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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-20270
THE NATIONAL REGISTRY INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4346070
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization.) Identification No.)
2501 118th Avenue North, St. Petersburg, Florida 33716
(Address of principal executive offices and zip code)
(813) 573-3353
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year
if changed since last report)
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 [ ]
There were 34,286,005 shares of outstanding Common Stock of the registrant
as of November 14, 1996.
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<PAGE>
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PART 1 - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
September 30, December 31,
ASSETS 1996 1995
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 2,432 $ 178
Receivables 553 21
Prepaid expense 103 182
Deferred charges 34 159
Inventory -- 143
Note receivable-related party 60 60
Other -- 12
-------- --------
Total current assets 3,182 755
-------- --------
Equipment
Computer equipment 2,448 1,848
Office Equipment and other 342 215
-------- --------
2,790 2,063
Less accumulated depreciation (1,682) (1,323)
-------- --------
1,108 740
-------- --------
Investment 105 105
======== ========
TOTAL ASSETS $ 4,395 $ 1,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 793 $ 510
-------- --------
Total current liabilities 793 510
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value
Authorized - 75,000,000 shares
Issued and outstanding - 34,286,005 and
24,244,253 as of September 30, 1996 and
December 31, 1995, respectively 315 242
Preferred stock, $.01 par value convertible
Authorized - 1,000,000 shares
Issued and outstanding - 100,000 shares as of
September 30, 1996 and December 31, 1995,
respectively (liquidation preference of $100
per share) 1 1
Capital in excess of par value 33,942 26,475
Deficit accumulated in the development stage (30,523) (25,376)
Unamortized deferred compensation (133) (252)
-------- --------
3,602 1,090
======== ========
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 4,395 $ 1,600
======== ========
See accompanying notes.
2
<PAGE>
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
From October
23, 1991 to
September
30, 1996
Three months Ended Nine Months Ended (Inception
September 30, September 30, to
1996 1995 1996 1995 Date)
----------- --------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Net Sales $384 $152 $1,827 $182 $2,228
Cost of Sales 270 109 1,100 129 1,374
----------- --------- ---------- --------- ---------------
Gross Profit 114 43 727 53 854
----------- --------- ---------- --------- ---------------
Operating Expenses:
Selling and marketing 664 379 1,903 746 7,933
Royalty Fee 125 125 375 375 2,250
Product development 405 539 1,161 1,544 9,035
General and administrative 851 431 2,435 1,298 12,767
----------- --------- ---------- --------- ---------------
Total Operating Expenses 2,045 1,474 5,874 3,963 31,985
Other Income:
Interest Income 41 12 162 71 770
=========== ========= ========== ========= ===============
Net Loss ($1,890) ($1,419) ($4,985) ($3,839) ($30,361)
=========== ========= ========== ========= ===============
Loss per common share and common
share equivalent ($ 0.07) ($0.06) ($0.19) ($0.17) ($1.52)
Weighted average number of 28,436 24,112 26,014 22,925 19,919
common shares and common share
equivalents outstanding
</TABLE>
See accompanying notes.
3
<PAGE>
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
From October
Nine Months Ended 23, 1991
September 30, (Inception) to
September 30,
Cash used in operating activities: 1996 1995 1996
------------- ---------- ------------------
<S> <C> <C> <C>
Net Loss ($4,985) ($3,839) ($30,361)
Adjustments to reconcile net loss to net
cash used in operating activities:
Compensation applicable to stock 119 251 3,208
option grants
Compensation applicable to stock gifts
by principal stockholder -- -- 195
Compensation applicable to Phoenix stock grant -- -- 183
Compensation applicable to Cogent warrents -- -- 176
Compensation applicable to Cogent stock -- -- 250
Depreciation 359 433 2,171
Compensation applicable to transfer of stock -- -- 9
Expenses paid by Home Shopping Network -- -- 647
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (532) -- (532)
Prepaid expense 79 80 (103)
Deferred charges 125 (134) (34)
Inventory 143 -- --
Note from related party -- -- (60)
Other assets 12 (130) (15)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 283 52 794
------------- ---------- ------------------
Net cash used in operating activities (4,397) (3,287) (23,472)
------------- ---------- ------------------
Cash used in investing activities:
Additions to organizational costs -- -- (6)
Purchase of equipment (727) (366) (3,100)
Loss on disposal of equipment, net of cash -- 15 --
Increase in investments -- -- (105)
------------- ---------- ------------------
Net cash used in investing activities (727) (351) (3,211)
------------- ---------- ------------------
Cash provided by financing activities:
Proceeds from issuance of common stock 244 4,230 12,311
Proceeds from issuance of preferred stock 7,134 -- 12,134
Capital contributions from related parties -- -- 4,660
------------- ---------- ------------------
Net cash provided by financing activities 7,378 4,230 29,105
------------- ---------- ------------------
Net increase in cash and cash equivalents 2,254 592 2,422
Cash and cash equivalents at beginning of period 178 645 --
Cash received from merger -- 10
============= ========== ==================
Cash and cash equivalents at end of $2,432 $1,237 $2,432
period ============= ========== ==================
</TABLE>
See accompanying notes
4
<PAGE>
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THE NATIONAL REGISTRY INC.
