<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________TO _______
-----------------
COMMISSION FILE NO. 0-10966
NATIONAL TRANSACTION NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1535237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Kane Industrial Drive
Hudson, Massachusetts 01749
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 562-6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS: COMMON STOCK, $.15 PAR VALUE
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 at least the past 90 days.
Yes_X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 19, 1996: $317,724, based on the average low bid
and high asked prices on the over-the-counter market as reported on that date.
Number of shares outstanding of registrant's common stock, $.15 par
value, as of March 19, 1996: 3,248,606.
Documents are incorporated by reference:
Portions of the Registrant's Definitive Proxy Statement
for the Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
The Company and its Markets
National Transaction Network, Inc., a Delaware corporation ("NTN" or
the "Company"), is engaged in designing, developing, integrating, marketing,
operating, and maintaining electronic payment systems for use in retail
applications. NTN software products are used to perform some or all of the tasks
involved in electronic payment transactions, including the collection of
payment-related data at the point of sale; the secure transmission of this data
to a processing computer; the authorization of the transaction; the collection
of the completed transactions; and the processing of these transactions for
accountability, funds management, and reporting reasons. NTN also provides
support services relating to the deployment and on-going operation of these
systems.
The Company's predecessor was incorporated under Texas law on September
26, 1976. It completed an initial public offering of shares of its common stock
in February 1983. In June 1987, the Company's predecessor completed a subsequent
public offering of units of shares of its common stock and common stock purchase
warrants. On March 25, 1988, the stockholders of the Company's predecessor Texas
corporation approved the merger of the predecessor company with and into
National Transaction Network, Inc., a Delaware corporation which was a
wholly-owned subsidiary of the predecessor company. As a result of the merger,
National Transaction Network, Inc. has succeeded to all of the properties,
assets and liabilities of the predecessor company, and has carried on the
business of the predecessor company.
Electronic Payment Systems
Electronic Payment Systems ("EPS") automate the acceptance of non-cash
payment media at a retail location. This automation process speeds customer
service, reduces retail operating expenses and attracts new customers by
allowing new forms of payment to be accepted. Automation reduces fraud and
eliminates many of the paper documents traditionally associated with non-cash
payments. Common types of payment media automated by EPS include:
- - Electronic Funds Transfer ("EFT") using consumer ATM access (debit) cards. EFT
transactions result in the nearly immediate transfer of funds from the
consumer's bank account to the merchant's bank account in exchange for
merchandise and cash. On-line EFT requires the secure transmission of the
consumer's Personal Identification Number ("PIN") for verification at the
financial institution, as well as capture and transmission of the transactional
data.
- - Credit Cards. This includes bank issued cards (MasterCard, Visa), travel and
entertainment cards (American Express, Diner's Club) and retailer issued cards
(Sears, Discover, J.C. Penney, etc.). Credit card transactions are authorized
and electronically captured, resulting in faster service and lower operating
costs.
- - Checks. Payments by check may be automated to verify the consumer's past check
payment history and assure that no returned check items are outstanding. Often,
customer identification is based on a valid driver's license or a retailer
issued check cashing card.
- - Electronic checks using the Automated Clearing House ("ACH"). This new
consumer payment option replaces a paper check with an electronic item submitted
to the ACH for settlement between financial institutions. EPS identify the
consumer, capture the data and eliminate the need for the traditional paper
check.
- - Electronic Government Benefits Transfer ("EBT"). EBT replaces labor intensive
paper food stamps and other forms of government benefits with electronic
transactions. These programs are in pilot tests or roll-out in several states.
The government expects to measure results based on reduced administrative
expenses and reduced fraud.
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- - Retailer-issued Gift Certificates. Traditionally, gift certificates have been
treated as manually processed, paper-based transactions. Due to renewed emphasis
on increased speed of acceptance, detailed management reporting, and fraud
protection, retailers are using EPS to automate this process by converting to
plastic card-based programs.
- - Frequent Shopper Transactions. Retailers are rewarding their best customers
and incenting these and other customers to exhibit chain loyalty through
frequent shopper and targeted marketing programs. EPS are being used to collect
the customer history and to evaluate the effect of certain promotions on the
recipients of these promotions.
Product Strategy
NTN seeks to identify specific niches in the retail industry and to
design complete systems to meet the needs of this specialized segment.
Components of the complete system may include transaction terminals and
peripherals, software at the point of sale for originating transactions and
communicating to other systems in the store, such as electronic cash registers,
communications methodologies for transmitting the transactions to a processing
computer, software for authorizing, processing, or re-routing the transactions
to a service provider, plastic card design and issuance, and support services to
ensure the smooth operation of these disparate parts.
NTN in-store systems are primarily built around software products
operating in customer activated terminals and back office personal computers.
NTN products address the requirements for in-store systems, which are usually
connected to one or more of many host processors.
NTN selects hardware platforms for characteristics providing easy
consumer operation, data security, reliability and availability. Software is
written to enhance and complement these features.
NTN communications controllers manage a number of terminals and provide
communications over a single telephone line or satellite uplink. NTN works with
the retailer and the transaction processing service provider to determine the
most appropriate communications strategy given retailer requirements for economy
and speed. In addition to consolidating communications, the controller handles
reporting on in-store EPS activity.
NTN products include processing services for certain transactions
proprietary to the retailer. Examples of these transactions include automated
gift certificates and frequent shopper transactions. NTN's services include the
collection, settlement, and management reporting related to these transactions.
In some cases, the NTN processing service consists of collecting and
re-directing these transactions to other processors.
NTN has sought to standardize its product offerings as much as
possible. This product strategy has allowed for a leveraged product development
effort while maintaining flexibility in responding to specific requirements.
Intellectual Property
NTN relies on a combination of trade secrets, copyrights, and
trademarks to protect its intellectual property.
Strategic Alliances
To facilitate product development and marketing, NTN has entered into
several key strategic alliances which provide access to hardware platforms and
markets for the Company's products. These alliances are all related to NTN's
strategic direction of providing products and services to meet the EPS needs of
retailers.
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In December 1990, NTN entered into a distribution agreement with
International VERIFACT Inc. ("IVI") of Toronto, Ontario, Canada. The
distribution agreement granted to the Company for a term of two years the
non-exclusive right to market, distribute or sell IVI products in the United
States. No minimum sales targets were required. The agreement expired on
December 31, 1992. Since the expiration of the agreement, the Company has
continued working with IVI under an informal extension of the non-exclusive
distribution agreement. Alternate sources of supply are available. IVI's product
line includes point of sale terminals and peripherals for electronic transaction
processing applications.
In January 1993, NTN entered into a value-added reseller agreement with
Inacom Corporation. The agreement allows NTN to purchase IBM or compatible
personal computers from Inacom at preferential prices. These personal computers
may be used as the communications controller for NTN's payment systems. The
initial one year term of the agreement automatically renews for successive one
year terms unless the agreement is otherwise terminated by either party.
In September 1993, NTN entered into a master purchase agreement with
VeriFone, Inc., a leading manufacturer of electronic payment terminals. Pursuant
to the terms of the agreement, NTN receives discount pricing on VeriFone
hardware and software components. These VeriFone products are incorporated into
NTN's payment systems and sold to end-users in the United States on a
non-exclusive basis. The initial one year term of the agreement automatically
renews for successive one year terms unless the agreement is otherwise
terminated by either party.
In December 1993, NTN entered into an agreement with Card Establishment
Services, Inc. ("CES"), a third party processor of credit, debit and check
transactions. The agreement has a term of three years and provides for the
development of a common interface between the NTN PINnacle(TM) Payment
Controller and the CES processing computers. The agreement also permits CES to
purchase NTN payment systems at favorable pricing. No minimum purchases are
required. The parties also agree to certain joint marketing efforts.
Marketing
NTN has historically focused on producing Electronic Payment Systems
specifically designed for supermarkets and similar multi-lane retailers. In
seeking expansion of the Company's markets, NTN has also begun marketing into
other niche markets where it is felt that the Company's products may have
additional applicability.
