<PAGE> 1 of 17
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-10966
NATIONAL TRANSACTION NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 75-1535237
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9 Kane Industrial Drive
Hudson, Massachusetts 01749
(Address of principal executive offices) (Zip Code)
(508) 562-6500
(Registrant's telephone number, including area code)
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.
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: Common Stock, $.15 par value per share, outstanding as of
August 9, 1995: 3,248,606 shares.
<PAGE> 2 of 17
NATIONAL TRANSACTION NETWORK, INC.
page
Part I Financial Information
Item 1 Financial Statements
Balance Sheets
June 30, 1995 and December 31, 1994 3
Statements of Operations
Three months ended June 30, 1995 and 1994 5
Six months ended June 30, 1995 and 1994 6
Statements of Cash Flows
Six months ended June 30, 1995 and 1994 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II Other Information 13
Item 6(a) Exhibits
Exhibit 11- Computation of Earnings Per Share
Three months ended June 30, 1995 and 1994 16
Six months ended June 30, 1995 and 1994 17
Signatures 15
<PAGE> 3 of 17
PART I - FINANCIAL STATEMENTS
ITEM I. FINANCIAL STATEMENTS
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
(Unaudited)
June 30, December 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $455,389 $74,032
Accounts receivable
(Net of allowance for
doubtful accounts of $100,000
at June 30, 1995 and 1,751,089 1,264,917
December 31, 1994)
Inventory 294,702 1,129,119
Prepaid expenses 28,296 65,092
TOTAL CURRENT ASSETS 2,529,476 2,533,160
PROPERTY AND EQUIPMENT 695,953 684,494
Less accumulated depreciation
and amortization (406,742) (344,135)
PROPERTY AND
EQUIPMENT - NET 289,211 340,359
OTHER ASSETS:
Deposits 4,479 4,479
TOTAL OTHER ASSETS 4,479 4,479
TOTAL $2,823,166 $2,877,998
</TABLE>
See Notes to Financial Statements.
<PAGE> 4 of 17
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
June 30, December 31,
1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $711,605 $615,054
Accounts payable to stockholder 0 162,670
Accrued liabilities 417,127 671,904
Deferred revenue 219,612 86,034
TOTAL CURRENT LIABILITIES 1,348,344 1,535,662
LONG-TERM LIABILITIES:
Deferred revenue 7,222 4,390
TOTAL LONG-TERM LIABILITIES 7,222 4,390
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value;
authorized, 5,000,000 shares;
none outstanding
Common stock, $.15 par value;
authorized, 6,666,667 shares;
issued and outstanding,
3,248,606 shares at June 30,
1995 and December 31, 1994 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Deficit (11,608,946) (11,738,600)
TOTAL STOCKHOLDERS' EQUITY 1,467,600 1,337,946
TOTAL $2,823,166 $2,877,998
</TABLE>
See Notes to Financial Statements.
<PAGE> 5 of 17
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
1995 1994
<S> <C> <C>
REVENUE $2,433,326 $2,817,737
COST AND EXPENSES
Cost of revenue 1,418,258 1,782,633
Sales and marketing 495,992 396,728
Research and development 232,069 291,845
General and administrative 177,981 183,464
Total 2,324,300 2,654,670
INCOME FROM OPERATIONS 109,026 163,067
OTHER INCOME (EXPENSE):
Interest income 5,520 1,424
Interest expense 0 (413)
Total 5,520 1,011
NET INCOME $114,546 $164,078
LOSS PER COMMON SHARE $0.04 $0.05
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
</TABLE>
See Notes to Financial Statements.
<PAGE> 6 of 17
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
REVENUE $4,806,683 $4,113,155
COST AND EXPENSES
Cost of revenue 2,829,884 2,538,814
Sales and marketing 985,827 819,914
Research and development 487,180 599,020
General and administrative 382,833 384,801
Total 4,685,724 4,342,549
INCOME (LOSS) FROM OPERATIONS 120,959 (229,394)
OTHER INCOME (EXPENSE):
Interest income 8,695 5,984
Interest expense 0 (413)
Total 8,695 5,571
NET INCOME (LOSS) $129,654 ($223,823)
NET INCOME (LOSS)
PER COMMON SHARE $0.04 ($0.07)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
</TABLE>
See Notes to Financial Statements.