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(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and condensed and,
therefore, do not contain certain information included in the annual financial
statements of The National Registry Inc. (the "Company). In the opinion of
management, all adjustments (consisting only of normally recurring accruals) it
considers necessary for a fair presentation have been included.
The Company's condensed consolidated interim financial results are not
necessarily indicative of results to be expected for a full fiscal year and
should be read in conjunction with its financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as filed with the Securities and Exchange Commission on
March 29, 1996, and as amended in Amendment No. 1 to Form 10-K/A on June 30,
1996.
2. Principles of Consolidation
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany transactions have
been eliminated in consolidation.
3. Net Loss per Common Share
For the three and nine months ended September 30, 1996 and 1995, and for
the period October 23, 1991 (inception) to September 30, 1996, the loss per
common share was computed by dividing net loss by the weighted average number of
shares of common stock, par value $.01 per share (the "Common Stock"),
outstanding during the period. Due to their anti-dilutive effect, the following
shares were not included in the calculation: (1) common share equivalents,
relating to the assumed conversion of the Series A Preferred into 6,336,154
shares of Common Stock, (2) exercise of certain vested stock options to purchase
up to 2,825,334 shares of Common Stock and (3) exercise of certain warrants to
purchase up to 359,785 shares of Common Stock of the Company.
5
<PAGE>
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Stockholders' Equity
On January 29, 1996, the Company completed an equity financing pursuant to
which certain investors purchased from the Company 800 shares of Series B
Preferred Stock for an aggregate purchase price of $8.0 million before
commissions and expenses (the "Series B Preferred Stock Private Placement"). The
Series B Preferred Stock carried an eight percent per annum accretion which the
Company treated as a dividend resulting in a charge to accumulated deficit and a
credit to capital in excess of par value. For the nine months ended September
30,1996 the Company recorded an aggregate of $162,000 of accretion to the Stated
Value. During the nine months ended September 30, 1996, all 800 shares of Series
B Preferred Stock were converted into an aggregate of 9,926,252 shares of Common
Stock.
In connection with the Series B Preferred Stock Private Placement, the
Company issued to Swartz Investments, LLC, the placement agent involved in the
Series B Preferred Stock Private Placement, warrants to purchase 284,585 shares
of Common Stock at an exercise price of $2.53 per share. Such warrants are
exerciseable at any time and expire on January 29, 2001. The Company has also
agreed to certain registration rights with respect to such warrants.
On February 20, 1996, the Company filed a registration statement to
register certain shares of Common Stock issuable upon conversion of certain
shares of Series B Preferred Stock, certain shares of Common Stock held by
certain selling stockholders named in such registration statement and certain
shares of Common Stock issuable upon the exercise of certain warrants.
6
<PAGE>
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
ITEM 2. MANAGEMENTS DISCUSSIONS AND ANALSYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Forward Looking Statements
Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking statements" as
defined in Section 21E of the Securities Exchange Act of 1934 which involve
certain risks and uncertainties which could cause actual results to differ
materially from those discussed herein. Such risks and uncertainties include,
but are not limited to, the Company's limited operating history, the Company
being a development stage company, the Company's need for additional funds,
technological and market uncertainty, competition, the Company's dependence upon
a software licensor, the Company's dependence on patents and other proprietary
rights, control of the Company, the possibility of liquidation or bankruptcy of
the Company, NASDAQ SmallCap Market eligibility and maintenance requirements,
the possible delisting of the Company's Common Stock from the NASDAQ SmallCap
Markets, shares of the Company's capital stock eligible for future public sale,
the limited liquidity of the Common Stock and the market price volatility of the
Common Stock. See the relevant discussions elsewhere herein, and in the
Company's registration statement on Form S-3 (Registration No. 333-1510), as
amended on July 3, 1996, and the Company's periodic reports and other documents
filed with the Securities and Exchange Commission for further discussions of
these and other risks and uncertainties applicable to the Company and its
business.