NTN markets through a direct selling force. The Company's headquarters
and regional sales offices provide the sales force with nationwide coverage. The
sales force focuses their coverage on supermarket retailers primarily, with
additional selling activity targeted at retailers in other industry segments and
the field sales force of strategic partners of the Company. The direct sales
force is supported by promotional plans including trade show exhibits, regional
seminars, direct mail campaigns, advertising in the trade press, and press
coverage.
NTN also uses several indirect sales channels. These indirect channels
influence the multi-lane retailer and Electronic Payment Systems industries,
including supermarket wholesalers, cash register vendors, third party networks,
and mainframe software developers.
Products
NTN PINnacle(TM) Payment Systems are a family of standardized products
which provide retailers with the ability to accept electronic payments in a
variety of operating environments. These payment systems must work in
conjunction with several characteristics of the retailer's store environment
including the type of store system (cash register) used, the routing of
transactions for processing and the communications methods employed for
transmitting financial transactions. In addition, the retailer may choose one of
several models of electronic payment terminals on the market. In addition, the
Company's product line includes services related to the operation of an
electronic payment system, such as card issuance, transaction processing, and
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management reporting. All of these products and services are designed to allow
for development of common features across the Company's customer base.
NTN PINnacle(TM) Payment Processing services permit retailers to assign
the processing of lower volume, proprietary transactions to NTN. In this role,
NTN assumes a single point of responsibility for the entire life of the payment
transaction, from origination through processing and final disposition. These
services complement those offered by other transaction processors, who tend to
focus on high volume, commercial transactions. In many cases, as these
transactions are closely linked to the retailer's strategy for conducting
business, a significant degree of customization is necessary to meet the
retailer's needs. NTN is able to accomplish that customization economically and
swiftly.
The NTN PINnacle(TM) Payment Controller is the heart of NTN's product
line. Controller software functionality centers around a variety of
communications interfaces, data collection routines and reporting of in-store
data. NTN is placing increased emphasis on being architecturally and
functionally compatible with the store system chosen by the retailer.
Modifications and enhancements are on-going but the controller is central to
NTN's system offering in supermarkets and other multi-lane retailers.
NTN PINnacle(TM) Payment Terminal Software is compatible with the NTN
controller. Terminal software originates electronic transactions through cashier
and consumer input. In some environments, the terminal software interacts with
compatible software on the cash register system to share data and to use the
cash register printer for receipt generation. NTN software is compatible with
the products of major store system providers including Fujitsu-ICL, IBM, and
NCR.
NTN assists its customers by offering a comprehensive set of
professional services necessary for the start-up and on-going support of an
electronic payment system. These services may include project management,
procurement and preparation of hardware components, hardware and software
maintenance, installation, training, custom software design and development and
new product evaluation for specific customers.
Customers
NTN's customer base consists of large retail companies, principally in
the supermarket industry, located throughout the United States. In 1995,
Albertsons accounted for 32% of the Company's total revenues, Fujitsu- ICL
accounted for 13% of the Company's total revenues and Bi-Lo Food Stores
accounted for 11% of the Company's total revenues.
Competition
NTN has positioned itself as a full service provider of EPS for
multi-lane retailers. This market niche has attracted several other suppliers of
competing products and services. These suppliers include system integrators,
cash register vendors and third party transaction processing organizations. Some
competitors have significantly greater financial and marketing resources than
NTN. It is the Company's objective to successfully compete against all
competitors by focusing on this market niche and providing the most appropriate
and complete system on the market. NTN distinguishes itself from its competitors
through its system integration capabilities and its wide array of professional
services available to its customers.
Development
During the years ended December 31, 1993, 1994 and 1995 the Company
incurred $948,208, $1,145,838 and $1,016,521 respectively, in research and
development expenses for software development in connection with its existing
and proposed products. During 1993 and 1994, an additional $240,121 and $288,198
respectively, of costs incurred were capitalized and accounted for in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." During
1995, there were no research and development expenses incurred that
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required capitalization. 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. For a further discussion of this matter, refer to
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Regulation
In some applications, users of EFT terminals may be subject to federal
or state regulation under statutes and regulations relating to electronic funds
transfer systems, credit cards and debit cards. Such laws may limit the
transactions capable of being performed, limit the locations where terminals may
be placed, limit card customer liability for fraudulent transfers and require
certain written documents to be produced at the time of transfer, among other
matters. There can be no assurance that compliance with such regulations will
not be burdensome and costly.
Employees
As of December 31, 1995, the Company had thirty three employees. As of
March 19, 1996, the Company had thirty two employees: Paul A. Siegenthaler, its
Chief Executive Officer and President, Milton A. Alpern, its Chief Financial
Officer, Vice President of Finance and Treasurer, Sheila C. Birney, its Vice
President of Professional Services, Jeffrey A. Wakefield, its Vice President of
Sales and Marketing, ten software engineers, seven marketing and sales
employees, seven customer service employees and four finance and administrative
employees.
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ITEM 2. PROPERTIES.
The Company's principal executive offices, located at 3, 7 and 9 Kane
Industrial Drive, Hudson, Massachusetts, are leased pursuant to a lease executed
in December 1991 which expired on December 31, 1993. Since December 31, 1993,
the Company and its landlord have been operating under an informal extension of
the lease which allows either party to terminate the agreement with sixty days
notice. The Company believes it is highly unlikely that it will be required to
vacate all three of its locations in Hudson, Massachusetts under the terms of
the informal extension of its lease. In the unlikely event that the Company is
required to vacate all of its locations in Hudson, Massachusetts, management
believes that alternative space in the area is available at comparable lease
terms. The total rental is approximately $7,200 per month for space consisting
of approximately 21,700 square feet. This space is sufficient for the Company's
needs for 1996. Two sales offices were maintained during 1995. The New Jersey
office, located at Park 80 West, Plaza II, Saddle Brook, New Jersey, has a
monthly rent of $1,180. The Washington office, located at 6653 Kimball Drive,
Gig Harbor, Washington, has a monthly rent of $385.
ITEM 3. LEGAL PROCEEDINGS.
The Company has no material legal proceedings at this time.
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 December 31, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
From January 10, 1991 through the present, the Company's common stock
has been listed on the pink sheets of the National Quotations Bureau, Inc., and
certain broker-dealers have held themselves out as market makers in the common
stock. Additionally, the Company's common stock is included on the OTC Bulletin
Board. The quotations below reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual transactions.
In addition, all quotations below reflect the one-for-fifteen reverse stock
split of the Company's common stock, effected on October 22, 1993.
<TABLE>
<CAPTION>
1994 High Low
---- ---- ---
<S> <C> <C>
First quarter (1/1 - 3/31)............................................. $2.50 $0.38
Second quarter (4/1 - 6/30)............................................ $1.00 $0.25
Third quarter (7/1 - 9/30)............................................. $1.00 $0.38
Fourth quarter (10/1 - 12/31).......................................... $1.00 $0.13
1995 High Low
---- ---- ---
First quarter (1/1 - 3/31)............................................. $1.25 $0.13
Second quarter (4/1 - 6/30)............................................ $0.88 $0.06
Third quarter (7/1 - 9/30)............................................. $0.56 $0.13
Fourth quarter (10/1 - 12/31).......................................... $0.56 $0.25
</TABLE>
As of March 15, 1996, there were 576 holders of record of the Company's
common stock. The Company has not paid dividends on its common stock and does
not anticipate paying dividends in the foreseeable future. The Company
anticipates that all earnings will be retained for development of the Company's
business.
