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Previous: SOUTHWEST GEORGIA FINANCIAL CORP, 8-A12B, 1996-08-13 |
Next: KENT FINANCIAL SERVICES INC, 10QSB, 1996-08-13 |
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, 1996
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 1, 1996: 3,248,606 shares.
NATIONAL TRANSACTION NETWORK, INC.
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements
Balance Sheets
June 30, 1996 and December 31, 1995 3
Statements of Operations
Three months ended June 30, 1996 and 1995 5
Six months ended June 30, 1996 and 1995 6
Statements of Cash Flows
Six months ended June 30, 1996 and 1995 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION 12
SIGNATURES 14
</TABLE>
2
PART I - FINANCIAL STATEMENTS
ITEM I. FINANCIAL STATEMENTS
- ----------------------------
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
ASSETS
----------------------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $693,508 $407,257
Accounts receivable
(Net of allowance for doubtful accounts
of $100,000 at June 30, 1996
and December 31, 1995) 896,485 1,384,222
Inventory 324,341 274,159
Prepaid expenses 53,316 26,847
------ ------
TOTAL CURRENT ASSETS 1,967,650 2,092,485
--------- ---------
PROPERTY AND EQUIPMENT 761,939 709,139
Less accumulated depreciation
and amortization (513,341) (460,605)
-------- --------
PROPERTY AND
EQUIPMENT - NET 248,598 248,534
------- -------
OTHER ASSETS:
Deposits 4,959 3,679
----- -----
TOTAL OTHER ASSETS 4,959 3,679
----- -----
TOTAL $2,221,207 $2,344,698
========== ==========
</TABLE>
See Notes to Financial Statements.
3
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $400,653 $661,742
Accrued liabilities 335,737 387,634
Deferred revenue 362,756 42,968
------- ------
TOTAL CURRENT LIABILITIES 1,099,146 1,092,344
--------- ---------
LONG-TERM LIABILITIES:
Deferred revenue 227 3,109
--- -----
TOTAL LONG-TERM LIABILITIES 227 3,109
--- -----
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, 1996 and
December 31, 1995 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Deficit (11,954,712) (11,827,301)
----------- -----------
TOTAL STOCKHOLDERS'
EQUITY 1,121,834 1,249,245
--------- ---------
TOTAL $2,221,207 $2,344,698
========== ==========
</TABLE>
See Notes to Financial Statements.
4
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUE $1,159,209 $2,433,326
---------- ----------
COST AND EXPENSES:
Cost of revenue 487,942 1,418,258
Sales and marketing 292,457 495,992
Research and development 236,019 232,069
General and administrative 200,168 177,981
------- -------
Total 1,216,586 2,324,300
--------- ---------
INCOME (LOSS) FROM OPERATIONS (57,377) 109,026
------- -------
OTHER INCOME:
Interest income 6,052 5,520
----- -----
Total 6,052 5,520
----- -----
NET INCOME (LOSS) ($51,325) $114,546
======== ========
NET INCOME (LOSS) PER COMMON SHARE ($0.02) $0.04
====== =====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
========= =========
</TABLE>
See Notes to Financial Statements.
5
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUE $2,527,331 $4,806,683
---------- ----------
COST AND EXPENSES:
Cost of revenue 1,208,136 2,829,884
Sales and marketing 568,941 985,827
Research and development 480,641 487,180
General and administrative 406,186 382,833
------- -------
Total 2,663,904 4,685,724
--------- ---------
INCOME (LOSS) FROM OPERATIONS (136,573) 120,959
-------- -------
OTHER INCOME:
Interest income 9,162 8,695
----- -----
Total 9,162 8,695
----- -----
NET INCOME (LOSS) ($127,411) $129,654
========= ========
NET INCOME (LOSS) PER COMMON SHARE ($0.04) $0.04
====== =====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
========= =========
</TABLE>
See Notes to Financial Statements.
