Amendment No. 1
to
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 March 31, 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 May 7, 1996: 3,248,606 shares.
NATIONAL TRANSACTION NETWORK, INC.
<TABLE>
<CAPTION>
page
Part I Financial Information
<S> <C>
Item 1 Financial Statements
Balance Sheets
March 31, 1996 and December 31, 1995 3
Statements of Operations
Three months ended March 31, 1996 and 1995 5
Statements of Cash Flows
Three months ended March 31, 1996 and 1995 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information 12
Signatures 13
</TABLE>
2
PART I - FINANCIAL STATEMENTS
ITEM I. FINANCIAL STATEMENTS
- ----------------------------------
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
ASSETS
----------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 759,107 $ 407,257
Accounts receivable
(Net of allowance for doubtful accounts
of $100,000 at March 31, 1996
and December 31, 1995) 1,217,889 1,384,222
Inventory 230,194 274,159
Prepaid expenses 36,247 26,847
--- ------ ----------
TOTAL CURRENT ASSETS 2,243,437 2,092,485
---------- ----------
PROPERTY AND EQUIPMENT 758,215 709,139
Less accumulated depreciation
and amortization (486,364) (460,605)
---------- ----------
PROPERTY AND
EQUIPMENT - NET 271,851 248,534
---------- ----------
OTHER ASSETS:
Deposits 4,959 3,679
---------- ----------
TOTAL OTHER ASSETS 4,959 3,679
---------- ----------
TOTAL $2,520,247 $2,344,698
========== ==========
</TABLE>
See Notes to Financial Statements.
3
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 640,194 $ 661,742
Accrued liabilities 323,451 387,634
Deferred revenue 381,441 42,968
---------- ----------
TOTAL CURRENT LIABILITIES 1,345,086 1,092,344
---------- ----------
LONG-TERM LIABILITIES:
Deferred revenue 2,002 3,109
---------- ----------
TOTAL LONG-TERM LIABILITIES 2,002 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 March 31, 1996 and
December 31, 1995 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Deficit (11,903,387) (11,827,301)
---------- ----------
TOTAL STOCKHOLDERS'
EQUITY 1,173,159 1,249,245
---------- ----------
TOTAL $2,520,247 $2,344,698
========== ==========
</TABLE>
See Notes to Financial Statements.
4
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
REVENUE $1,368,121 $2,373,357
---------- ----------
COST AND EXPENSES
Cost of revenue 720,194 1,411,626
Sales and marketing 276,483 489,835
Research and development 244,621 255,111
General and administrative 206,019 204,852
---------- ----------
Total 1,447,317 2,361,424
---------- ----------
INCOME (LOSS) FROM OPERATIONS (79,196) 11,933
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 3,110 3,175
Interest expense 0 0
---------- ----------
Total 3,110 3,175
---------- ----------
NET INCOME (LOSS) ($76,086) $15,108
========== ==========
NET INCOME (LOSS) PER COMMON SHARE ($0.02) $0.00
========== ==========
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 CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($76,086) $15,108
-------- --------
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 25,759 30,791
Increase (decrease) in cash from:
Accounts receivable 166,333 (184,084)
Inventory 43,965 249,367
Prepaid expenses (9,400) 14,978
Deposits (1,280) 0
Accounts payable to stockholder - 28,418
Accounts payable and accrued
liabilities (85,731) 183,326
Deferred revenue 337,366 170,320
-------- --------
Total adjustments 477,012 493,116
-------- --------
Net cash provided by (used for) operating activities 400,926 508,224
-------- --------
Cash Flows Used In Investing Activities:
Purchases of property and equipment (49,076) (734)
-------- --------
Net cash used for investing activities (49,076) (734)
-------- --------
Net increase (decrease) in cash and
equivalents 351,850 507,490
Cash and Equivalents, Beginning of Period 407,257 74,032
-------- --------
Cash and Equivalents, End of Period $759,107 $581,522
======== ========
</TABLE>
6
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 three month period ended March 31,
1996 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 March 21, 1996, the
Company received a commitment from its bank for the renewal of the
credit line 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 May 7, 1996) plus 4% and are secured
by the Company's assets. At March 31, 1996, there were no borrowings
outstanding under the credit line nor have there been any borrowings
through May 7, 1996. Borrowing availability under the credit line was
$400,000 at March 31, 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." 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
March 31, 1996, 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.
7
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 March 31, 1996.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
- ---------------------
Revenue for the quarter ended March 31, 1996 decreased by 42.4% to
$1,368,121 compared to $2,373,357 for the quarter ended March 31, 1995. The
decrease in revenue for the quarter was due to several factors including a
significant customer having installed a larger number of the Company's payment
systems into additional divisions during the quarter ended March 31, 1995 than
in the quarter ended March 31, 1996. The revenue from this customer accounted
for approximately $913,000 (38% of total revenue) for the quarter ended March
31, 1995 compared to approximately $208,000 (15% of total revenue) for the
quarter ended March 31, 1996. Additionally, the Company's inability to generate
sufficient sales opportunities in the increasingly saturated supermarket market
segment as well as delays in generating qualified sales leads in the general
retail market segment contributed to the decrease in revenue for the quarter
ended March 31, 1996 compared to the quarter ended March 31, 1995. Uncertainties
with respect to future orders from existing or potential customers could have a
material impact on the Company's net sales or earnings in the future.