Recent Developments
During the three months ended September 30, 1996, the Company entered into
the contracts and arrangements discussed below. There can be no assurance that
any pilot programs discussed below will be successful, if successful those sales
will result therefrom or that any future sales will be profitable for the
Company. In addition, there can be no assurance that any of the value added
reseller agreements or other contracts or arrangements will result in any sales
to the Company or if sales do result, that such sales will be profitable for the
Company.
The SARASOTA MEMORIAL HOSPITAL in Sarasota, Florida, has agreed to
initiate a pilot program to evaluate the efficacy of the Company's finger
imaging technology in securing access to computerized hospital records.
The pilot program is set to begin in November 1996 and will continue
through the end of the year. Initial application of such technology is
expected to be through a computer screen saver secured by finger imaging
to be implemented with the physicians' sign-in application.
7
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
DYNAMIC HEALTHCARE TECHNOLOGIES, INC., of Maitland, Florida, has
entered into a value-added reseller agreement with the Company. Dynamic
Healthcare Technologies has agreed to offer NRIdentity(TM) finger imaging
technology as an enhanced security option to Dynamic's Dynamic VisionTM
Virtual Electronic Health Record, a multi-media electronic record that
offers immediate, real-time access to patient records which reside in
distributed databases.
MID-SOUTH DATA INDUSTRIES, INC., located in Birmingham, Alabama,
signed a value-added reseller agreement with the Company. Mid-South Data
is a systems integrator specializing in "connectivity" -- WAN's and LAN's
-- in image processing, and in professional support services. Mid-South
Data has agreed to incorporate NRI's products into the systems it provides
in order to provide security and confidentiality of data and to secure
access to networks.
GRIDNET, INTERNATIONAL, entered into an agreement with the Company
in September 1996 pursuant to which GridNet has agreed to incorporate the
Company's finger image authentication as an integrated feature of the
GRID, GridNet's asynchronous transfer mode (ATM) backbone computer
network.
SYLVAN PROMETRIC, the computer-based testing division of Sylvan
Learning Systems, Inc., has agreed to evaluate the Company's
NRIdentity(TM) Personal Authentication Scanners, Software Solution Sets,
and technical services for the possible integration of such technology
into Sylvan's security-sensitive testing programs. Sylvan Learning Systems
is the global leader in computer-based testing for academic assessment,
technical proficiency certification, and professional licensing.
PURDUE EMPLOYEES Federal Credit Union in West Lafayette, Indiana
entered into an agreement with the Company in July 1996 to incorporate the
Company's NRIdentity(TM) finger imaging technology at a new unattended
"virtual" branch office which site will be utilized to conduct a broad
range of financial transactions. The virtual branch will support a full
range of member services normally available only at a traditional branch
office. The Company's software will be used to secure all customer
transactions by verifying the identity of Purdue Credit Union members
using the computer-based systems at the unattended branch.
8
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
A. Results of Development Activities
For the three and nine months ended September 30, 1996, the Company
incurred a net loss of $1,890,000 and $4,985,000, respectively, resulting in a
loss per common share of $0.07 and $0.19 for the three months and nine months,
respectively, ended September 30, 1996. This compares with a net loss for the
three and nine months ended September 30, 1995 of $1,419,000 and $3,839,000,
respectively, resulting in a loss per common share of $0.06 and $0.17 for the
three months and nine months, respectively, ended September 30, 1996.
Approximately $513,000 of the net loss in the nine month period ended September
30, 1996, and $684,000 of the net loss in the nine month period ended September
30, 1995, were attributable to non-cash charges to income, including
depreciation and the issuance of certain stock options.
Revenue and Gross Profit
For the three and nine months ended September 30, 1996, the Company
reported operating revenues of $384,000 and $1,827,000, respectively. This
compares with operating revenues of $152,000 and $182,000 for the three and nine
months ended September 30, 1995. These represent increases of 153% and 904%, for
the three and nine month periods, respectively, versus the comparable periods in
1995. The increases are primarily due to the additions of a welfare fraud
control contract with the State of New Jersey in August 1995 (representing
revenue of approximately $67,000 per month through January 1997), a welfare
fraud control contract with the State of Connecticut in January 1996
(representing revenue of approximately $1,037,000 for the nine months ended
September 30, 1996), and a pilot finger imaging contract with the State of
Massachusetts in August 1996 (representing one-time revenue of $75,000).
Revenues for the Connecticut contract are anticipated to be approximately
$13,000 per month for the balance of 1996 and $15,000 per month for the
remaining two years of the contract.