<PAGE> 7 OF 17
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash Flows From Operating
Activities:
Net income (loss) $129,654 ($223,823)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Depreciation and amortization 62,607 70,861
Increase (decrease) in cash from:
Accounts receivable (486,172) (1,078,842)
Inventory 834,417 413,401
Prepaid expenses 36,796 260
Deposits 0 1,785
Accounts payable to stockholder (162,670) (71,090)
Accounts payable and accrued
liabilities (158,226) 639,410
Deferred revenue 136,410 11,190
Total adjustments 263,162 (13,025)
Net cash provided by (used for)
operating activities 392,816 (236,848)
Cash Flows Used in Investing
Activities:
Purchases of property and
equipment (11,459) (54,010)
Capitalized software
development costs 0 (113,500)
Net cash used for investing
activities (11,459) (167,510)
Net increase (decrease) in cash
and equivalents 381,357 (404,358)
Cash and Equivalents, Beginning
of Period 74,032 907,860
Cash and Equivalents, End of
Period $455,398 $503,502
</TABLE>
See Notes to Financial Statements.
<PAGE> 8 of 17
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. The accompanying financial statements and notes do not
include all of the disclosures made in the Company's Form 10-K
for the year ended December 31, 1994 which should be read in
conjunction with these statements. In the opinion of the
Company, the statements include all adjustments necessary for a
fair presentation of the quarterly results.
2. Net income (loss) per common share is computed based on the
weighted average number of common shares outstanding during each
quarter. Shares issuable upon exercise of outstanding options
and warrants have been excluded from the computations since their
effect would be antidilutive.
3. The results of operations for the six month period ended
June 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
4. In June 1993, the Company received a commitment for a bank-
financed credit line for working capital purposes. The loan
agreement for the credit line was executed in September 1993. On
February 17, 1995, the Company received a commitment from its
bank for the renewal of the credit line through January 5, 1996.
Maximum available borrowings under the line are the lesser of
$400,000 or certain levels of eligible accounts receivable and
are subject to monthly and quarterly financial performance
covenants. Borrowings bear interest at a rate per annum equal to
the Prime Rate (8.75% at August 9, 1995) plus 3.5% and are secured
by the Company's assets. At June 30, 1995, there were no
borrowings outstanding under the credit line nor have there been
any borrowings through August 9, 1995. Borrowing availability under
the credit line was $400,000 at June 30, 1995.
5. The Company accounts for Research and Development costs in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." It is the Company's
policy to capitalize costs relating to the development of its
products until such time when products are available for general
release to customers, provided that the recoverability for such
costs is reasonably assured through expected sales revenue less
related selling expenses. For the quarter ended June 30, 1995,
there were no costs incurred that required capitalization. Upon
availability of products for general release to customers, any
related capitalized development costs are amortized over a
suitable period based on the products' estimated economic life.
<PAGE> 9 of 17
In December 1994, the Company made a decision to write off
$657,479 of capitalized software development costs relating to
a software product under development. These costs had
previously been capitalized in accordance with SFAS No. 86.
The write-off resulted from the reprioritization of Company
resources to focus on new market requirements. Prior to the
release of the software product for which development costs
had been capitalized, market demands shifted towards
integrated payment system solutions away from the stand-alone
product under development by the Company. Accordingly, the
Company canceled the project under development and redirected
its marketing and product development efforts to meet current
market opportunities for integrated products. An additional
$55,846 of severance costs was incurred in connection with the
decision to write off the capitalized software costs.
6. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities using enacted tax
rates in the year(s) in which the differences are expected to
reverse.
Deferred income taxes reflect the net tax effects of
differences in the timing of certain revenue and expense items
and the related carrying amounts of assets and liabilities for
financial reporting and tax purposes as well as net operating
loss carryforwards. Significant components of the Company's
deferred tax assets and liabilities as of January 1, 1995 are
as follows:
Deferred tax liabilities:
Property and equipment,
principally due to use of
different depreciation methods $ (55,356)
Deferred tax assets:
Compensated absences, principally
due to accrual for financial
reporting purposes 31,095
Accounts receivable, principally due to
allowance for doubtful accounts 40,250
Net operating loss carryforwards 5,011,824
5,083,169
Valuation Allowance (5,027,813)
Deferred tax liabilities, net $ 0
<PAGE> 10 of 17
For the quarter ended June 30, 1995, the Company reversed
approximately $69,000 of the valuation allowance.
A reconciliation of the U.S. statutory tax rate and the effect
tax rate for the quarter ended June 30, 1995 as follows:
Statutory tax rate (benefit) 34%
State rate, net of federal benefit 7
Recognition of tax benefits
previously not recorded (41)
Effective tax rate 0%
<PAGE> 11 of 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue for the quarter ended June 30, 1995 decreased by
13.6% to $2,433,326 compared to $2,817,737 for the quarter ended
June 30, 1994. The decrease in revenue was primarily due to a
larger number of the Company's systems having been installed by a
significant customer into additional divisions during the quarter
ended June 30, 1994 than in the quarter ended June 30, 1995. The
revenue derived from this customer accounted for 68% of the total
revenue for the second quarter of 1994 compared to 19% of total
revenue for the second quarter of 1995. Uncertainties with
respect to future orders could have a material impact on net
sales or earnings in the future.
