FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-10966
NATIONAL TRANSACTION NETWORK, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 75-1535237
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
117 Flanders Road
Westborough, Massachusetts 01581
-------------------------- -----
(Address of principal executive offices) (Zip Code)
(508) 870-3200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $.15
par value per share, outstanding as of May 13, 1997: 3,248,606 shares.
NATIONAL TRANSACTION NETWORK, INC.
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
March 31, 1997 and December 31, 1996 3
Statements of Operations
Three months ended March 31, 1997 and 1996 5
Statements of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION 11
Signatures 12
2
PART I - FINANCIAL STATEMENTS
ITEM I. FINANCIAL STATEMENTS
- ----------------------------
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 152,000 $ 266,045
Accounts receivable
(Net of allowance for doubtful accounts
of $100,000 at March 31, 1997
and December 31, 1996) 1,228,610 1,406,113
Accounts receivable-stockholder 156,050
Inventory 272,579 233,590
Prepaid expenses 42,746 36,394
---------- ----------
TOTAL CURRENT ASSETS 1,851,985 1,942,142
---------- ----------
PROPERTY AND EQUIPMENT 807,829 785,051
Less accumulated depreciation
and amortization (607,971) (578,032)
---------- ----------
PROPERTY AND
EQUIPMENT - NET 199,858 207,019
---------- ----------
OTHER ASSETS 15,601 11,931
---------- ----------
TOTAL $2,067,444 $2,161,092
========== ==========
</TABLE>
See Notes to Financial Statements.
3
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 456,896 $ 497,569
Accounts payable-stockholder 151,286 95,287
Accrued liabilities 404,027 348,786
Deferred revenue 537,186 561,982
Short term portion of capital lease 11,799 9,224
---------- ----------
TOTAL CURRENT LIABILITIES 1,561,194 1,512,848
---------- ----------
LONG TERM LIABILITIES:
Long term portion of capital lease 9,478 12,053
Deferred revenue 1,125 1,941
---------- ----------
TOTAL LONG TERM LIABILITIES 10,603 13,994
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value;
authorized, 5,000,000 shares;
none outstanding
Common stock, $.15 par value;
authorized, 6,666,667 shares;
issued and outstanding, 3,248,606
shares at March 31, 1997 and
December 31, 1996 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Accumulated Deficit (12,580,899) (12,442,296)
---------- ----------
TOTAL STOCKHOLDERS'
EQUITY 495,647 634,250
---------- ----------
TOTAL $2,067,444 $2,161,092
========== ==========
</TABLE>
See Notes to Financial Statements.
4
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Systems and equipment $ 576,265 $ 854,307
Software and services 645,888 513,814
---------- ----------
Total 1,222,153 1,368,121
---------- ----------
COST AND EXPENSES:
Cost of revenue 611,581 720,194
Sales and marketing 261,998 276,483
Research and development 247,983 244,621
General and administrative 240,940 206,019
---------- ----------
Total 1,362,502 1,447,317
---------- ----------
LOSS FROM OPERATIONS (140,349) (79,196)
---------- ----------
OTHER INCOME :
Interest income 1,746 3,110
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Total 1,746 3,110
---------- ----------
NET LOSS ($138,603) ($76,086)
========== ==========
NET LOSS PER COMMON SHARE ($0.04) ($0.02)
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,248,606 3,248,606
========== ==========
</TABLE>
See Notes to Financial Statements.
5
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ($138,603) ($ 76,086)
-------- --------
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 29,939 25,759
Increase (decrease) in cash from:
Accounts receivable 177,503 166,333
Accounts receivable-stockholder (156,050)
Inventory (38,989) 43,965
Prepaid expenses (6,352) (9,400)
Other Assets (3,670) (1,280)
Accounts payable-stockholder 55,999
Accounts payable and accrued
liabilities 14,568 (85,731)
Deferred revenue (25,612) 337,366
-------- --------
Total adjustments 47,336 477,012
-------- --------
Net cash provided by (used for) operating activities (91,267) 400,926
-------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment (22,778) (49,076)
-------- --------
Net cash used for investing activities (22,778) (49,076)
-------- --------
Net increase (decrease) in cash and
equivalents (114,045) 351,850
Cash and Equivalents, Beginning of Period 266,045 407,257
-------- --------
Cash and Equivalents, End of Period $152,000 $759,107
======== ========
</TABLE>
See Notes to Financial Statements.