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ITEM 6. SELECTED FINANCIAL DATA.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue ....................... $ 8,006,417 $ 7,968,148 $ 9,509,907 $ 8,609,082 $ 2,558,718
Cost of Revenue ............... 4,593,041 4,948,350 5,903,732 5,001,159 1,767,750
----------- ----------- ----------- ----------- -----------
Gross Margin .................. 3,413,376 3,019,798 3,606,175 3,607,923 790,968
Total Operating
Expenses ..................... 3,518,522 4,272,107 3,418,972 3,233,826 3,042,406
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations . (105,146) (1,252,309) 187,203 374,097 (2,251,438)
Other Income (Expense) ........ 16,445 15,879 (177,682) (191,769) (79,094)
----------- ----------- ----------- ----------- -----------
Income (Loss) before Income
Taxes and Extraordinary Credit (88,701) (1,236,430) 9,521 182,328 (2,330,532)
Provision for Income Taxes..... 78,000
----------- ----------- ----------- ----------- -----------
Income (Loss) before Extra-
ordinary Credit .............. (88,701) (1,236,430) 9,521 104,328 (2,330,532)
Extraordinary Credit .......... 71,000
----------- ----------- ----------- ----------- -----------
Net Income (Loss) ............. $ (88,701) $(1,236,430) $ 9,521 $ 175,328 $(2,330,532)
Income (Loss) per Common
Share:
Income (Loss) before Extra-
ordinary Credit ......... $ (.03) $ (.38) $ .00 $ .05 $ (1.11)
Extraordinary Credit ...... .03
----------- ----------- ----------- ----------- -----------
Net Income (Loss) ......... $ (.03) $ (.38) $ .00 $ .08 $ (1.11)
Weighted Average Number of
Common Shares Outstanding .... 3,248,606 3,248,606 2,471,161 2,205,426 2,091,185
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
As Of December 31,
------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital
(Deficit) ................. $ 997,032 $ 993,108 $1,873,150 $ 1,748,343 $ (136,630)
Total Assets ............... 2,344,698 2,877,998 4,207,735 3,870,045 1,376,701
Long Term Liabilities ...... 0 0 0 2,673,483 850,000
Stockholders' Equity
(Deficiency) .............. 1,249,245 1,337,946 2,574,376 (563,964) (739,292)
</TABLE>
Note: All share and per share information has been restated to reflect the
one-for-fifteen reverse stock split of the Company's common stock, effected on
October 22, 1993.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company's business strategy focuses on the development and
marketing of software products and professional services designed to address the
electronic payment system needs of multi-lane retailers. Turn-key system
solutions including customer-activated payment terminals, in-store controllers,
point of sale system integration and transaction processing network interfaces
are also provided to customers. These solutions enable retailers to automate
payment transactions involving consumer debit (ATM) cards, bank and retailer
issued credit cards, paper check authorization, electronic government benefits
and electronic checks.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenue for the year ended December 31, 1995 increased slightly
to $8,006,417 compared to $7,968,148 for the year ended December 31, 1994. The
increase in revenue between 1994 and 1995 resulted from several factors
including the sale to an existing customer of the Company's newly released
payment system product integrated to the NCR cash register system and the
increasing need of supermarket retailers to automate consumer payment options
involving Electronic Food Stamps. These increases were offset by a decrease in
revenue between 1994 and 1995 resulting from a decrease in the number of the
Company's payment systems installed by a significant customer into additional
divisions. The revenue derived from this customer accounted for approximately
32% of the Company's total revenue for the year ended December 31, 1995 compared
to approximately 53% of total revenue for the year ended December 31, 1994.
Uncertainties with respect to future orders from this customer and other
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 total revenue increased to 42.6% for the
year ended December 31, 1995 compared to 37.9% for the year ended December 31,
1994. The increase in gross margin between the two years was due to higher
margin software sales comprising a larger percentage of total revenue for the
year ended December 31, 1995 compared to the year ended December 31, 1994.
Revenue derived from sales of software accounted for 21% of total revenue for
the year ended December 31, 1995 compared to 10% for the year ended December 31,
1994.
Total operating expenses decreased by 17.6% to $3,518,522 for the year
ended December 31, 1995 compared to $4,272,107 for the year ended December 31,
1994. The write-off of $657,479 of capitalized software development costs in
December 1994, which is discussed below, accounted for the majority of the
decrease in operating expenses between 1994 and 1995.
Sales and marketing expenses increased by 3.6% to $1,771,800 in 1995
compared to 1994. Sales and marketing expenses include the costs of
distribution, sales commissions, product marketing, and account management. An
increase in salaries expense ($134,000) resulted from the hiring of a Western
Region Sales Manager in the fourth quarter of 1994 and a Southeast Region Sales
Manager in the second quarter of 1995. Additionally, salaries expense for the
year ended December 31, 1995 includes approximately $16,000 of severance costs
incurred in the fourth quarter of 1995 for personnel changes made at that time.
Sales commission expense also increased by $63,000 between 1994 and 1995. The
increase was due to higher sales commissions paid on higher margin software
sales which comprised a larger percentage of total revenue in 1995 compared to
1994. The increases in sales and marketing expenses were offset by a decrease in
travel and entertainment expense ($72,000) relating to travel expenses incurred
in connection with the installation of the Company's payment systems into a
large number of divisions of a significant customer in 1994. In addition, other
sales and marketing expense decreases were experienced between 1994 and 1995 in
marketing promotion
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and outside services expenses ($39,000) relating to direct mail and telesales
campaigns conducted in 1994 and recruiting expenses ($23,000) relating to sales
and marketing hires in 1994.
Research and development expenses decreased by 11.3% for the year ended
December 31, 1995 compared to the year ended December 31, 1994. Decreases in
salaries and fringe benefit expenses totaling approximately $316,000 were the
result of a reduction in the number of research and development personnel which
occurred at the beginning of the first quarter of 1995. Research and development
expenses in 1994 also include a $55,800 charge for severance costs incurred in
connection with the reduction in personnel. Other decreases in travel and
entertainment expenses ($17,000), outside consulting expenses ($18,000), and
recruiting expenses ($18,500) contribute to the overall decrease in research and
development expenses between 1994 and 1995. The decreases were partially offset
by the capitalization of software development costs totaling approximately
$288,000 for the year ended December 31, 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 year ended December
31, 1995, there were no research and development costs incurred that required
capitalization.
General and administrative expenses decreased by 3.7% for the year
ended December 31, 1995 compared to the year ended December 31, 1994. General
and administrative expenses include the finance, human resources, and
administration costs of the Company. Decreases in outside consulting expenses
($12,000) for management training and outside service expenses ($21,000)
relating to the design and printing of the Company's 1993 annual report were
offset by increases in travel and entertainment expenses ($11,600) and
recruiting expenses ($6,200). In addition, general and administrative expenses
in 1994 include a $12,000 sales tax accrual resulting from an audit of prior
years.
Interest income totaled $16,445 in 1995 compared to $16,771 in 1994
based on a relatively consistent level of funds available for investment between
the two years.
No tax provision was required in 1995 due to the loss incurred.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenue for the year ended December 31, 1994 was $7,968,148
compared to $9,509,907 for the year ended December 31, 1993. This represents a
decrease in revenue of 16.2% between 1994 and 1993. The decrease in revenue was
primarily due to delays in customer buying decisions pending release of new
products by the Company. In addition, the Company's inability to generate a
sufficient number of qualified sales opportunities for 1994 contributed to the
decrease in revenue between the year ended December 31, 1994 and the year ended
December 31, 1993. The decrease in revenue was partially offset by the decision
of a large customer to install the Company's systems into additional divisions.
The revenue derived from this customer accounted for 53% of the Company's total
revenue for the year ended December 31, 1994 compared to 21% for the year ended
December 31, 1993.
For the year ended December 31, 1994, gross margins as a percent of
revenue remained constant at 37.9% compared to the year ended December 31, 1993.
Revenue from higher margin hardware and software maintenance contracts
comprising a larger percentage of total revenue for the year ended December 31,
1994 compared to the year ended December 31, 1993 had the effect of increasing
gross margins between the two years. This was offset, however, by lower product
prices, due to competitive pressures, resulting in lower gross margins on
hardware sales for the year ended December 31, 1994.
Total operating expenses for the year ended December 31, 1994 increased
by 25.0% to $4,272,107 compared to $3,418,972 for the year ended December 31,
1993. The most significant component of the increase in operating expenses was
the write-off in December 1994 of $657,479 of capitalized software development
costs. These costs had previously been capitalized in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or
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<PAGE> 12
Otherwise Marketed." The write-off resulted from a re-prioritization of Company
resources to focus on new market requirements. Prior to the release of the
software products 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.
