative burdens to Towne Services.
2. BASIS OF PRESENTATION
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements for the three and
six months ended June 30, 1998 and 1999 are unaudited. The historical financial
information has been restated for the effects of the acquisition of Forseon
Corporation that was accounted for as a pooling of interests. In the opinion of
the management of the Company, these financial statements reflect all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial statements. Certain information and footnote
disclosures usually found in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The
results of operations for the three and six months ended June 30,
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1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999 or for any other future periods.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of general purpose financial statements. This statement is effective for
periods beginning after December 15, 1997. The Company adopted SFAS No. 130
effective January 31, 1998. The adoption of SFAS No. 130 did not have a material
impact on the Company's financial statements, as comprehensive income did not
differ from the reported net loss.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company's
operating business segments provide electronic transaction processing for small
business in-house accounts. The product lines offered by the Company use the
Company's central administrative offices for customer support, centralized
processing and sales support. In addition, the Company's sales force markets all
products within their assigned markets. Consequently, the Company considers all
of its products as one reportable segment under the definitions in SFAS No. 131.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the Company's financial statements.
4. PUBLIC OFFERING
In June 1999, the Company completed a secondary public offering of
4,500,000 shares of common stock at an offering price to the public of $7.125
per share. The total proceeds from the public offering, net of underwriting
discounts and offering expenses, were approximately $28.0 million.
5. REVENUE RECOGNITION
The Company functions as a service bureau whereby customers process
transactions utilizing the Company's software on an outsourced basis. The
Company's revenues are generated primarily through initial set-up fees,
recurring monthly transaction processing fees and software license fees.
Revenues related to the initial set-up fee are recognized upon execution of the
related contract. Revenues are deferred for contracts that contain certain
cancellation clauses and/or return guarantees until the guarantee period is
expired. Transaction fees are recognized on a monthly basis as earned. Revenues
related to software license fees are recognized in accordance with American
Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2,
"Software Revenue Recognition," ("SOP 97-2"), as amended. The Company also
leases point of sale terminal equipment to certain customers under
month-to-month operating leases. Such operating lease revenues are recognized
on a monthly basis as earned.
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5. ACQUISITIONS
In June 1999, the Company acquired Forseon Corporation ("Forseon"), a
company based in Riverside, California. Forseon provides products and services
for retail businesses that process inventory, accounts receivable and point of
sale transaction information and generate merchandise forecasts and management
reports. Towne issued a total of 2,075,345 shares of its common stock in
exchange for all outstanding stock and options to acquire stock in Forseon. The
merger was accounted for as a pooling of interests. Ten percent of the Towne
common stock has been held back in escrow to satisfy the indemnification
obligations of Forseon stockholders under the merger agreement. The Company
incurred approximately $2.3 million in expenses related to the acquisition of
Forseon.
6. LONG TERM DEBT OBLIGATIONS
In June 1999, the Company entered into a five year capital lease
obligation with Synovus Leasing Company to finance the purchase of office
furniture and fixtures. The capital lease obligation of $633,000 includes
interest expense of $122,000, or 8.75%, of the principal. The amount of the
minimum monthly lease obligation, consisting of principal and interest, is
$11,000.
In June 1999, the Company entered into a five year capital lease
obligation with NEC America, Inc. to finance the purchase of office
telecommunications equipment. The capital lease obligation of $546,000 includes
interest expense of $104,000, or 8.61%, of the principal. The amount of the
minimum monthly lease obligation, consisting of principal and interest, is
$9,000.
7. SHAREHOLDERS' EQUITY
In June 1999, the Company sold 20,000 shares of Series B Preferred
Stock and issued a warrant to purchase 30,000 shares of the Company's common
stock to Synovus Financial Corporation for $2,000,000. The shares are
convertible into common stock at a conversion price equal to $9.08. The Series B
Preferred Stock is redeemable at any time on or after June 30, 2002 at the
option of the Company for cash, in whole or part, on at least 10 business days
but not more than 90 calendar days' notice. The Company allocated $1,880,000 to
the preferred stock based on the relative fair value at the date of issuance.