6
TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Form 10-K for the year ended December 31,
1996 which should be read in conjunction with these statements. In the
opinion of the Company, the statements include all adjustments necessary
for a fair presentation of the quarterly results.
2. The results of operations for the three month period ended March 31, 1997
are not necessarily indicative of the results to be expected for the full
year.
3. On September 13, 1996, International Verifact Inc. ("IVI") acquired
beneficial ownership of approximately 84% of the outstanding common stock,
$.15 par value, of the Company in a private transaction. IVI acquired such
shares in exchange for IVI common shares having an aggregated market value
of approximately $1,254,000.
4. Net loss per common share is computed based on the weighted average number
of common shares outstanding during each quarter. Shares issuable upon
exercise of outstanding stock options have been excluded from the
computations since their effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which the Company will adopt in the fourth quarter of 1997. Had
SFAS No. 128 been effective for the quarters ended March 31, 1997 and March
31, 1996, basic and diluted net loss per share under SFAS No. 128 would
have been the same as the reported net loss per common share.
5. In March 1997, the Company renewed its working capital line of credit with
its bank through January 4, 1998. Maximum available borrowings under the
line are the lesser of $750,000 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 bank's
prime rate plus 1.5%, are secured by the Company's assets, and are
guaranteed by IVI. At March 31, 1997, there were no borrowings outstanding
under the credit line. Borrowing availability under the credit line was
$661,515 at March 31, 1997.
7
6. The Company accounts for Research and Development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
It is the Company's policy to capitalize costs relating to the development
of its products once technological feasibility has been achieved until such
time when products are available for general release to customers, provided
that the recoverability of such costs is reasonably assured through
expected sales revenue less related selling expenses. For the quarter ended
March 31, 1997, there were no costs incurred that required capitalization.
Upon availability of products for general release to customers, any related
capitalized development costs are amortized over a suitable period based on
the products' estimated economic life.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Revenue for the quarter ended March 31, 1997 decreased by 10.7% to
$1,222,153 compared to $1,368,121 for the quarter ended March 31, 1996. The
decrease in revenue for the quarter was primarily due to the installation of a
large number of the Company's systems by a significant customer in the quarter
ended March 31, 1996 relating to the automation of consumer payment options
involving electronic food stamps. Furthermore, as a result of resource
constraints, the Company has been delayed in its ability to deliver new payment
system products to meet the new technology demands of several customers and
prospects. Management believes, however, that the recent acquisition of
approximately 84% of the Company's outstanding common stock by IVI makes
available the additional resources of IVI needed by the Company to expand the
development and marketing of its products and services.
Gross margins as a percent of revenue were 50.0% for the quarter ended
March 31, 1997 compared to 47.4% for the quarter ended March 31, 1996. The
increase in gross margin percentages between the two quarterly periods was
primarily due to a shift in mix between hardware, software, and professional
services revenues. For the quarter ended March 31, 1997, higher margin software
and professional services revenue accounted for approximately 53% of total
revenue compared to approximately 38% of total revenue for the quarter ended
March 31, 1996.
Total operating expenses for the quarter ended March 31, 1997 increased
by 3.3% compared to the quarter ended March 31, 1996. Sales and marketing
expenses in the first quarter of 1997 decreased by 5.2% to $261,998 compared to
$276,483 in the first quarter of 1996. The decrease in sales and marketing
expenses related to decreases in compensation and fringe benefit expenses and
occupancy expense allocations, primarily resulting from the assignment of
certain personnel and related expenses previously assigned to sales and
marketing expenses in the quarter ended March 31, 1996 to costs of goods sold in
the quarter ended March 31, 1997.