Sales and marketing expenses decreased by 8.3% for the year ended
December 31, 1994 compared to the year ended December 31, 1993. The decrease was
due to a reduction of staff in the sales organization and the consolidation of
sales offices resulting in decreases in compensation expenses and fringe
benefits ($241,200) and occupancy expenses ($16,400) for the year ended December
31, 1994 compared to the year ended December 31, 1993. These decreases were
partially offset by increases in travel and entertainment expenses ($67,400) due
to fewer sales staff covering the same geographic territory and recruiting
expenses ($28,100) resulting from the Company's hiring of a Vice President of
Marketing and other marketing staff in 1994.
Research and development expenses increased by $197,630 (20.8%) for the
year ended December 31, 1994 compared to the year ended December 31, 1993. The
increase in research and development expenses includes a $55,800 charge in 1994
for severance costs incurred for personnel changes made in connection with the
decision to write off previously capitalized software development costs which is
discussed above. Additionally, the development of the Company's products on new
retail store systems resulted in an increase in development staff and related
salaries expenses ($54,900) as well as an increase in outside consulting costs
($98,100) in 1994 compared to 1993.
General and administrative expenses increased by 25.3% for the year
ended December 31, 1994 compared to the year ended December 31, 1993. The
increase was primarily due to a change during 1994 in the classification of
expenses (salary, fringe benefits, travel, etc.) of a current officer of the
Company from sales and marketing expenses to general and administrative expenses
resulting from a change in the officer's responsibilities and the reversals in
the first quarter of 1993 of $50,000 of the allowance for doubtful accounts due
to the favorable resolution of a customer's disputed account balance and $47,000
of other accruals relating to 1992. Also contributing to the increase in general
and administrative expenses was a tax accrual in 1994 totaling $12,000 resulting
from a sales tax audit of prior years.
Interest income increased by $6,573 for the year ended December 31,
1994 compared to the year ended December 31, 1993. The increase was the result
of large cash collections during the third quarter of 1994 resulting in a
significant increase in the amount of funds available for investment in the
latter half of 1994 compared to 1993. Interest expense decreased by $186,988 for
the year ended December 31, 1994 compared to the year ended December 31, 1993
due to the conversion of certain convertible subordinated notes payable to
stockholders into common stock of the Company on September 30, 1993.
No tax provision was required in 1994 due to the loss incurred.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1995 was $997,032 compared to $993,108
at December 31, 1994. The slight increase in working capital is primarily due to
increases in cash ($333,225) and accounts receivable ($119,305) and decreases in
accounts payable and accrued liabilities ($400,890) and deferred revenue
($44,347) between the year ended December 31, 1994 and the year ended December
31, 1995. These changes were offset by decreases in inventory ($854,960) and
prepaid expenses ($38,245).
Net cash used in investing activities totaled $24,645, $423,597, and
$447,070 for the years ended December 31, 1995, 1994, and 1993, respectively.
Capital equipment expenditures, principally for computer, test and sales
demonstration equipment, accounted for $24,645, $135,396, and $206,949 of these
amounts in
-12-
<PAGE> 13
1995, 1994, and 1993, respectively. The capitalization of software development
costs accounted for the balance of net cash used in investing activities in 1994
and 1993. Capital expenditures in 1996 are expected to be approximately
$100,000. The Company does not anticipate the capitalization of any software
development costs in 1996.
On June 11, 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 March 21, 1996) plus 4% and are
secured by the Company's assets. At December 31, 1995, there were no borrowings
outstanding under the credit line nor have there been any borrowings through
March 21, 1996. Borrowing availability under the credit line at December 31,
1995 would have been $400,000 based on the terms of the renewal.
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 financial
performance of the Company. The forward-looking statements in this Form 10-K are
made under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's actual results of operations and financial
condition have varied and may in the future differ materially from those
contained in 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.
-13-
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please refer to pages F-1 through F-10.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
-14-
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
-15-
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON 8-K.
(a) The following financial statements, notes thereto and
independent auditors' report are filed as part of this report:
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity (Deficiency)
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
Schedules are omitted because of the absence of
conditions under which they are required or because
the required information is included in the financial
statements submitted.
(3) Listing of Exhibits:
The following exhibits, required by Item 601 of
Regulation S-K, are filed as part of this Annual
Report on Form 10-K. (Exhibit numbers, where
applicable, in the left column correspond to those of
Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Form 10-K
Exhibit consecutive
Number Exhibit page number
- ------ ------- -----------
<C> <C> <C>
3(a) Amended and restated Certificate of
Incorporation filed October 22, 1993 see note (17)
3(b) Bylaws, as amended see note (8)
4(a) Form of Common Stock Purchase
Warrant used for 1988 Bridge
Loans see note (2)
4(b) Form of Common Stock Purchase
Warrant used for First Quarter 1989
Bridge Loans see note (6)
4(c) Form of Common Stock Purchase
Warrant used for Third Quarter 1989
Bridge Loans see note (6)
4(d) Common Stock Purchase Agreement
dated October 5, 1989 see note (7)
</TABLE>
-16-
<PAGE> 17
<TABLE>
<C> <C> <C>
4(e) Common Stock Purchase Warrant of BCE
dated October 5, 1989 see note (7)
4(f) Common Stock Purchase Warrant of
Nelson Doubleday dated October 5,
1989 see note (7)
4(g) Executive Stock Purchase Agreement
between Richard Leach and the
Company, dated April 1, 1990 see note (9)
4(h) Common Stock Purchase Agreement
dated November 9, 1990 see note (10)
4(i) Common Stock Purchase Agreement
dated January 31, 1991 see note (11)
4(j) Agreement of Amendment and Waiver
dated March 19, 1991 see note (12)
4(k) National Transaction Network, Inc.
1993 Director Stock Option Plan see note (16)
4(l) National Transaction Network, Inc.
1995 Director Stock Option Plan 37
10(a) 1983 Incentive Stock Option Plan,
as amended see note (1)
10(b) Form of Stock Option Grant and
Exercise Notice for 1983 Incentive
Stock Option Plan see note (5)
10(c) 1988 Stock Plan, as amended see note (5)
10(d) Form of Incentive Stock Option
Agreement for 1988 Stock Plan see note (5)
10(e) Form of Non-Qualified Stock Option
Agreement for 1988 Stock Plan
(Consultants) see note (5)
10(f) Form of Non-Qualified Stock Option
Agreement for 1988 Stock Plan
(Directors) see note (5)
10(g) Roger C. Hitchcock Executive Stock
Purchase Agreement see note (3)
</TABLE>
-17-
<PAGE> 18
<TABLE>
<C> <C> <C>
10(h) Agreement for IBM Licensed Program
Stand-Beside Electronic Payment
System Debit Application between the
Company and International Business
Machines Corporation dated as of
March 18, 1988 see note (4)
10(i) Philip Kluge Executive Stock
Purchase Agreement see note (5)
10(j) Stock and Purchase Right Acquisition
Agreement between the Company and
International VERIFACT Inc. dated
February 7, 1989 see note (5)
10(k) Lease between the Company and
Alden H. Kane and Shirley M. Kane,
Trustees of the Kane Industrial
Trust, dated December 27, 1988 see note (5)
10(l) Distribution Agreement between the
Company and International VERIFACT
Inc. dated December 31, 1990 see note (12)
10(m) Termination Agreement dated as of
March 18, 1992 between Roger C. Hitchcock
and the Company see note (13)
10(n) Agreement dated as of March 18, 1992
between Roger C. Hitchcock and the Company see note (13)
10(o) Termination Agreement dated as of June 30,1992
between Christopher D. Illick and the Company see note (14)
10(p) Lease between the Company and Alden H.