The holders of the Series B Preferred Stock are entitled to receive
cumulative cash dividends when, as and if declared by the Board of Directors out
of any funds legally available therefor at the rate of $2.00 per share of Series
B Preferred Stock per quarter. Dividends are payable quarterly on March 31, June
30, September 30 and December 31 in each year. Dividends accrue on each share of
Series B Preferred Stock beginning June 1999 and accrue from day to day, whether
or not earned or declared and whether or not there are funds legally available
for the payment of such dividends. Any accumulation of dividends on the Series B
Preferred Stock does not bear interest.
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The warrant allows Synovus to purchase 30,000 shares of the Company's
common stock for $9.08 per share and is exercisable beginning 12 months after
the issue date. The term of the warrant is 5 years. The Company allocated
$120,000 to the warrant based on the relative fair value of the warrant using
the Black-Scholes pricing method.
8. SUBSEQUENT EVENTS
On July 20, 1999, 675,000 shares of common stock were issued and sold
by the Company pursuant to an underwriters' over-allotment provision in
connection with the public offering in June 1999. The Company received proceeds
of $4.6 million, which increased the total proceeds from the public offering,
net of underwriting discounts and offering expenses, to approximately $32.6
million.
On July 20, 1999, the Company acquired all of the issued and
outstanding stock of Imaging Institute, Inc. ("III"), a Bloomington,
Minnesota-based company, for approximately $1.0 million cash and the issuance of
up to 81,016 shares of the Company's common stock. Founded in 1996, III is a
developer and retailer of document imaging and archiving products. III's main
products include AUGUSTA and EzVIEW VAULT(TM), which offer unique and functional
document management solutions tailored for small to medium size businesses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This Report contains several "forward-looking statements" concerning Towne
Services' operations, performance, prospects, strategies and financial
condition, including its future economic performance, intent, plans and
objectives and the likelihood of success in developing and expanding its
business. These statements are based upon a number of assumptions and estimates
which are subject to significant uncertainties, many of which are beyond the
control of Towne Services. Words such as "may," "would," could," "will,"
"expect," "anticipate," "believe," "intend," "plan," and "estimate" are meant to
identify such forward-looking statements. Actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited to:
- - Towne's limited operating history and whether it will be able to
achieve or maintain profitability or any other specific operating
results expected by public market analysts;
- - Whether Towne can successfully integrate the operations of companies it
acquires, including those of Forseon and III;
- - whether Towne can attract and retain sales and marketing personnel or
enter new marketing alliances to grow its business;
- - whether Towne can obtain, continue and manage growth or execute
agreements with new customers;
- - whether the market will accept new products and enhancements from
Towne, including those acquired as a result of the Forseon and III
transactions;
- - increased competition;
- - the unknown effects of possible system failures and rapid changes in
technology; and
- - other factors discussed in this report and in Towne's registration
statements on Form S-1 (No. 333-76859) as declared effective by the
Securities and Exchange Commission on June 23, 1999 and Form S-4 (No.
333-76493) as declared effective by the Securities and Exchange
Commission on June 10, 1999, including the "Risk Factors" section
contained therein.
OVERVIEW
Towne establishes an electronic gateway that links its business and
bank customers with Towne and other providers of products and services. We
currently generate revenues through the deployment and use of four primary
products and ancillary services: TOWNE CREDIT(R), TOWNE FINANCE(R), CASHFLOW
MANAGER(SM), and RMSA Forecast System. With each of these products, we generate
initial set-up fees, discount fees and recurring monthly transaction processing
fees. Management believes the prices charged for both the initial set-up fees
and the recurring transaction fees are based upon the relative fair value of the
related services provided. Accordingly, we recognize these fees as the related
services are provided.
Set-up fees include charges for installation, implementation and
training of our bank and
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business customers. Set-up fees charged to each bank vary depending on the
asset size of the bank and the number of communities served. We also charge
set-up fees to our business customers based either upon a flat rate or upon the
expected transaction volume.
With each of our transaction processing products, our business customer
pays a discount fee to its bank equal to a percentage of the value of each
transaction processed. In addition, the business' customer pays to the bank
interest and fees for amounts owed on account. We generate recurring revenue by
collecting a portion of the discount fee and, if applicable, interest paid on
these accounts, as well as by charging monthly transaction processing fees.
Monthly transaction processing fees include charges for electronic processing,
statement rendering and mailing, settling payments, recording account changes
and new accounts, leasing and selling point of sale terminals, telephone and
software support services, rental fees and collecting debts.