Gross margins as a percent of revenue were 47.4% for the quarter ended
March 31, 1996 compared to 40.5% for the quarter ended March 31, 1995. The
increase in gross margin percentages between the two quarterly periods was
primarily due to higher margin software sales and professional services revenue
comprising a larger percentage of total revenue for the quarter ended March 31,
1996 compared to the quarter ended March 31, 1995.
Total operating expenses for the quarter ended March 31, 1996 decreased by
23.4% compared to the quarter ended March 31, 1995. Sales and marketing expenses
in the first quarter of 1996 decreased by 43.6% ($213,400) compared to the first
quarter of 1995. Contributing to the overall decrease in sales and marketing
expenses were decreases in compensation and fringe benefits expenses ($86,100)
and travel and entertainment expenses ($72,500) resulting from a reduction in
the number of marketing personnel between the quarterly periods ended March 31,
1995 and March 31, 1996. Additionally, the decrease in revenue for the quarter
ended March 31, 1996 compared to the quarter ended March 31, 1995 resulted in a
decrease in sales commissions expense of approximately $51,000. Sales and
marketing expenses include the costs of distribution, sales commissions, product
marketing, and account management.
Research and development expenses decreased by 4.1% ($10,500) for the
quarter ended March 31, 1996 compared to the quarter ended March 31, 1995.
Decreases in compensation and fringe benefits expenses ($14,900), the result of
a reduction in the number of research and development personnel, and occupancy
expense allocations ($5,700) were offset by increases in miscellaneous tools and
supplies expenses ($8,200).
9
General and administrative expenses remained constant for the quarter ended
March 31, 1996 compared to the quarter ended March 31, 1995. Increases in
general and administrative expenses between the first quarter of 1995 and the
first quarter of 1996 were experienced in compensation and fringe benefits
expenses ($14,400) and recruiting expense ($8,000) resulting from converting an
outside accounting contractor to an employee hire, dues and subscriptions
($4,500), and expenses relating to trade show attendance ($7,700). These
increases were offset by decreases in travel and entertainment expenses ($6,300)
and legal and audit expenses ($15,000) in addition to a tax adjustment in the
first quarter of 1995 totaling $12,500. General and administrative expenses
include the costs of the finance, human resources, and administration functions
of the Company.
Interest income remained relatively constant for the quarter ended March
31, 1996 compared to the quarter ended March 31, 1995 due to similar amounts of
funds available for investment throughout both quarterly periods.
Liquidity and Capital Resources
- -------------------------------
Working capital at March 31, 1996 was $898,351 compared to $1,000,141 at
December 31, 1995. The decrease in working capital was primarily due to
decreases in accounts receivable ($166,333) and inventory ($43,965) balances and
an increase in deferred revenue ($338,473) on hardware and software maintenance
contracts. These changes were offset by an increase in cash totaling $351,850
and decreases in accounts payable and accrued expenses ($85,731).
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 March 21, 1996, the Company received a commitment
from its bank for the renewal of the credit line 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 May 7, 1996) plus 4% and are secured
by the Company's assets. At March 31, 1996, there were no borrowings outstanding
under the credit line nor have there been any borrowings through May 7, 1996.
Borrowing availability under the credit line was $400,000 at March 31, 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 this Form 10-Q are made under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The Company's actual
10
results of operations 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.
----------------------------------------------------
There were no matters submitted to a vote of the security holders
in the quarter ended March 31, 1996.
Item 5. Other Information.
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
---------
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
None.
12
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: May 7, 1996 By: /s/ Paul A. Siegenthaler
-----------------------------
Paul A. Siegenthaler, Chief Executive
Officer and President
DATE: May 7, 1996 By: /s/ Milton A. Alpern
-------------------------
Milton A. Alpern, Vice President of Finance
and Administration (Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 759,107
<SECURITIES> 0
<RECEIVABLES> 1,317,889
<ALLOWANCES> (100,000)
<INVENTORY> 230,194
<CURRENT-ASSETS> 2,243,437
<PP&E> 758,215
<DEPRECIATION> (486,364)
<TOTAL-ASSETS> 2,520,247
<CURRENT-LIABILITIES> 1,345,086
<BONDS> 0
0
0
<COMMON> 487,291
<OTHER-SE> 685,868
<TOTAL-LIABILITY-AND-EQUITY> 2,520,247
<SALES> 1,368,121
<TOTAL-REVENUES> 1,368,121
<CGS> 720,194
<TOTAL-COSTS> 720,194
<OTHER-EXPENSES> 727,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (76,086)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,086)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