Kane and Roger K. Kane, Trustees of the
Kane Industrial Trust, dated November 1, 1992 see note (14)
10(q) Severance Agreements between the Company
and Paul Siegenthaler and Walter Allen dated
January 30, 1993 see note (14)
10(r) National Transaction Network, Inc. Retirement
Savings 401(k) Plan see note (15)
10(s) Value-Added Reseller Agreement between the
Company and Inacom Corporation dated
January 11, 1993 see note (17)
10(t) Promissory Note and Security Agreement
between the Company and Silicon Valley Bank
dated June 11, 1993 see note (17)
</TABLE>
-18-
<PAGE> 19
<TABLE>
<C> <C> <C>
10(u) Master Purchase Agreement between the Company
and VeriFone, Inc. dated September 22, 1993 see note (17)
10(v) Joint Marketing Agreement between the Company
and Card Establishment Services, Inc. dated
December 7, 1993 see note (17)
10(w) Severance Agreement between the Company and
Milton Alpern dated March 17, 1994 see note (17)
10(x) Form of the Director Stock Option Agreement
for the 1993 Director Stock Option Plan see note (18)
10(y) Severance Agreement between the Company and
Scott Rich dated March 14, 1995 see note (18)
10(z) Form of the Director Stock Option Agreement
for the 1995 Director Stock Option Plan 43
11 Computation of Income (Loss) Per Share 47
23 Consent of Deloitte & Touche LLP 48
- ------------------------------
</TABLE>
(1) Exhibit is incorporated by reference to the Exhibits to the Form S-1
Registration Statement No. 2-91030.
(2) Exhibit is incorporated by reference to the Exhibits to the Form 10-Q
for the quarter ended September 30, 1988.
(3) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1985.
(4) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1987.
(5) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1988.
(6) Exhibit is incorporated by reference to the Exhibits to the Form 10-Q
for the quarter ended September 30, 1989.
(7) Exhibit is incorporated by reference to the Exhibits to the Form 8-K
dated October 5, 1989.
(8) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1989.
(9) Exhibit is incorporated by reference to the Exhibits to the Form 10-Q
for the quarter ended June 30, 1990.
(10) Exhibit is incorporated by reference to the Exhibits to the Form 8-K
dated November 9, 1990.
-19-
<PAGE> 20
(11) Exhibit is incorporated by reference to the Exhibits to the Form 8-K
dated January 31, 1991.
(12) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1990.
(13) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31 ,1991.
(14) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1992.
(15) Exhibit is incorporated by reference to the Exhibits to the Form 8
dated May 4, 1993.
(16) Exhibit is incorporated by reference to the Exhibits to the Form S-8
Registration Statement No. 33-66732 dated July 29, 1993.
(17) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1993.
(18) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1994.
- --------------------------------
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the last quarter of the
fiscal year ended December 31, 1995.
(c) Exhibits:
The Company hereby files as part of this Form 10-K the
exhibits listed in Item 14(a) (3) above.
(d) Financial Statement Schedules:
The Company hereby files as part of this Form 10-K in Item 14
(a) (2) above.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
March 22, 1996 By: /s/ Paul A. Siegenthaler
--------------------------
Paul A. Siegenthaler, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 22, 1996 /s/ Paul A. Siegenthaler
--------------------------
Paul A. Siegenthaler, Chief Executive
Officer, President and Director
(Principal Executive Officer)
March 22, 1996 /s/ Milton A. Alpern
----------------------
Milton A. Alpern, Vice President of
Finance and Administration (Principal
Financial and Accounting Officer)
March 21, 1996 /s/ Jeffrey B. Finestone
--------------------------
Jeffrey B. Finestone, Chairman of the
Board
March 22, 1996 /s/ Robert D.D. Forbes
------------------------
Robert D.D. Forbes, Director
March 21, 1996 /s/ Christopher D. Illick
---------------------------
Christopher D. Illick, Director
March 22, 1996 /s/ Brian Kouri
---------------------------
Brian Kouri, Director
March 21, 1996 /s/ Charles R. Thompson
---------------------------
Charles R. Thompson, Director
-21-
<PAGE> 22
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Balance Sheets as of December 31, 1995 and 1994 F-2
Statements of Operations for the Years Ended F-3
December 31, 1995, 1994, and 1993
Statements of Stockholders' Equity (Deficiency) F-4
for the Years Ended December 31, 1995, 1994
and 1993
Statements of Cash Flows for the Years Ended F-5
December 31, 1995, 1994 and 1993
Notes to Financial Statements F-6-10
</TABLE>
-22-
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
National Transaction Network, Inc.:
We have audited the accompanying balance sheets of National Transaction Network,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
March 8, 1996
(March 21, 1996 as to the
second paragraph of Note 2)
F-1
<PAGE> 24
NATIONAL TRANSACTION NETWORK, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents (Note 1) $ 407,257 $ 74,032
Accounts receivable (less allowance for
doubtful accounts of $100,000
in 1995 and 1994) 1,384,222 1,264,917
Inventory (Note 1) 274,159 1,129,119
Prepaid expenses 26,847 65,092
----------- -----------
Total current assets 2,092,485 2,533,160
----------- -----------
PROPERTY AND EQUIPMENT (Note 1):
Furniture and fixtures 113,923 111,718
Machinery and equipment 595,216 572,776
----------- -----------
Total 709,139 684,494
Less accumulated depreciation and amortization (460,605) (344,135)
----------- -----------
Property and equipment - net 248,534 340,359
----------- -----------
DEPOSITS AND OTHER 3,679 4,479
----------- -----------
TOTAL $ 2,344,698 $ 2,877,998
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 661,742 $ 615,054
Accounts payable to stockholder (Note 6) -- 162,670
Customer deposits 25,265 24,627
Accrued liabilities 362,369 647,277
Deferred revenue 46,077 90,424
------------ ------------
Total current liabilities 1,095,453 1,540,052
------------ ------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY (Notes 1 and 4):
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 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Accumulated deficit (11,827,301) (11,738,600)
------------ ------------
Total stockholders' equity 1,249,245 1,337,946
------------ ------------
TOTAL $ 2,344,698 $ 2,877,998
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 25
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUE (Notes 1 and 7) $ 8,006,417 $ 7,968,148 $ 9,509,907
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of revenue 4,593,041 4,948,350 5,903,732
Sales and marketing 1,771,800 1,710,885 1,866,061
Research and development (Notes 1 and 8) 1,016,521 1,145,838 948,208
General and administrative 730,201 757,905 604,703
Write-off of capitalized software costs (Note 8) -- 657,479 --
----------- ----------- -----------
Total 8,111,563 9,220,457 9,322,704
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (105,146) (1,252,309) 187,203
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 16,445 16,771 10,198
Interest expense -- (892) (187,880)
----------- ----------- -----------
Total 16,445 15,879 (177,682)
----------- ----------- -----------
NET INCOME (LOSS) $ (88,701) $(1,236,430) $ 9,521
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE (Note 1) $ (0.03) $ (0.38) $ --
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 1) 3,248,606 3,248,606 2,471,161
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 26
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
SHARES PAID-IN STOCKHOLDERS'
ISSUED AMOUNT CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1993 2,205,426 $330,814 $ 9,616,913 $(10,511,691) $ (563,964)
Issuance of common stock
upon conversion of debt 1,042,940 156,441 2,972,342 -- 3,128,783
Additional shares issued as
a result of the 1-for-15
reverse stock split 240 36 -- -- 36
Net income -- -- -- 9,521 9,521
--------- -------- ----------- ------------ -----------
BALANCE,
DECEMBER 31, 1993 3,248,606 487,291 12,589,255 (10,502,170) 2,574,376
Net loss -- -- -- (1,236,430) (1,236,430)
--------- -------- ----------- ------------ -----------
BALANCE,
DECEMBER 31, 1994 3,248,606 487,291 12,589,255 (11,738,600) 1,337,946
Net loss -- -- -- (88,701) (88,701)
--------- -------- ----------- ------------ -----------
BALANCE,
DECEMBER 31, 1995 3,248,606 $487,291 $12,589,255 $(11,827,301) $ 1,249,245
========= ======== =========== ============ ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 27
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (88,701) $(1,236,430) $ 9,521
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 116,470 109,945 108,548
Interest expense -- -- 174,510
Write-off of capitalized software costs -- 657,479 --
Loss on disposal of equipment -- 7,985 --
Increase (decrease) in cash from:
Accounts receivable (119,305) 42,061 (96,017)
Inventory 854,960 85,472 (17,148)
Prepaid expenses 38,245 11,988 (1,696)
Deposits and other 800 4,573 (1,528)
Accounts payable to stockholder (162,670) (209,949) (924,583)
Customer deposits 638 24,627 (75,954)
Accounts payable and accrued liabilities (238,220) 106,233 768,728
Deferred revenue (44,347) (14,218) 104,642
----------- ----------- -----------
Net cash provided by (used for) operating activities 357,870 (410,234) 49,023
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (24,645) (135,396) (206,949)
Capitalization of software costs -- (288,198) (240,121)
----------- ----------- -----------
Net cash used in investing activities (24,645) (423,594) (447,070)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES - Proceeds from convertible
notes payable to stockholders -- -- 280,826
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 333,225 (833,828) (117,221)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 74,032 907,860 1,025,081
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 407,257 $ 74,032 $ 907,860
=========== =========== ===========
SUPPLEMENTAL INFORMATION - Cash paid for:
Interest expense $ - $ 892 $ -
=========== =========== ===========
Income taxes $ 5,467 $ 4,749 $ 30,688
=========== =========== ===========
NONCASH TRANSACTIONS - Conversion of convertible subordinated
notes payable to stockholders and accrued interest to common stock $ 3,128,783
===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 28
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - National Transaction Network, Inc. (the "Company")
designs, integrates and markets point-of-sale electronic payment systems
and software, principally to the retail industry.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
FINANCIAL INSTRUMENTS - The carrying values of cash and equivalents,
accounts receivable, and accounts payable approximate fair value due to
the short-term nature of these instruments.