Other revenues include charges for software license fees, maintenance
agreements, the sale of hardware and equipment and marketing materials and
supplies.
Costs of processing, servicing and support include installation costs
for our products and costs related to customer service, information systems
personnel and installation services.
Research and development expenses consist of salary and related
personnel costs, including costs for employee benefits, computer equipment and
support services used in product and technology development. We believe that our
research and development expenditures, which aid in the design of new products
and product enhancements to respond to changes in customer demand, are essential
for obtaining and retaining a leadership position in our marketplace. Most
research and development expenditures are expensed as incurred; however, we have
capitalized certain development costs under Statement of Financial Accounting
Standards ("SFAS") No. 86 when the products reached technological feasibility.
Sales and marketing expenses consist primarily of salaries and
commissions, travel expenses, advertising costs, trade show expenses and costs
of marketing materials. These expenses also include the costs incurred to
develop our indirect marketing channels.
In June 1999, we completed a secondary public offering of 4,500,000
shares of common stock at an offering price to the public of $7.125 per share.
The total proceeds from the public offering, net of underwriting discounts and
offering expenses, were approximately $28.0 million.
In June 1999, we acquired Forseon Corporation ("Forseon"), a company
based in Riverside, California. Forseon provides products and services for
retail businesses that process inventory, accounts receivable and point of sale
transaction information and generate merchandise forecasts and management
reports. We issued a total of 2,075,345 shares of our common stock in exchange
for all outstanding stock and options to acquire stock in Forseon. The merger
was accounted for as a pooling of interests. Ten percent of the Towne common
stock has been held back in escrow to satisfy the indemnification obligations of
Forseon stockholders
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under the merger agreement. We incurred approximately $2.3 million in expenses
related to the acquisition of Forseon.
We had net losses of approximately $1.6 million and $3.5 million for
the three months ended June 30, 1998 and 1999, respectively. For the six months
ended June 30, 1998 and 1999, we had net losses of approximately $9.8 million
and $5.0 million, respectively. As of December 31, 1998, we had an accumulated
deficit of $24.2 million. Approximately $12.9 million resulted from one-time
non-cash charges, and $2.3 million of this accumulated deficit resulted from a
one-time charge relating to employee termination agreements subsequent to the
purchase of Banking Solutions, Inc. in December 1998. As of June 30, 1999, this
accumulated deficit was $29.2 million.
Our total revenues were $7.4 million and $15.5 million for the six
months ended June 30, 1998 and 1999, respectively. We have experienced net
losses of $9.8 million and $5.0 million in each of these periods, respectively
and expect to continue to incur losses for the foreseeable future. The number of
our employees at June 30, 1998 was 177, compared to 319 employees at June 30,
1999. We currently intend to expand our sales and marketing operations, to
invest more in product research and development, to pursue strategic
acquisitions and to improve our internal operating and financial infrastructure,
all of which will increase our operating expenses.
Because of our limited operating history, management believes that
period to period comparisons of our operating results are not meaningful.
Although we have experienced significant revenue growth recently, there can be
no assurance that such growth rates are sustainable, and they should not be
relied upon as indicators of future performance. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development and relatively new
and changing markets. There can be no assurance that we will be successful in
addressing such risks and difficulties or that we will achieve profitability in
the future.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999
Revenues. Towne's revenues increased from $3.8 million for the three
months ended June 30, 1998 to $7.9 million for the three months ended June 30,
1999. During these two periods, recurring revenues accounted for approximately
73% and 67% of total revenues, respectively. Set-up fees accounted for
approximately 19% and 14% of total revenues, respectively. Other revenues
accounted for approximately 8% and 19% of total revenues, respectively. The
increase in revenues during these periods is attributed primarily to an increase
in transaction processing revenues and set up fees as a result of the increase
in the number of customers. The increase in other revenues is primarily a
result of an increase in software license fee revenues.
Costs of Processing, Servicing and Support. Costs of processing,
servicing and support increased from $996,000 for the three months ended June
30, 1998 to $1.6 million for the three
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months ended June 30, 1999. These costs were approximately 26% and 20% of
revenues, respectively, for these two periods. The dollar amount of costs of
processing, servicing and support increased as a result of the addition of new
customers and additional services and support functions necessary to support
Towne's growth, including as a result of its acquisitions. Towne anticipates
that these costs will continue to increase as new customers are added. Costs of
processing, servicing and support decreased as a percentage of revenue as a
result of substantially increased revenues and improved operating efficiencies.