Research and development expenses increased by 1.4% to $247,983 for the
quarter ended March 31, 1997 compared to $244,621 for the quarter ended March
31, 1996. Increases in research and development expenses between the two
quarterly periods were incurred for outside consulting expenses due to the
utilization of contract programmers, recruiting expenses related to the hiring
of additional research and development staff, and software support contracts for
new software development tools. These increases were partially offset by
decreases in compensation and fringe benefits expenses, travel and entertainment
expenses, and occupancy expense allocations resulting from attrition of research
and development personnel during 1996.
9
General and administrative expenses increased by 17.0% to $240,940 for
the quarter ended March 31, 1997 compared to $206,019 for the quarter ended
March 31, 1996. Increases in compensation, fringe benefit, and travel and
entertainment expenses related to certain management personnel changes made
immediately following the acquisition in September 1996 of approximately 84% of
the Company's common stock by IVI. In addition, an increase in outside services
expense resulted primarily from the utilization of an outside consultant
assisting the Company with business expansion and company acquisition
initiatives.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash balances at March 31, 1997 were $152,000 compared to $266,045 at
December 31, 1996. Net cash used for operating activities was $91,267 for the
quarter ended March 31, 1997. The net loss for the quarter ended March 31, 1997
primarily accounted for the cash used by operations during the quarter. Net cash
used in investing activities for the quarter ended March 31, 1997 totaled
$22,778 and represented primarily capital equipment expenditures, principally
for computer and office equipment.
In March 1997, the Company renewed its working capital line of credit
with its bank through January 4, 1998. Maximum available borrowings under the
line are the lesser of $750,000 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 bank's
prime rate plus 1.5%, are secured by the Company's assets, and are guaranteed by
IVI. At March 31, 1997, there were no borrowings outstanding under the credit
line. Borrowing availability under the credit line was $661,515 at March 31,
1997.
Management believes that sources of liquidity for future needs can be
generated from existing cash balances, cash generated from operations,
borrowings available to the Company under its bank-financed working capital line
of credit, and financial resources made available to the Company from IVI, the
terms of which are pending negotiation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
- ----------------------------------------
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which the Company will adopt in the fourth quarter of 1997. Had SFAS No.
128 been effective for the quarters ended March 31, 1997 and March 31, 1996,
basic and diluted net loss per share under SFAS No. 128 would have been the same
as the reported net loss per common share.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has no material legal proceedings at this time.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the security holders in
the quarter ended March 31, 1997.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL TRANSACTION NETWORK, INC.
DATE: May 13, 1997 By: /s/ L. Barry Thomson
-------------------------------
L. Barry Thomson, Chief Executive
Officer, President and Chairman of the
Board (Principal Executive Officer)
DATE: May 13, 1997 By: /s/ Milton A. Alpern
--------------------------------
Milton A. Alpern, Vice President of
Finance and Administration (Principal
Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 152,000
<SECURITIES> 0
<RECEIVABLES> 1,484,660
<ALLOWANCES> 100,000
<INVENTORY> 272,579
<CURRENT-ASSETS> 1,851,985
<PP&E> 807,829
<DEPRECIATION> 607,971
<TOTAL-ASSETS> 2,067,444
<CURRENT-LIABILITIES> 1,561,194
<BONDS> 0
0
0
<COMMON> 487,291
<OTHER-SE> 8,356
<TOTAL-LIABILITY-AND-EQUITY> 2,067,444
<SALES> 1,222,153
<TOTAL-REVENUES> 1,222,153
<CGS> 611,581
<TOTAL-COSTS> 611,581
<OTHER-EXPENSES> 750,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (138,603)
<INCOME-TAX> 0
<INCOME-CONTINUING> (138,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,603)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