STOCK SPLIT - On October 22, 1993, a 1-for-15 reverse stock split of the
Company's common stock was effected, the par value was increased from $.01
to $.15 per share and the number of authorized shares was decreased from
100,000,000 to 6,666,667 shares. All share and per share data in the
financial statements have been restated to reflect these transactions.
REVENUE RECOGNITION - Revenue from sales of product is recognized upon
shipment. Revenue from maintenance agreements is recognized ratably over
the term of the agreements.
INVENTORY - Inventory is recorded at the lower of cost (first-in,
first-out basis) or market and consists primarily of electronic payment
terminals and related peripherals.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets which range from two to five
years. Depreciation expense was approximately $116,000 and $110,000 for
the years ended December 31, 1995 and 1994, respectively.
CAPITALIZED SOFTWARE COSTS - Costs of software products developed for
resale are capitalized once technological feasibility is achieved.
Capitalization ceases when the product is available for release, and the
accumulated costs are amortized over the related product's estimated
economic life. Research and development costs are expensed as incurred.
INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share has been
computed based upon the weighted average number of common shares
outstanding during each year. Shares issuable upon exercise of outstanding
options have been excluded from the computations since their effect is
antidilutive.
CASH AND EQUIVALENTS - The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
F-6
<PAGE> 29
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES - The Company follows the asset and liability method of
accounting for income taxes, under which deferred income taxes are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes
the enactment date.
RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 121,
"Accounting of the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). This statement, which will be
required in 1996, establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This statement, which will be required in
1996, establishes financial accounting and reporting standards for
stock-based employee compensation plans.
The Company has not determined the effects of implementing SFAS 121 and
123 on its financial position and results of operations for any future
period.
2. LINE OF CREDIT
The Company has a working capital line-of-credit agreement with a bank
that provides for borrowings up to a maximum of $400,000. Borrowings under
the line of credit are based on certain levels of accounts receivable,
bear interest at the bank's prime rate plus 4%, are collateralized by the
Company's assets and are subject to monthly and quarterly performance
covenants. At December 31, 1995, there were no borrowings outstanding
under the line.
On March 21, 1996, the line was extended to January 5, 1997.
3. CONVERTIBLE SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
The Company had convertible subordinated notes payable to stockholders
which were due in March 1994 and bore interest at prime plus 2% (payable
at maturity). On September 30, 1993, the notes and accrued interest were
converted in accordance with their terms into 1,042,940 shares of common
stock ($3.00 per share).
4. STOCK OPTIONS
The Company has four stock option plans which provide for the granting to
key employees, officers, directors and consultants options to purchase up
to a maximum of 1,253,333 shares of common stock. The exercise price of
incentive and nonqualified stock options may not be less than the fair
market value of the Company's common stock on the date of grant. In
general, options become exercisable in varying annual installments. The
period within which any option may be exercised cannot exceed ten years
from the date of grant.
F-7
<PAGE> 30
4. STOCK OPTIONS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
<S> <C> <C> <C>
Outstanding at January 1, 1993 383,888 3.00- 24.75
Granted 67,649 5.625
Expired or canceled (133,090) 8.40- 10.80
--------
Outstanding at December 31, 1993 318,447 3.00- 24.75
Granted 79,363 0.38- 3.00
Expired or canceled (99,685) 3.00- 12.45
--------
Outstanding at December 31, 1994 298,125 0.38- 24.75
Granted 437,545 0.41
Expired or canceled (143,685) 0.41- 22.50
--------
Outstanding at December 31, 1995 591,985 0.38- 24.75
=========
Exercisable at December 31, 1995 240,613
=========
</TABLE>
1,273,331 shares have been reserved for the future exercise of stock
options.
5. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax liabilities - Property and equipment $ (90,818) $ (55,356)
----------- -----------
Deferred tax assets:
Compensated absences 28,218 31,095
Accounts receivable 44,110 40,250
Net operating loss carryforwards 5,071,930 5,011,824
----------- -----------
5,144,258 5,083,169
----------- -----------
Valuation allowance (5,053,440) (5,027,813)
----------- -----------
Deferred taxes, net $ -- $ --
=========== ===========
</TABLE>
For the year ended December 31, 1995, the net change in the valuation
allowance was an increase of $25,627 primarily relating to the uncertainty
of future realization of currently generated net operating loss
carryforwards.
F-8
<PAGE> 31
5. INCOME TAXES (CONTINUED)
A reconciliation between the U.S. statutory tax rate and the effective tax
rate for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory Tax Rate (34)% (34)% 34 %
State Rate, Net Of Federal Benefit (7) (7) 7
Write-off Of Capitalized Software Costs -- 10 --
Change In Valuation Allowance Due To The Uncertainty
Of Future Realization Of Currently Generated Net
Operating Loss Carryforwards 34 30 (41)
Nondeductible Expenses 7 1 --
--- --- ---
Effective Tax Rate -- % -- % - %
=== === ===
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
tax purposes of approximately $11,466,000 available to offset future
taxable income. These net operating loss carryforwards expire in varying
amounts through 2010. Due to a greater than 50% change in ownership, which
occurred in 1989, the Company's ability to utilize these carryforwards in
any one year may be limited.
6. COMMITMENTS
PRODUCT DISTRIBUTION AGREEMENT - The Company sells certain products under
the terms of a product distribution agreement (the "Agreement") with a
stockholder. The Agreement granted the Company the nonexclusive right to
market, distribute or sell the stockholder's products in the United
States. The Agreement expired on December 31, 1992, and the Company and
the stockholder were continuing to transact business under an informal
extension of the Agreement. During 1995, the stockholder sold its interest
in the Company. Total purchases from the former stockholder were
$1,190,192, $750,892 and $3,838,499 for the years ended December 31, 1995,
1994 and 1993, respectively. At December 31, 1995 and 1994, amounts due
the former stockholder under the Agreement are included in accounts
payable and accounts payable to stockholder, respectively.
OFFICE LEASE - The Company lease of office space expired in December 1993.
The Company is continuing to occupy the space as a tenant-at-will. Rent
expense for the years ended December 31, 1995, 1994 and 1993 totaled
approximately $109,000, $119,000 and $150,000, respectively. Additionally,
the Company has sales offices in other states with one year lease
agreements expiring at various times during 1996.