Research and Development. Research and development expenses decreased
from $265,000 for the three months ended June 30, 1998 to $207,000 for the three
months ended June 30, 1999. Research and development expenses represented
approximately 7% and 3% of revenues, respectively, during these two periods. We
do not expect to incur significant costs to make our products year 2000
compliant because we believe our products are currently designed to properly
function through and beyond the year 2000. See "--Effects of the Year 2000."
Sales and Marketing. Sales and marketing expenses increased from $2.9
million for the three months ended June 30, 1998 to $4.9 million for the three
months ended June 30, 1999. Sales and marketing expenses were approximately 75%
and 62% of revenues, respectively, during these two periods. The increase in the
dollar amount of these expenses is primarily the result of significant increases
in the number of sales personnel in remote locations, related travel expenses
and costs for marketing materials used to recruit potential bank and business
customers. Towne anticipates that sales and marketing expenses will continue to
increase as it continues to expand its direct sales and marketing force and
hires additional personnel to promote its indirect sales channels. Costs of
sales and marketing decreased as a percentage of revenue as a result of
substantially increased revenues and improved operating efficiencies.
Stock Compensation Expense. Stock compensation expense was $36,000 for
the three months ended June 30, 1998 and $36,000 for the three months ended June
30, 1999. In the first quarter of 1998, Towne sold shares of common stock and
issued options to acquire common stock at what management believed to be the
fair market value of the common stock at that time. Towne retained an
independent appraiser who subsequently valued the common stock at a higher
price. The Company will record approximately $727,000 ($145,000 per year) of
compensation expense over the five year vesting period of the options.
Acquisition Expense. The Company incurred approximately $2.3 million of
expenses related to the acquisition of Forseon Corporation in June 1999.
General and Administrative. General and administrative expenses
increased from $1.2 million for the three months ended June 30, 1998 to $2.7
million for the three months ended June 30, 1999. These costs represented
approximately 30% and 34% of revenues, respectively, for these two periods. The
increase in the dollar amount of these expenses was the result of increases in
costs associated with executive and administrative expenses related to our
growth, costs related to acquisitions, writeoffs of uncollectible accounts
receivable and additional costs incurred for relocation to our new office
facility. Also, Towne incurred additional costs related to being a public
company, including annual and other public
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reporting costs, directors' and officers' liability insurance, investor
relations programs and professional services fees. We anticipate that general
and administrative expenses will continue to increase in the near future as
Towne upgrades internal and financial reporting systems to enhance management's
ability to obtain and analyze information about its operations.
Interest (Income) Expense, Net. Towne reported net interest expense of
$77,000 for the three months ended June 30, 1998 and net interest income of
$41,000 for the three months ended June 30, 1999. Net interest expense decreased
as a result of the repayment of debt obligations and net interest income
increased as a result of earnings on investments of cash proceeds received from
the initial public offering.
Income Taxes. As of December 31, 1998, Towne Services had net operating
losses ("NOLs") of approximately $17.6 million for federal tax purposes, which
will expire beginning in 2011 if not utilized. In connection with the
acquisition of Forseon Corporation, Towne recognized income tax benefits in the
amounts of $0 and $240,000 for the periods ended June 30, 1998 and June 30,
1999, respectively.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
Revenues. The Company's revenues increased from $7.4 million for the
six months ended June 30, 1998 to $15.4 million for the six months ended June
30, 1999. During these two periods, recurring revenues accounted for
approximately 75% and 69% of total revenues, respectively. Set-up fees
accounted for approximately 16% and 17% of total revenues, respectively. Other
revenues accounted for approximately 9% and 14% of total revenues,
respectively. The increase in other revenues is primarily a result of an
increase in software license fee revenues.
Costs of Processing, Servicing and Support. Costs of processing,
servicing and support increased from $1.9 million for the six months ended June
30, 1998 to $3.1 million for the six months ended June 30, 1999. These costs
were approximately 26% and 20% of revenues, respectively, for these two periods.
Towne anticipates that these costs will continue to increase as new customers
are added.
Research and Development. Research and development expenses decreased
from $541,000 for the six months ended June 30, 1998 to $456,000 for the six
months ended June 30, 1999. Research and development expenses represented
approximately 7% and 3% of revenues, respectively, during these two periods.
