<PAGE> 1
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 September 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 November 9, 1995: 3,248,606 shares.
<PAGE> 2
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
September 30, 1995 and December 31, 1994 3
Statements of Operations
Three months ended September 30, 1995 and 1994 5
Nine months ended September 30, 1995 and 1994 6
Statements of Cash Flows
Nine months ended September 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 September 30, 1995 and 1994 15
Nine months ended September 30, 1995 and 1994 16
SIGNATURES 14
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL STATEMENTS
ITEM I. FINANCIAL STATEMENTS
- - - - - ----------------------------
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
ASSETS
------
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 415,364 $ 74,032
Accounts receivable
(Net of allowance for doubtful accounts
of $100,000 at September 30, 1995
and December 31, 1994) 1,254,850 1,264,917
Inventory 486,096 1,129,119
Prepaid expenses 21,513 65,092
---------- ----------
TOTAL CURRENT ASSETS 2,177,823 2,533,160
---------- ----------
PROPERTY AND EQUIPMENT 702,937 684,494
Less accumulated depreciation
and amortization (434,541) (344,135)
---------- ----------
PROPERTY AND
EQUIPMENT - NET 268,396 340,359
---------- ----------
OTHER ASSETS:
Deposits 4,479 4,479
---------- ----------
TOTAL OTHER ASSETS 4,479 4,479
---------- ----------
TOTAL $2,450,698 $2,877,998
========== ==========
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE> 4
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 530,169 $ 615,054
Accounts payable to stockholder 0 162,670
Accrued liabilities 593,120 671,904
Deferred revenue 131,296 86,034
------------ ------------
TOTAL CURRENT LIABILITIES 1,254,585 1,535,662
------------ ------------
LONG-TERM LIABILITIES:
Deferred revenue 4,205 4,390
------------ ------------
TOTAL LONG-TERM LIABILITIES 4,205 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 September 30, 1995 and
December 31, 1994 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Deficit (11,884,638) (11,738,600)
------------ ------------
TOTAL STOCKHOLDERS'
EQUITY 1,191,908 1,337,946
------------ ------------
TOTAL $ 2,450,698 $ 2,877,998
============ ============
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE> 5
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUE $1,284,281 $2,148,288
---------- ----------
COST AND EXPENSES
Cost of revenue 718,600 1,330,573
Sales and marketing 432,602 432,822
Research and development 234,415 210,433
General and administrative 178,710 199,352
---------- ----------
Total 1,564,327 2,173,180
---------- ----------
LOSS FROM OPERATIONS (280,046) (24,892)
---------- ----------
OTHER INCOME:
Interest income 4,354 7,153
---------- ----------
Total 4,354 7,153
---------- ----------
NET LOSS $ (275,692) $ (17,739)
========== ==========
NET LOSS PER COMMON SHARE $ (0.08) $ (0.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
========== ==========
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE> 6
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUE $6,090,964 $6,261,443
---------- ----------
COST AND EXPENSES
Cost of revenue 3,548,485 3,869,387
Sales and marketing 1,418,429 1,252,735
Research and development 721,596 809,454
General and administrative 561,542 584,153
---------- ----------
Total 6,250,052 6,515,729
---------- ----------
LOSS FROM OPERATIONS (159,088) (254,286)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 13,050 13,136
Interest expense 0 (413)
---------- ----------
Total 13,050 12,723
---------- ----------
NET LOSS $ (146,038) $ (241,563)
========== ==========
NET 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.