Gross margins as a percent of revenue were 41.7% for the
quarter ended June 30, 1995 compared to 36.7% for the quarter
ended June 30, 1994. The increase in gross margin percentages
between the two quarterly periods was due to higher margin
software sales comprising a larger percentage of total revenue
for the quarter ended June 30, 1995 compared to the quarter ended
June 30, 1994.
Total operating expenses for the quarter ended June 30, 1995
increased 3.9% compared to the quarter ended June 30, 1994.
Sales and marketing expenses in the second quarter of 1995
increased by 25.0% ($99,300) compared to the second quarter of
1994. The increase was primarily due to increases in salaries
and fringe benefits ($93,900) resulting from the hiring of a
Western Region Sales Manager in the fourth quarter of 1994 and a
Southeast Region Sales Manager in second quarter of 1995 and the
re-opening of sales offices in those regions. The hiring of
additional marketing staff in the third quarter of 1994 also
contributed to the increase in salaries and fringe benefit
expenses between the quarter ended June 30, 1994 and the quarter
ended June 30, 1995. An increase in commission expense of
$30,000 for the quarter ended June 30, 1995 compared to the
quarter ended June 30, 1994 was due to higher sales commissions
paid on higher margin software sales which comprised a larger
percentage of total revenue between the two quarterly periods.
These increases were partially offset by decreases in recruiting
expense ($15,100), travel and entertainment expense ($7,200), and
outside services expense ($6,700). Sales and marketing expenses
include the costs of distribution, sales commissions, product
marketing, and account management.
Research and development expenses decreased by 20.5%
($59,800) for the quarter ended June 30, 1995 compared to the
quarter ended June 30, 1994. Decreases in salaries expense
($53,700) and fringe benefits ($26,400) were the result of a
reduction in the number of research and development management
personnel which occurred at the beginning of the first quarter of
1995. In addition, research and development expenses in the
second quarter of 1994 included approximately $55,000 of outside
consulting expenses required for the development of the Company's
products on new payment
<PAGE> 12 of 17
terminal platforms and $18,000 of recruiting expense relating to
the hiring of additional technical staff. These decreases were
partially offset by the capitalization of software development costs
in the quarter ended June 30, 1994 totaling approximately $90,100 in
accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." For the quarter ended June 30, 1995, there
were no research and development expenses incurred that required
capitalization.
General and administrative expenses decreased by 3.0%
($5,500) for the quarter ended June 30, 1995 compared to the
quarter ended June 30, 1994. Decreases in legal and audit
expense ($2,400), recruitment expense ($1,800), outside services
and consulting expense ($2,300), and repairs and maintenance
expense ($1,900) offset by an increase in travel and
entertainment expense ($2,900) resulted in the overall decrease
in general and administrative expenses. General and
administrative expenses include the costs of the finance, human
resources, and administration functions of the Company.
Interest income increased to 5,520 for the quarter ended
June 30, 1995 compared to $1,424 for the quarter ended June 30,
1994 due to an increase in the amount of funds available for
investment throughout the second quarter of 1995. Interest
expense decreased to zero in the second quarter of 1995 since
there were no borrowings during the period.
Liquidity and Capital Resources
Working capital at June 30, 1995 was $1,181,132 compared to
$997,498 at December 31, 1994. The increase in working capital
was primarily due to increases in cash ($381,357) and accounts
receivable ($486,172) balances coupled with a decrease in accrued
liabilities ($254,777) offset by a decrease in inventory totaling
$834,417 and an increase in deferred revenue ($133,578) on
hardware and software maintenance contracts.
In June 1993, the Company received a commitment for a bank-
financed credit line for working capital purposes. The loan
agreement for the credit line was executed in September 1993. On
February 17, 1995, the Company received a commitment from its
bank for the renewal of the credit line through January 5, 1996.
Maximum available borrowings under the line are the lesser of
$400,000 or certain levels of eligible accounts receivable and
are subject to monthly and quarterly financial performance
covenants. Borrowings bear interest at a rate per annum equal to
the Prime Rate (8.75% at August 9, 1995) plus 3.5% and are
secured by the Company's assets. At June 30, 1995, there were no
borrowings outstanding under the credit line nor have there been
any borrowings through August 9, 1995. Borrowing availability
under the credit line was $400,000 at June 30, 1995.
Management believes that sources of liquidity for future
needs can be generated from existing cash balances, cash
generated from operations and borrowings available to the Company
under its bank-financed working capital line of credit.