Sales and Marketing. Sales and marketing expenses increased from $5.3
million for the six months ended June 30, 1998 to $10.2 million for the six
months ended June 30, 1999. Sales and marketing expenses were approximately 72%
and 66% of revenues, respectively, during these two periods.
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Stock Compensation Expense. Stock compensation expense was $6.0 million
for the six months ended June 30, 1998 and $73,000 for the six months ended June
30, 1999. In addition, the Company will record approximately $727,000 ($145,000
per year) of compensation expense over the five year vesting period of options
issued to management.
Acquisition Expense. The Company incurred approximately $2.3 million of
expenses related to the acquisition of Forseon Corporation in June 1999.
General and Administrative. General and administrative expenses
increased from $3.0 million for the six months ended June 30, 1998 to $4.7
million for the six months ended June 30, 1999. These costs represented
approximately 41% and 30% of revenues, respectively, for these two periods. The
Company anticipates that the dollar amount of these general and administrative
expenses will continue to increase in the near future as it upgrades internal
and financial reporting systems to enhance management's ability to obtain and
analyze information about its operations.
Interest (Income) Expense, Net. Towne reported net interest expense of
$152,000 for the six months ended June 30, 1998 and net interest income of
$113,000 for the six months ended June 30, 1999. Net interest expense decreased
as a result of the repayment of debt obligations and net interest income
increased as a result of earnings on investments of cash proceeds received from
the initial public offering.
Income Taxes. As of December 31, 1998, Towne Services had NOLs of
approximately $17.6 million for federal tax purposes, which will expire
beginning in 2011 if not utilized. Towne recognized income tax benefits in the
amounts of $34,000 and $354,000 for the six months ended June 30, 1998 and June
30, 1999, respectively.
During Towne's short history, our operating results have varied
significantly and are likely to fluctuate significantly in the future as a
result of a combination of factors. These factors include:
- whether or not the market accepts our current and future
products and services;
- whether new competitors emerge or existing competitors gain
market share faster than we do;
- whether new technologies are developed which make our systems
outdated or obsolete;
- whether costs of doing business increase as a result of higher
wages, sales commissions, taxes and other operating costs;
- whether seasonal trends in consumer purchasing impact the
volume of transactions processed; and
- general economic factors and the impact of potential
acquisitions to our operations.
In addition, the amount of revenues associated with particular set-up
fees can vary significantly based upon the number of products used by customers
for any particular period. We establish our expenditure levels for product
development, sales and marketing and other
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operating expenses based, in large part, on our anticipated revenues. As a
result, if revenues fall below expectations, operating results and net income
are likely to be adversely and disproportionately affected because only a
portion of our expenses vary with revenues.
Liquidity and Capital Resources
Since its inception, Towne has financed its operations primarily
through sales of its equity securities in private placements, its initial public
offering, its follow-on offering and through credit facilities. Through December
1997, Towne received aggregate net proceeds of $4.3 million from the sale of its
common stock. In March 1998, Towne received net proceeds of $1.5 million from
the sale of its Series A Preferred Stock in a private placement. In July 1998,
Towne received net proceeds of $27.0 million from the initial public offering of
its common stock. In June 1999, Towne received net proceeds of $28.0 million
from its follow on offering of its common stock and $2.0 million from the sale
of its Series B preferred stock in a private placement.
In June 1999, the Company entered into a five year capital lease
obligation with Synovus Leasing Company to finance the purchase of office
furniture and fixtures. The capital lease obligation of $633,000 includes
interest expense of $122,000 or 8.75% of the principal. The amount of the
minimum monthly lease obligation, consisting of principal and interest, is
$11,000.
In June 1999, the Company entered into a five year capital lease
obligation with NEC America, Inc. to finance the purchase of office
telecommunications equipment. The capital lease obligation of $546,000 includes
interest expense of $104,000 or 8.61% of the principal. The amount of the
minimum monthly lease obligation, consisting of principal and interest, is
$9,000.