F-9
<PAGE> 32
7. CUSTOMERS
The Company's customer base consists of large retail companies,
principally in the supermarket industry, located throughout the United
States.
Major customers accounted for the following percentages of revenue:
<TABLE>
<CAPTION>
Customers 1995 1994 1993
<S> <C> <C> <C>
A 32 % 53 % 21 %
B 13 12 34
C 11 - -
D - - 15
</TABLE>
8. WRITE-OFF OF CAPITALIZED SOFTWARE COSTS
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 Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." 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 and is included in research and
development expenses for the year ended December 31, 1994.
* * * * * *
F-10
<PAGE> 1
EXHIBIT 4(l)
NATIONAL TRANSACTION NETWORK, INC.
1995 DIRECTOR STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
1995 Director Stock Option Plan (hereinafter, this "Plan"), is intended to
promote the interests of National Transaction Network, Inc. (hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
qualified persons to serve as members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
value $0.15 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 300,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Automatic Grant of Options. Subject to the availability of shares
under this Plan,
(a) each director who is a member of the Board on October 26,
1995 shall be automatically granted on October 26, 1995, without further action
by the Board, an option to purchase 15,000 shares of the Common Stock (subject
to adjustment in accordance with paragraph 10 of this Plan) and no director
shall receive more than one grant under this Section 4(a);
(b) each director who is first elected to the Board after
October 26, 1995 shall be automatically granted on the date such person first
becomes a member of the Board, without further action of the Board, an option to
purchase 5,000 shares of Common Stock (subject to adjustment in accordance with
paragraph 10 of this Plan) and no director shall receive more than one grant
under this Section 4(b); and
-37-
<PAGE> 2
EXHIBIT 4(l)
(c) each director who has served continuously as a director
for at least six months prior to January 15 of each year shall be automatically
granted on January 15 of each year, without further action by the Board, an
option to purchase 5,000 shares of the Common Stock (subject to adjustment in
accordance with paragraph 10 of this Plan).
This Plan is subject to approval by a majority of the Company's
stockholders given by written consent or by voting on such a matter at the first
meeting of the stockholders of the Company on or after October 26, 1995. Any
options granted pursuant to this Plan prior to such stockholder approval are
valid but subject to such condition.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq Stock Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
Stock Market. However, if the Common Stock is not publicly traded at the time an
option is granted under the Plan, "fair market value" shall be deemed to be the
fair value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length; provided, however, that the "fair
market value" of the stock issuable upon exercise of an option granted pursuant
to the Plan within 120 days prior to the time the Company's Common Stock is
publicly traded shall be deemed to be equal to the initial per share purchase
price at which the Company's Common Stock is offered to the public.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. (a) Vesting of Shares and Non-Transferability of Options. Options
granted under this Plan shall vest in the optionee on the date of grant.
(b) Non-transferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
-38-
<PAGE> 3
EXHIBIT 4(l)
8. Termination of Option Rights. Except as otherwise specified in the
agreement relating to an option, in the event an optionee ceases to be a member
of the Board by reason of his or her death or permanent disability, any then
unexercised portion of options granted to such optionee shall be exercisable by
the optionee (or by the optionee's personal representative, heir or legatee, in
the event of death) until the scheduled expiration date of the option.
9. Exercise of Option. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to National Transaction Network, Inc., at
its principal executive offices, stating the number of shares with respect to
which the option is being exercised, accompanied by payment in full for such
shares. Payment may be (a) in United States dollars in cash or by check, (b) in
whole or in part in shares of the Common Stock of the Company already owned by
the person or persons exercising the option or shares subject to the option
being exercised (subject to such restrictions and guidelines as the Board may
adopt from time to time), valued at fair market value determined in accordance
with the provisions of paragraph 5 or (c) consistent with applicable law,
through the delivery of an assignment to the Company of a sufficient amount of
the proceeds from the sale of the Common Stock acquired upon exercise of the
option and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at the participant's direction at the time of
exercise. There shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable by the
person or persons exercising the option, if fewer than one hundred (100) shares.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such shares
on the books of the Company and shall cause the fully executed certificate(s)
representing such shares to be delivered to the optionee as soon as practicable
after payment of the option price in full. The holder of an option shall not
have any rights of a stockholder with respect to the shares covered by the
option, except to the extent that one or more certificates for such shares shall
be delivered to him or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Events. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Recapitalization Adjustments. In the event of a
reorganization, recapitalization, or any other change in the corporate structure
or shares of the Company, to the extent permitted by Rule 16b-3 under the
Securities Exchange Act of 1934, adjustments in the number and kind of shares
authorized by this Plan and in the number and kind of shares covered
-39-
<PAGE> 4
EXHIBIT 4(l)
by, and in the option price of outstanding options under this Plan necessary to
maintain the proportionate interest of the optionee and preserve, without
exceeding, the value of such option, shall be made. Notwithstanding the
foregoing, no such adjustment shall be made which would, within the meaning of
any applicable provisions of the Internal Revenue Code of 1986, as amended,
constitute a modification, extension or renewal of any option or a grant of
additional benefits to the holder of an option.
(c) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraph 2 of
this Plan that are subject to options which previously have been or subsequently
may be granted under this Plan shall also be appropriately adjusted to reflect
such events. The Board shall determine the specific adjustments to be made under
this paragraph 10 and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions
of paragraphs 4 and 9 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(a) The issuance of shares with respect to which the option
has been exercised is at the time of the issue of such shares effectively
registered under applicable Federal and state securities laws as now in force or
hereafter amended; or
(b) Counsel for the Company shall have given an opinion that
the issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.
12. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. Representation of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).
-40-
<PAGE> 5
EXHIBIT 4(l)
14. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
under this Plan after October 25, 2005, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and provided further that the provisions of
this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her, except as to options granted
subject to the conditions identified in paragraph 4 above.
16. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includable in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof. If any provision of
this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall
be null and void.
-41-
<PAGE> 6
18. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
-42-
<PAGE> 1
EXHIBIT 10(z)
NATIONAL TRANSACTION NETWORK, INC.
DIRECTOR STOCK OPTION AGREEMENT
National Transaction Network, Inc., a Delaware corporation (the
"Company"), hereby grants as of the 26th day of October 1995, to
__________________ (the "Director"), an option to purchase 15,000 shares of its
Common Stock, $.15 par value (the "Option") at the price of $0.41 per share, on
the following terms and conditions:
1. Grant Under 1995 Director Stock Option Plan. This Option is granted
pursuant to and is governed by the Company's 1995 Director Stock Option Plan
(the "Plan") and, unless the context otherwise requires, terms used herein shall
have the same meaning as in the Plan. Determinations made in connection with
this Option pursuant to the Plan shall be governed by the Plan as it exists on
this date. In the event of any conflict between this Agreement and the
provisions of the Plan, the Plan shall govern.
2. Grant as Non-Qualified Option; Other Options. This Option is
intended to be a non-qualified option (rather than an incentive stock option),
and the Board of Directors intends to take appropriate action, if necessary, to
achieve this result. This Option is in addition to any other options heretofore
or hereafter granted to the Director by the Company, but a duplicate original of
this instrument shall not effect the grant of another option.
3. Option Price. The exercise price for the shares of Common Stock
covered by this Option is $0.41 per share, which represents 100% of the fair
market value of one share of Common Stock on October 26, 1995, calculated
pursuant to paragraph 4(iii) of the Plan.
4. Period of Option. This Option shall expire in ten (10) years after
the date of grant of this Option on October 26, 2005.
5. Vesting of Option. This Option shall be fully vested and exercisable
immediately as of October 26, 1995.
6. Non-transferability. This Option shall not be assignable or
transferable other than by will or the laws of descent and distribution or
pursuant to a domestic relations order and shall be exercisable during the
Director's lifetime only by him.
7. Termination of Option Rights. In the event that the Director ceases
to be a member of the Board by reason of his death or permanent disability, any
unexercised portion of this Option shall be exercisable by the Director (or by
the Director's personal representative, heir or legatee, in the event of death,
or by the person or persons named in a domestic relations order, as the case may
be) until October 26, 2005.