<PAE> 13 of 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has no material legal proceedings at this
time.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its annual meeting of
stockholders on June 9, 1995. The number of
shares issued, outstanding and eligible to vote as
of the record date of April 12, 1995 was
3,248,606. For quorum, 2,894,496 shares of the
eligible voting shares tabulated.
(b) The following directors were elected at and
continued in office after the meeting: Peter S.
Crombie, Jeffrey B. Finestone, Christopher D.
Illick, Brian Kouri, Paul A. Siegenthaler, and
Charles R. Thompson.
(c) The following matters were voted on at the annual
stockholders meeting:
1. To fix the number of Directors at six (6) and
to elect a Board of Directors for the ensuing
year.
<TABLE>
<CAPTION>
Director Number of Shares
Withhold
For Authority
<S> <C> <C>
Peter S. Crombie 2,888,387 6,109
Jeffrey B. Finestone 2,888,384 6,112
Christopher D. Illick 2,888,393 6,103
Brian Kouri 2,888,397 6,109
Paul A. Siegenthaler 2,888,390 6,106
Charles R. Thompson 2,888,381 6,115
</TABLE>
<PAGE> 14 of 17
2. To ratify the selection of the firm of
Deloitte & Touche as auditors of the Company
for the fiscal year ending December 31, 1995.
Number of Shares
For 2,893,889
Against 87
Abstain 520
(d) Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K.
None.
<PAGE> 15 of 17
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.
NATIONAL TRANSACTION NETWORK, INC.
DATE: August 9, 1995 By: /s/ Paul A. Siegenthaler
Paul A. Siegenthaler, Chief
Executive Officer and President
DATE: August 9, 1995 By: /s/ Milton A. Alpern
Milton A. Alpern, Vice President of
Finance and Administration (Principal
Financial and Accounting Officer)
<PAGE> 16 of 17
EXHIBIT 11
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
1995 1994
<C> <S> <S>
PRIMARY
Weighted average number of
common and common equivalent
shares outstanding:
Common stock 3,248,606 3,248,606
Common equivalent shares
resulting from options
and warrants
Total 3,248,606 3,248,606
Income (loss) before
extraordinary item $114,546 $164,078
Extraordinary item
Net income (loss) $114,546 $164,078
Income (loss) per common share:
Before extraordinary item $0.04 $0.05
Extraordinary item
Net income (loss) $0.04 $0.05
FULLY DILUTED
Weighted average number of
common and common equivalent
shares outstanding:
Common stock 3,248,606 3,248,606
Common equivalent shares
resulting from options and
warrants
Total 3,248,606 3,248,606
Income (loss) before
extraordinary item $114,546 $164,078
Extraordinary item
Net income (loss) $114,546 $164,078
Income (loss) per common share:
Before extraordinary item $0.04 $0.05
Extraordinary item
Net income (loss) $0.04 $0.05
</TABLE>
<PAGE> 17 of 17
EXHIBIT 11
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S>
PRIMARY <S> <S>
Weighted average number of
common and common equivalent
shares outstanding:
Common stock 3,248,606 3,248,606
Common equivalent shares
resulting from options
and warrants
Total 3,248,606 3,248,606
Income (loss) before
extraordinary item $129,654 ($223,823)
Extraordinary item
Net income (loss) $129,654 ($223,823)
Income (loss) per common share:
Before extraordinary item $0.04 ($0.07)
Extraordinary item
Net income (loss) $0.04 ($0.07)
FULLY DILUTED
Weighted average number of
common and common equivalent
shares outstanding:
Common stock 3,248,606 3,248,606
Common equivalent shares
resulting from options
and warrants
Total 3,248,606 3,248,606
Income (loss) before
extraordinary item $129,654 ($223,823)
Extraordinary item
Net income (loss) $129,654 ($223,823)
Income (loss) per common share:
Before extraordinary item $0.04 ($0.07)
Extraordinary item
Net income (loss) $0.04 ($0.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 455,389
<SECURITIES> 0
<RECEIVABLES> 1,851,089
<ALLOWANCES> (100,000)
<INVENTORY> 294,702
<CURRENT-ASSETS> 2,529,476
<PP&E> 695,953
<DEPRECIATION> (406,742)
<TOTAL-ASSETS> 2,823,166
<CURRENT-LIABILITIES> 1,348,344
<BONDS> 0
<COMMON> 487,291
0
0
<OTHER-SE> 980,309
<TOTAL-LIABILITY-AND-EQUITY> 2,823,166
<SALES> 0
<TOTAL-REVENUES> 2,433,326
<CGS> 1,418,258
<TOTAL-COSTS> 1,418,258
<OTHER-EXPENSES> 906,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 114,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,546
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