Net cash used in operating activities was approximately $3.0 million
for the six months ended June 30, 1998 and $3.6 million for the six months ended
June 30,1999. Net cash used in operating activities for the six months ended
June 30, 1998 represents a $9.8 million net loss partially offset by a $490,000
increase in accounts payable and accrued expenses, a $422,000 growth in accounts
receivable, a $198,000 increase in prepaid expenses and other assets and a
$378,000 decrease in stock subscriptions receivable. Net cash used in operating
activities for the six months ended June 30, 1999 represents a $5.0 million net
loss partially offset by a $3.6 million increase in accounts payable and accrued
expenses, a $2.7 million increase in accounts receivable and a $947,000 increase
in prepaid expenses and other assets.
Net cash used in investing activities was approximately $1.1 million
for the six months ended June 30, 1998 and $3.3 million for the six months ended
June 30, 1999. Net cash used in investing activities for the six months ended
June 30, 1998 represents an increase of $82,000 in notes due from shareholders,
$510,000 to acquire certain assets and liabilities of Credit Collection
Solutions, Inc. and $549,000 for the purchases of computer equipment and other
capital equipment used in conducting Towne's business. Net cash used in
investing activities for the six months ended June 30, 1999 represents an
increase of $10,000 in notes receivable due
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from employees, $178,000 related to acquisition expenses and $3.2 million for
the purchase of computer equipment and other capital equipment used in
conducting Towne's business.
Net cash provided by financing activities was $3.3 million and $25.2
million for the six months ended June 30, 1998 and 1999, respectively. Net cash
provided by financing activities for the six months ended June 30, 1998
consisted primarily of $2.8 million of proceeds from the issuance of securities,
a three year note payable for $144,000 and a short term note payable for
$500,000. Net cash used in financing activities for the six months ended June
30, 1999 consisted primarily of $5.0 million for the repayment of outstanding
short term debt obligations, $56,000 of proceeds from stock option exercises and
$30.0 million of proceeds from the issuance of securities.
EFFECTS OF THE YEAR 2000
Our business and customer relationships rely on computer software
programs, internal operating systems and telephone and other network
communications connections. If any of these programs, systems or network
connections are not programmed to recognize and properly process dates after
December 31, 1999 (the "Year 2000" issue), significant system failures or errors
may result which could have a material adverse effect on the business, financial
condition, or results of operations of both our company and the affected
customers. We have conducted tests on our proprietary point of sale terminals,
network connections and transaction processing software and believe that our
TOWNE CREDIT, TOWNE FINANCE, CASHFLOW MANAGER, and COLLECTION WORKS products
and network connections we maintain are able to process dates after December 31,
1999. We rely on several information technology systems including the Charter
System software, which is licensed to customers, and our mainframe-based
forecasting system. We have completed the remediation and testing of the Charter
System, and 98% of our Charter System clients are now using the remediated
version. The remaining 2% of our Charter System clients are unable to use the
remediated version at this time because they have not completed necessary
hardware upgrades. We believe the mainframe-based forecasting system we employ
in our forecasting services has been remediated. The Year 2000 compliance
testing on the mainframe based forecasting system was completed on July 1, 1999
and the software is in production.
We transmit data to and from our clients electronically. We have tested
these electronic data transmissions and reasonably expect that they will
function normally after December 31, 1999; however, a failure of these data
transmissions could negatively impact our ability to operate. We also use
certain third party software such as Microfocus software development tools and
Windows(R) in our operations. We have not yet assessed whether third party
software presents a Year 2000 risk. We plan to complete such assessment by
September 1, 1999. We have completed assessment of our workstations and have
determined that approximately 30 workstations require replacement due to Year
2000 problems. The costs of replacement workstations and programming are
estimated to be $100,000.
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For our internal accounting and operating systems and network
communications, we use software and other products provided by third parties and
we have received warranties or other assurances that these products are
programmed to address the Year 2000 issue. Our personnel will continue to test
our network connections to help ensure that these programs and systems continue
to address the Year 2000 issue. We intend to modify or replace any products or
systems that are unable to properly function as a result of the Year 2000 issue
and currently believe we will be able to do so without incurring costs or delays
which would have a material adverse effect on our financial condition.