-43-
<PAGE> 2
EXHIBIT 10(z)
8. Exercise of Option. Subject to the terms and conditions of this
Agreement, this Option shall be exercisable in whole or in part by giving
written notice to the Company by mail or in person addressed to National
Transaction Network, Inc., 9 Kane Industrial Drive, Hudson, MA 01749. Such
notice shall state the number of shares with respect to which this Option is
being exercised and shall be accompanied by payment in full for such shares. The
Option price may be paid (a) in United States dollars in cash or by check; (b)
in whole or in part in shares of the Common Stock of the Company already owned
by the person or persons exercising this Option or shares subject to the Option
being exercised (subject to such restrictions and guidelines as the Board may
adopt from time to time), valued at fair market value determined in accordance
with paragraph 4 of the Plan; or (c) consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of this Option and an
authorization to the broker or selling agent to pay that amount to the Company,
which sale shall be at the participant's direction at the time of exercise.
There shall be no such exercise at any one time as to fewer than one hundred
(100) shares or all of the remaining shares then purchasable by the person or
persons exercising this Option, if fewer than one hundred (100) shares. The
Company's transfer agent shall, on behalf of the Company, prepare a certificate
or certificates representing such shares acquired pursuant to exercise of this
Option, shall register the holder of the Option as the owner of such shares on
the books of the Company and shall cause the fully executed certificate(s)
representing such shares to be delivered to the Director as soon as practicable
after payment of the Option price in full. The holder of this Option shall not
have any rights of a stockholder with respect to the shares covered by this
Option, except to the extent that one or more certificates for such shares shall
be delivered to him or her upon the due exercise of this Option. If this Option
is exercised by delivery of shares of Common Stock of the Company, the
certificate or certificates representing the shares of Common Stock of the
Company to be delivered shall be duly executed in blank by the owner of the
shares or shall be accompanied by a stock power fully executed in blank suitable
for purposes of transferring such shares to the Company.
9. Adjustments Upon Changes in Capitalization and Other Matters. It is
the purpose of this Option to encourage the Director to work for the best
interests of the Company and its stockholders. Since, for example, that might
require the issuance of a stock dividend or a merger with another corporation,
the purpose of this Option would not be served if such a stock dividend, merger
or similar occurrence would cause the Director's rights hereunder to be diluted
or terminated and thus be contrary to the Director's interest. The Plan contains
extensive provisions designed to preserve options at full value in a number of
contingencies. Therefore, provisions in the Plan for adjustment with respect to
stock subject to options and the related provisions with respect to successors
to the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.
10. Restrictions on Issuance of Shares. Notwithstanding the provisions
of paragraphs 3 and 11 of the Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of this Option until one
of the following conditions shall be satisfied:
-44-
<PAGE> 3
(i) The shares with respect to which this Option has been exercised are
at the time of the issue of such shares effectively registered under
applicable Federal and state securities laws as now in force or hereafter
amended; or
(ii) counsel for the company shall have given an opinion that such
shares are exempt from registration under federal and state securities
laws as now in force or hereafter amended; and the company has complied
with all applicable laws and regulations with respect thereto, including
without limitation all regulations required by any stock exchange upon
which the company's outstanding common stock is then listed.
11. Legend on certificates. because the director is an "affiliate" of
the company (as defined in rule 144 promulgated under the securities act of
1933), each stock certificate representing shares of common stock issued
pursuant to this option shall have affixed thereto a legend substantially in the
following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SUCH
SHARES ARE REGISTERED UNDER THE ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE CORPORATION, IS OBTAINED TO THE EFFECT THAT
SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT."
12. Representations of Director. The Director hereby represents that he
has read the Plan, a copy of which is attached hereto as Exhibit A. In addition,
by acceptance of this Option, the Director agrees that a purchase of shares
under this Option will be made for investment and not with a view to their
distribution (as that term is used in the Securities Act of 1933, as amended).
If requested by the Company, the Director hereby agrees to deliver to the
Company upon exercise of this Option, written representations and warranties
that are necessary to show compliance with Federal and state securities laws.
13. Withholding of Taxes. Upon the exercise of this Option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the Director to pay withholding taxes in respect of amounts considered
to be compensation includible in the Director's gross income.
14. Governing Law. The validity and construction of this Agreement
shall be governed by the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
15. Notice. Any notice required to be given under the terms of this
Option shall be properly addressed to the Company at its principal executive
offices, and to the Director at his address set forth below, or at such other
address as either of such parties may hereafter designate in writing to the
other.
-45-
<PAGE> 4
16. Enforceability. This Option shall be binding upon the Director, and
any direct or indirect transferee, and the estates, personal representatives and
beneficiaries of the Director.
IN WITNESS WHEREOF, the Company and the Director have caused this
instrument to be executed, and the Director whose signature appears below
acknowledges receipt of a copy of the Plan and acceptance of an original copy of
this Agreement.
NATIONAL TRANSACTION NETWORK, INC.
By: ___________________________________
Title:__________________________________
By:___________________________________
Name
Address
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<PAGE> 1
EXHIBIT 11
NATIONAL TRANSACTION NETWORK, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
PRIMARY:
Weighted average number of common
and common equivalent shares
outstanding:
Common stock 2,471 3,249 3,249
Common equivalent shares resulting
from options
----- ------- ------
Total 2,471 3,249 3,249
===== ======= ======
Income (loss) before extraordinary item 10 (1,236) (89)
Extraordinary item
----- ------- ------
Net income (loss) 10 (1,236) (89)
===== ======= ======
Income (loss) per common share:
Before extraordinary item 0.00 (0.38) (0.03)
Extraordinary item
----- ------- ------
Net income (loss) 0.00 (0.38) (0.03)
===== ======= ======
FULLY DILUTED:
Weighted average number of common and
common equivalent shares
outstanding:
Common stock 2,471 3,249 3,249
Common equivalent shares resulting
from options
Common shares resulting from conversion
of long term debt to stockholders 962
----- ------- ------
Total 3,433 3,249 3,249
===== ======= ======
Income (loss) before extraordinary item 10 (1,236) (89)
Interest on convertible debt, net of income
taxes 175
----- ------- ------
Income (loss) before extraordinary
item - adjusted 185 (1,236) (89)
===== ======= ======
Extraordinary item 0 0 0
Additional benefit of net operating loss
carryforwards
----- ------- ------
Extraordinary item - adjusted 0 0 0
===== ======= ======
Net income (loss) - adjusted 185 (1,236) (89)
===== ======= ======
Income (loss) per common share:
Before extraordinary item 0.05 (0.38) (0.03)
Extraordinary item
----- ------- ------
Net income (loss) 0.05 (0.38) (0.03)
===== ======= ======
</TABLE>
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<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-66732 on Form S-8 of our report dated March 8, 1996 (March 21, 1996, as to
the second paragraph of Note 2), appearing in the Annual Report on Form 10-K of
National Transaction Network, Inc. for the year ended December 31, 1995.
Deloitte & Touche LLP
Boston, Massachusetts
March 22, 1996
-48-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315999
<NAME> 0
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 407,257
<SECURITIES> 0
<RECEIVABLES> 1,484,222
<ALLOWANCES> (100,000)
<INVENTORY> 274,159
<CURRENT-ASSETS> 2,092,485
<PP&E> 709,139
<DEPRECIATION> (460,605)
<TOTAL-ASSETS> 2,344,698
<CURRENT-LIABILITIES> 1,095,453
<BONDS> 0
<COMMON> 487,291
0
0
<OTHER-SE> 761,954
<TOTAL-LIABILITY-AND-EQUITY> 2,344,698
<SALES> 8,006,417
<TOTAL-REVENUES> 8,006,417
<CGS> 4,593,041
<TOTAL-COSTS> 4,593,041
<OTHER-EXPENSES> 3,518,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (88,701)
<INCOME-TAX> 0
<INCOME-CONTINUING> (88,701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88,701)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