-6-
<PAGE> 7
<TABLE>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(146,038) $(241,563)
--------- ---------
Adjustments to reconcile net loss to
net cash provided by (used for) operating activities:
Depreciation and amortization 90,406 94,510
Increase (decrease) in cash from:
Accounts receivable 10,067 (412,619)
Inventory 643,023 184,915
Prepaid expenses 43,579 20,729
Deposits 0 2,455
Accounts payable to stockholder (162,670) (137,637)
Accounts payable and accrued
liabilities (163,669) 364,246
Deferred revenue 45,077 111,328
--------- ---------
Total adjustments 505,813 227,927
--------- ---------
Net cash provided by (used for) operating activities 359,775 (13,636)
--------- ---------
Cash Flows Used In Investing Activities:
Purchases of property and equipment (18,443) (90,178)
Capitalized software development costs 0 (204,186)
--------- ---------
Net cash used for investing activities (18,443) (294,364)
Net increase (decrease) in cash and
equivalents 341,332 (308,000)
--------- ---------
Cash and Equivalents, Beginning of Period 74,032 907,860
--------- ---------
Cash and Equivalents, End of Period $ 415,364 $ 599,860
========= =========
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE> 8
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 nine month period ended September 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 $200,000 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 November 9, 1995) plus 4% and are secured by the Company's
assets. At September 30, 1995, there were no borrowings outstanding under
the credit line nor have there been any borrowings through November 9,
1995. Borrowing availability under the credit line was $200,000 at
September 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 of such
costs is reasonably assured through expected sales revenue less related
selling expenses. For the quarter ended September 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.
-8-
<PAGE> 9
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.
<TABLE>
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:
<S> <C>
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
===========
</TABLE>
-9-
<PAGE> 10
For the quarter ended September 30, 1995, the valuation allowance was
increased by approximately $60,000 due to the uncertainty of future
realization of currently generated net operating loss carryforwards.
<TABLE>
A reconciliation of the U.S. statutory tax rate and the effective tax
rate for the quarter ended September 30, 1995 is as follows:
<S> <C>
Statutory tax rate (benefit) (34)%
State rate, net of federal benefit (7)
Increase in valuation allowance due to the
uncertainty of future realization of currently
generated net operating loss carryforwards 41
---
Effective tax rate 0%
===
</TABLE>
-10-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
RESULTS OF OPERATIONS
- - - - - ---------------------
Revenue for the quarter ended September 30, 1995 decreased 40.2%
to $1,284,281 compared to $2,148,288 for the quarter ended September 30, 1994.
The decrease in revenue was primarily due to a larger number of the
Company's payment systems having been installed by a significant customer
into additional divisions during the quarter ended September 30, 1994 than in
the quarter ended September 30, 1995. The revenue from this customer
accounted for approximately 60% of total revenue for the third quarter of
1994 compared to 23% of total revenue for the third quarter of 1995. In
addition, the Company's inability to generate a sufficient number of qualified
sales leads as well as delays in acquiring inventory from suppliers
contributed to the decrease in revenue for the quarter ended September 30,
1995 compared to the quarter ended September 30, 1994 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 increased to approximately
44.0% for the quarter ended September 30, 1995 as compared to 38.1% for the
comparable period in 1994. This increased was primarily due to higher margin
software and services revenue comprising a larger percentage of total revenue
for the quarter ended September 30, 1995 compared to the quarter ended September
30, 1994.
Total operating expenses remained constant for the quarter ended
September 30, 1995 compared to the quarter ended September 30, 1994. Sales
and marketing expenses also remained constant between both quarterly periods.
Higher compensation and benefits expenses $(38,200) along with higher
expenses related to trade show participation $(10,500) were offset by
lower travel and entertainment expenses $(35,300) and lower outside
services expenses $(14,000) for the quarter ended September 30, 1995 compared
to the quarter ended September 30, 1994.
Research and development expenses increased by 11.4% $(24,000) for the
quarter ended September 30, 1995 compared to the quarter ended September 30,
1994. Decreases in compensation and benefits expenses $(98,900) and travel
and entertainment expenses $(7,900) resulting from a reduction in the number
of research and development personnel made during the first quarter of 1995
were partially offset by an increase in contract programming expenses
$(41,400). Additionally, approximately $90,700 of software development costs
were capitalized in the quarter ended September 30, 1994 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 September 30, 1995, there were no research and development
expenses incurred that required capitalization.