We supply point of sale terminals and other products needed to run our
processing systems to our customers and have not tested any other products or
systems used in our customers' businesses. If our customers do not successfully
address Year 2000 issues in their operations and, as a result, experience
temporary or permanent interruptions in their businesses, we may lose revenues
from these customers, which could have a material adverse effect on our
business, financial condition and results of operations. We believe that many
financial institutions and small businesses, including our customers, are still
in the preliminary stages of analyzing their systems for Year 2000 issues. It is
impossible to estimate the potential expenses involved or delays which may
result from the failure of these institutions and third parties to resolve their
Year 2000 issues in a timely manner and there can be no assurance that such
expenses, failures or delays will not have a material adverse effect on our
business, financial condition or results of operations.
EFFECTS OF ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and presentation of
comprehensive income and its components in a full set of general purpose
financial statements. This statement is effective for periods beginning after
December 15, 1997. Towne adopted SFAS No. 130 on January 1, 1998. The adoption
of SFAS 130 did not have a material impact on Towne's financial statements as
comprehensive income did not differ from the reported net loss for all periods
presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement is effective for financial statements for periods beginning after
December 15, 1997. The adoption of SFAS No. 131 did not have an impact on our
financial statements, as we operate in one business segment, electronic
transaction processing. Our operating business segments provide electronic
transaction processing for small business in-house accounts. The segments use
our central administrative offices for customer support, centralized processing
and sales support. In addition, our sales force markets all products within
their assigned markets. We consequently consider all of our products as one
reportable segment under the definitions in SFAS No. 131.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 will not have a
material impact on our financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
foreign currency exchange rates.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 1999, the Company sold 20,000 shares of its Series B
Preferred Stock and issued a warrant to acquire 30,000 shares of its
common stock to Synovus Financial Corporation. The Company received
$2,000,000 and executed a strategic customer agreement with Synovus in
connection with this transaction. The shares are convertible into
common stock at a conversion price equal to $9.08. The Series B
Preferred Stock is redeemable at any time on or after June 30, 2002 at
the option of the Company for cash, in whole or part, on at least 10
business days but not more than 90 calendar days' notice. The holders
of the Series B Preferred Stock are entitled to receive cumulative cash
dividends when, as and if declared by the Board of Directors out of any
funds legally available therefor at the rate of $2.00 per share of
Series B Preferred Stock per quarter. Dividends will be payable
quarterly on March 31, June 30, September 30 and December 31 in each
year. Dividends accrue on each share of Series B Preferred Stock
beginning June 1999 and accrue from day to day, whether or not earned
or declared and whether or not there are funds legally available for
the payment of such dividends. Any accumulation of dividends on the
Series B Preferred Stock does not bear interest. The warrant allows
Synovus to purchase 30,000 shares of the Company's common stock for
$9.08 per share and is exercisable beginning 12 months after the issue
date. The term of the warrant is 5 years. The Company relied upon the
exemptions from registration under Section 4(2) of the Securities Act
of 1933, including Regulation D and the guidance and interpretations
issued by the Staff of the Securities and Exchange Commission
thereunder in making these sales to a qualified institutional buyer.
On July 30, 1998 the Company's initial public offering was
declared effective by the Securities and Exchange Commission. In this
offering, the Company sold 3,850,000 shares of common stock at $8.00
per share. The Company received proceeds of $27.0 million (net), after
deducting underwriting discounts of $2.2 million and expenses related
to the offering. Upon completion of the initial public offering, all
outstanding shares of Series A Preferred Stock were converted to
1,217,903 shares of common stock and warrants for 308,982 shares of
common stock were exercised.
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The Company used all of the proceeds of its initial public
offering during the period from July 30, 1998 to June 30, 1999, as
follows:
1. $2.2 million for the repayment of indebtedness
outstanding under the Company's loan facility with
Sirrom Investments, Inc., and the Company's loan from
Citizens Bank.
2. $11.8 million for working capital and general
corporate purposes.
3. $13.0 million related to the acquisition of Banking
Solutions consisting of $10.7 million related to the
purchase of goodwill and $2.3 million related to
employee termination agreements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on May
21, 1999 for the following purposes:
1. to elect four Class I directors to serve for three
year terms and to elect one Class III director to
serve for a two year term
2. to consider and act upon the proposal to amend the
Company's Articles of Incorporation to increase the
maximum size of the board from 12 to 15 directors;
3. to consider and act upon the proposal to adopt the
Company's Director Stock Option Plan and to reserve
for issuance thereunder 250,000 shares; and
4. to ratify the appointment of Arthur Andersen LLP as
the Company's independent auditors for 1999.