6
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($127,411) $129,654
--------- --------
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 52,736 62,607
Increase (decrease) in cash from:
Accounts receivable 487,737 (486,172)
Inventory (50,182) 834,417
Prepaid expenses (26,469) 36,796
Deposits (1,280) 0
Accounts payable to stockholder 0 (162,670)
Accounts payable and accrued
liabilities (312,986) (158,226)
Deferred revenue 316,906 136,410
------- -------
Total adjustments 466,462 263,162
------- -------
Net cash provided by (used for) operating activities 339,051 392,816
------- -------
Cash Flows Used In Investing Activities:
Purchases of property and equipment (52,800) (11,459)
------- -------
Net cash used for investing activities (52,800) (11,459)
Net increase (decrease) in cash and
equivalents 286,251 381,357
------- -------
Cash and Equivalents, Beginning of Period 407,257 74,032
------- ------
Cash and Equivalents, End of Period $693,508 $455,389
======== ========
</TABLE>
See Notes to Financial Statements.
7
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, 1995 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 stock options 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, 1996
are not necessarily indicative of the results to be expected for the
full year.
4. On March 21, 1996, the Company received a commitment from its bank for
the renewal of its working capital line of credit through January 5,
1997. 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
(8.25% at August 1, 1996) plus 4% and are secured by the Company's
assets. At June 30, 1996, there were no borrowings outstanding under
the credit line nor have there been any borrowings through August 1,
1996. Borrowing availability under the credit line was $312,890 at June
30, 1996.
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." For the six-months ended June 30, 1996, there were
no costs incurred that required capitalization.
8
6. Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
will include the pro forma disclosures required by SFAS No. 123, if
material, in its annual financial statements for 1996.
Also, effective January 1, 1996, the Company adopted Statement of
Financial Standards (SFAS) No. 121, " Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets held and used by an entity be
reviewed for impairment whenever circumstances indicate that the
carrying amount of an asset may not be recoverable. It also requires
that long-lived assets to be disposed of be reported at the lower of
the carrying amount or the fair value less the cost to sell. The
adoption of SFAS No. 121 did not have a material effect on the
Company's financial position or results of operations for the quarter
ended June 30, 1996.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Revenue for the quarter ended June 30, 1996 decreased by 52.4% to
$1,159,209 compared to $2,433,326 for the quarter ended June 30, 1995. The
decrease in revenue was primarily due to the Company's inability to generate a
significant number of qualified sales opportunities in the increasingly
saturated supermarket market segment as well as delays in generating qualified
sales leads in the general retail market segment. The lead generation problem in
the general retail area is the result of the slow acceptance of debit card
payments in these other market segments despite the widespread acceptance of
these cards in the supermarket industry. Consequently, the Company has had
difficulty finding sales opportunities in new market segments to replace the
saturated supermarket industry segment. Uncertainties with respect to future
orders from existing or potential customers could have a material impact on net
sales or earnings in the future.
Gross margins as a percent of revenue were 57.9% for the quarter ended June
30, 1996 compared to 41.7% for the quarter ended June 30, 1995. The increase in
gross margin percentages between the two quarterly periods was due to higher
margin software and professional services revenue comprising a larger percentage
of total revenue for the quarter ended June 30, 1996 compared to the quarter
ended June 30, 1995.
Total operating expenses for the quarter ended June 30, 1996 decreased by
24.3% compared to the quarter ended June 30, 1995. Sales and marketing expenses
in the second quarter of 1996 decreased by 41.0% ($203,500) compared to the
second quarter of 1995. A significant portion of the decrease in sales and
marketing expenses ($110,200) was due to lower compensation and fringe benefits
expenses resulting from a reduction in the number of sales and marketing
personnel between the two quarterly periods. In addition, the decrease in
revenue for the quarter ended June 30, 1996 compared to the quarter ended June
30, 1995, coupled with changes in the Company's sales compensation plan,
resulted in a decrease in sales commissions expense of approximately $63,200.
Lastly, decreases in travel and entertainment expenses ($40,100) and trade show
expenses ($8,700) were partially offset by increases in recruiting expense
($10,800) and outside consulting expenses ($14,700). Sales and marketing
expenses include the costs of distribution, sales commissions, product
marketing, and account management.
Research and development expenses remained relatively constant for the
quarter ended June 30, 1996 compared to the quarter ended June 30, 1995.
General and administrative expenses increased by 12.5% ($22,200) for the
quarter ended June 30, 1996 compared to the quarter ended June 30, 1995.