-11-
<PAGE> 12
General and administrative expenses decreased by 10.4% $(20,600) for the
quarter ended September 30, 1995 compared to the quarter ended September 30,
1994. This decrease was primarily due to a decrease in outside consulting
expenses $(7,200) between the two quarterly periods and a $12,000 charge
relating to a sales tax audit in the third quarter of 1994.
Interest income decreased to $4,354 for the three months ended
September 30, 1995 compared to $7,153 for the three months ended September 30,
1994 due to a decrease in the amount of funds available for investment
throughout the third quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
- - - - - -------------------------------
Working capital at September 30, 1995 was $923,240 compared to
$997,498 at December 31, 1994. Decreases in inventory $(643,023) and prepaid
expenses $(43,579) coupled with an increase in deferred revenue on
hardware and software maintenance contracts $(45,262) were partially
offset by increases in cash $(341,332) and decreases in accounts payable
and accrued expenses $(326,339).
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
$200,000 or certain levels of eligible accounts receivable and are subject to
monthly and quarterly financial convenants. Borrowings on the credit line
bear interest at a rate per annum equal to the Prime Rate (8.75% at November 9,
1995) plus 4% and are secured by the Company's assets. At September 30, 1995,
there were no borrowings outstanding under the credit line nor have there been
any borrowings through November 9, 1995. Borrowing availability under the line
of credit was $200,000 at September 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.
-12-
<PAGE> 13
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.
----------------------------------------------------
There were no matters submitted to a vote of the security holders
in the quarter ended September 30, 1995.
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.
-13-
<PAGE> 14
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: November 9, 1995 By: /s/ Paul A. Siegenthaler
--------------------------
Paul A. Siegenthaler, Chief Executive
Officer and President
DATE: November 9, 1995 By: /s/ Milton A. Alpern
----------------------
Milton A. Alpern, Vice President of Finance
and Administration (Principal Financial and
Accounting Officer)
-14-
<PAGE> 1
EXHIBIT 11
NATIONAL TRANSACTION NETWORK, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
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 ($275,692) ($17,739)
Extraordinary item
--------- ---------
Net income (loss) ($275,692) ($17,739)
========= =========
Income (loss) per common share:
Before extraordinary item ($0.08) ($0.01)
Extraordinary item --------- ---------
Net income (loss) ($0.08) ($0.01)
========= =========
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 ($275,692) ($17,739)
Extraordinary item
--------- ---------
Net income (loss) ($275,692) ($17,739)
========= =========
Income (loss) per common share:
Before extraordinary item ($0.08) ($0.01)
Extraordinary item
--------- ---------
Net income (loss) ($0.08) ($0.01)
========= =========
</TABLE>
- 15 -
<PAGE> 2
EXHIBIT 11
NATIONAL TRANSACTION NETWORK, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Sepember 30,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
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 ($146,038) ($241,563)
Extraordinary item
--------- ---------
Net income (loss) ($146,038) ($241,563)
========= =========
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 ($146,038) ($241,563)
Extraordinary item
--------- ---------
Net income (loss) ($146,038) ($241,563)
========= =========
Income (loss) per common share:
Before extraordinary item ($0.04) ($0.07)
Extraordinary item
--------- ---------
Net income (loss) ($0.04) ($0.07)
========= =========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<CIK> 0000315999
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 415,364
<SECURITIES> 0
<RECEIVABLES> 1,354,850
<ALLOWANCES> (100,000)
<INVENTORY> 486,096
<CURRENT-ASSETS> 2,177,823
<PP&E> 702,937
<DEPRECIATION> (434,541)
<TOTAL-ASSETS> 2,450,698
<CURRENT-LIABILITIES> 1,254,585
<BONDS> 0
<COMMON> 487,291
0
0
<OTHER-SE> 704,617
<TOTAL-LIABILITY-AND-EQUITY> 2,450,698
<SALES> 1,284,281
<TOTAL-REVENUES> 1,284,281
<CGS> 718,600
<TOTAL-COSTS> 718,600
<OTHER-EXPENSES> 845,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (275,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (275,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275,692)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