Only shareholders of record at the close of business on April
15, 1999 were entitled to vote at the Annual Meeting. Proxies for the
meeting were solicited pursuant to the Georgia Business Corporation
Code, and there was no solicitation in opposition to management's
solicitations.
Proxies and ballots were received from the holders of
16,235,191 shares of the Company's common stock, representing 82.1% of
the outstanding shares of common stock.
The results were as follows:
1. The four individuals nominated to serve as Class I
directors and the one individual nominated to serve
as a Class III director were elected with the number
of votes for and withheld as indicated below:
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CLASS I FOR WITHHELD
--------------------- ---------- --------
Frank W. Brown 16,226,791 8,400
J. Stanley Mackin 16,226,791 8,400
J. Daniel Speight, Jr. 16,226,791 8,400
Bahram Yusefzadeh 16,226,791 8,400
CLASS III
---------------------
John D. Schneider, Jr. 16,228,691 6,500
Continuing as directors are:
G. Lynn Boggs
Frank W. Brown
John W. Collins
Richardson M. Roberts
Joe M. Rodgers
Glenn W. Sturm
J. Stephen Turner
Also, the shareholders approved the following matters with the
number of votes below:
FOR AGAINST ABSTAIN
---------- --------- -------
2. The proposal to amend the Company's
Articles of Incorporation 16,057,537 164,830 12,824
3. The proposal to adopt the Company's
Director Stock Option Plan 14,990,591 1,244,600 0
4. The proposal to ratify the Company's
appointment of Arthur Andersen LLP 16,227,847 0 7,344
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
2.1 Agreement and Plan of Merger by and among Towne Services, Inc., TSI
Acquisition One, Inc., Forseon Corporation and certain of the
stockholders of Forseon Corporation dated as of March 25, 1999.**
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2.2 Escrow Agreement dated June 19, 1999 by and among Towne Services,
Inc., Dan Paul and Allen Merrill, each in their capacity as a
Stockholder Representative, and First Union National Bank.
3.1 Amended and Restated Articles of Incorporation, as filed with the
Secretary of the State of Georgia on July 29, 1998.*
3.2 Amended and Restated Bylaws, effective May 19,1998.*
3.3 Articles of amendment to the Amended and Restated Articles of
Incorporation of Towne Services Inc., as filed with the Secretary of
State of Georgia on May 21, 1999.*
3.4 Amendment to the Amended and Restated Bylaws of Towne Services Inc.,
effective May 21, 1999.*
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Towne Services Inc., as filed with the Secretary of
State of Georgia on June 11, 1999.*
4.1 See Exhibits 3.1 through 3.5 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining the
rights of the holders of Common Stock of the Company.
10.1 Sublease agreement by and among Technology Park/Atlanta, Inc. and
Towne Services dated March 9, 1999 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q filed on May 7, 1999).
10.2 Director Stock Option Plan, adopted April 15, 1999 (incorporated by
reference to Appendix B to the Company's definitive Proxy Statement
for its 1999 Annual Meeting filed on April 26, 1999).
10.3 Stock Purchase Warrant by and between Towne Services Inc., and
Synovus Financial Corporation dated June 16, 1999.
27.1 Financial Data Schedule (for SEC use only).
- -----------------
* Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 333-76859) as declared effective by the
Securities and Exchange Commission on June 23, 1999.
** Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-76493) as declared by effective by the
Securities and Exchange Commission on June 10, 1999.
B) REPORTS ON FORM 8-K
Form 8-K (No. 000-24695) filed with SEC on April 6, 1999 to report the
signing of Agreement and Plan of Merger by and among Towne Services,
Inc., Forseon Corporation and certain shareholders of Forseon on March
26, 1999.
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Form 8-K (No. 000-24695) filed with SEC on July 13, 1999 to report the
completion of the merger of Towne Services, Inc. with Forseon
Corporation, effective on June 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWNE SERVICES, INC.
August 13, 1999 /s/ Drew W. Edwards
- --------------- -------------------------------------------------
Date Drew W. Edwards
Chairman of the Board and Chief Executive Officer
(principal executive officer)
August 13, 1999 /s/ Bruce F. Lowthers, Jr.
- --------------- -------------------------------------------------
Date Bruce F. Lowthers, Jr.
Chief Financial Officer
(principal financial and accounting officer)
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