Increases in compensation expense ($10,500) and outside services expense
($12,200) were partially offset by a decrease in legal and audit expenses
($2,000). General and administrative
10
expenses include the costs of the finance, human resources, and administration
functions of the Company.
Interest income increased to $6,052 for the quarter ended June 30, 1996
compared to $5,520 for the quarter ended June 30, 1995 due to an increase in the
amount of funds available for investment throughout the second quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at June 30, 1996 was $868,504 compared to $1,000,141 at
December 31, 1995. The decrease in working capital was primarily due to a
decrease in accounts receivable balances ($487,737) coupled with an increase in
deferred revenue on hardware and software maintenance contracts ($316,906).
These changes were offset by increases in cash ($286,251), inventory ($50,182),
and prepaid expenses ($26,469) and a decrease in accounts payable and accrued
liabilities ($312,986).
On March 21, 1996, the Company received a commitment from its bank for the
renewal of its working capital line of credit through January 5, 1997. 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 (8.25% at August 1, 1996) plus 4% and are secured by the
Company's assets. At June 30, 1996, there were no borrowings outstanding under
the credit line nor have there been any borrowings through August 1, 1996.
Borrowing availability under the credit line was $312,890 at June 30, 1996.
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.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
- -----------------------------------------------
The Company does not provide forecasts of the future performance of the
Company. The forward-looking statements in the Form 10-Q are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operation and financial condition have varied and
may in the future differ materially from those contained in the forward-looking
statements contained herein. The Company's future results remain difficult to
predict and depend on factors including, without limitation, fluctuations in
quarterly results, dependence on large customers, dependence on principal
products, dependence on third parties for hardware and equipment, rapid
technological changes, potential for new product delays and defects, and
fluctuations in economic and market conditions. Because of these and other
factors, past financial performance should not be considered an indication of
future performance.
11
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
7, 1996. The number of shares issued, outstanding and
eligible to vote as of the record date of April 12, 1996 was
3,248,606. For quorum, 2,871,975 shares of the eligible
voting shares tabulated.
(b) The following directors were elected at and continued in
office after the meeting: Jeffrey B. Finestone, Robert D. D.
Forbes, 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>
Jeffrey B. Finestone 2,869,286 2,689
Robert D. D. Forbes 2,869,286 2,689
Christopher D. Illick 2,869,286 2,689
Brian Kouri 2,869,286 2,689
Paul A. Siegenthaler 2,869,286 2,689
Charles R. Thompson 2,869,286 2,689
</TABLE>
12
2. To ratify an amendment to the Company's 1988 Stock Plan
increasing the number of shares of Common Stock available
for issuance under the 1988 Stock Plan from 566,667 to
800,000 shares.
Number of Shares
----------------
For 2,771,163
Against 74,441
Abstain 26,371
3. To ratify the 1995 Director Stock Option Plan.
Number of Shares
----------------
For 2,768,015
Against 75,266
Abstain 28,694
4. To ratify the selection of the firm of Deloitte & Touche
as auditors of the Company for the fiscal year ending
December 31, 1996.
Number of Shares
----------------
For 2,871,660
Against 89
Abstain 226
(d) Not applicable.
Item 5. Other Information.
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
---------
None.
(b) Reports on Form 8-K.
--------------------
None.
13
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 8, 1996 By: /s/ Paul A. Siegenthaler
-----------------------------
Paul A. Siegenthaler, Chief Executive
Officer and President
DATE: August 8, 1996 By: /s/ Milton A. Alpern
-------------------------
Milton A. Alpern, Vice President of
Finance and Administration (Principal
Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 693,508
<SECURITIES> 0
<RECEIVABLES> 996,485
<ALLOWANCES> (100,000)
<INVENTORY> 324,341
<CURRENT-ASSETS> 1,967,650
<PP&E> 761,939
<DEPRECIATION> (513,341)
<TOTAL-ASSETS> 2,221,207
<CURRENT-LIABILITIES> 1,099,146
<BONDS> 0
0
0
<COMMON> 487,291
<OTHER-SE> 634,543
<TOTAL-LIABILITY-AND-EQUITY> 2,221,207
<SALES> 1,159,209
<TOTAL-REVENUES> 1,159,209
<CGS> 487,942
<TOTAL-COSTS> 487,942
<OTHER-EXPENSES> 728,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (51,325)
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,325)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
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