The Company's gross margin percentage declined from 46.5% in the first
quarter of 1996 to 30% in the second quarter and for the three months ended
September 30, 1996 due to sales of software with higher margins in the first
quarter compared to the sale of services in the second and third quarters. The
operating revenues and gross profit for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results for the balance
of 1996 or any other future period.
9
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
Operating Expenses
Total operating expenses for the three and nine months ended September 30,
1996, increased over the same periods in 1995 by $571,000, and $1,911,000,
respectively. This represents increases of 39% and 48% for the three and nine
month periods, respectively, versus the comparable periods in 1995. The increase
for the quarter ended September 30, 1996 was primarily due to increases in
selling and marketing expense primarily due to hiring of individuals to seek to
develop strategic relationships and secure new contracts, increases in general
and administrative expense primarily due to the hiring of additional staff,
increases in corporate communications expense, offset by decreases in Product
Development expenses associated with development of the NRIdentity(TM) Personal
Authentication Scanner devices and decreases in depreciation expense for
equipment which became fully depreciated in 1995. Operating expenses, including
the functional areas of selling and marketing, and general and administrative,
are expected to increase for the remainder of the year and the foreseeable
future as the Company attempts to secure new contracts, develop strategic
relationships and continue development of its technology.
The following table sets forth certain changes in operating
expenses, including the absolute dollar and percentage changes, for the three
and nine month periods ended September 30, 1996, as compared to the same period
in 1995:
Changes in Operating Expenses
- -----------------------------
Changes in Operating Expenses
-----------------------------
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
(in thousands, except %)
$ % $ %
Change Change Change Change
--------- --------- --------- ---------
Selling and marketing $285 75% $1,157 155%
Product development (134) (25) (383) (25)
General and administrative 420 97 1,137 88
========= ========= ========= =========
$571 39% $1,911 48%
========= ========= ========= =========
10
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
Selling and Marketing
Sales and marketing expense increased $285,000, or 75%, and $1,157,000, or
155%, for the three and nine months ended September 30, 1996, respectively,
compared to the same periods in 1995 primarily due to increases in employee and
consulting expenses, travel expense and advertising expense.
The Company is engaged in marketing its biometric finger image
identification technology to a wide range of potential commercial markets
including computer network access security, protecting medical and financial
records, facilitating electronic commerce, enhancing customer service in
banking, deterring check fraud and on-line fraud, healthcare and the travel
industry, deterring fraud in government social services programs and others.
While the Company has received some favorable responses from a limited number of
potential commercial customers there can be no assurance that the Company will
be able to secure contracts for its products and services in any of such
commercial markets or, if it is able to secure such contracts, any of such
contracts will prove to be profitable for the Company.
Product Development
Product development expenses for the three and nine months ended September
30, 1996, decreased $134,000, or 24%, and $383,000, or 24%, respectively,
compared to the same periods in 1996 due primarily to decreases in employee and
consulting expenses associated with the completion of the development of low
cost optical scanning computer peripheral products, designed to, among other
things, optically scan a user's fingerprint and decreases in depreciation
expense of equipment purchased in 1992 which was fully depreciated in 1995.
The Company's strategy has been to develop low-cost Microreader
fingerprint scanners that capture an image of an individual's fingerprint and
convert the resulting signal into digital form. During the three months ended
September 30, 1996, the Company announced the completion of a new family of
NRIdentity(TM) Personal Authentication Scanner devices, including a desktop
scanner, a keyboard scanner, and an external dual-channel frame grabber (image
digitizer). Both scanners make use of optical and electronic technology
developed by the Company for the Microreader series of low-cost scanning
devices. NRIdentity(TM) scanners are manufactured by Key Tronic Corporation
under a developmental joint venture agreement dated December 14, 1995. Under
this agreement, the Company licensed certain optical and electronic technology
to Key Tronic for the development, manufacture and marketing of computer
keyboards and other computer attached desktop peripheral devices incorporating
such technology.
11
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
The Company will continue its research and development efforts in
connection with its software and hardware scanning technologies, rather than
focusing on the manufacture of fingerprint imaging scanning devices. The Company
believes it will benefit by not having to manufacture scanning devices and by
focusing its research and development resources on continuing to develop its
fingerprint imaging technology and exploring new biometric technologies.
Although the Company's sales efforts are not dependent upon the successful
development of scanning devices, the Company believes that the continued
development and marketing of NRIdentity(TM) Personal Authentication Scanner
devices will give the Company a competitive advantage in selling its
finger-image identification software and systems.
There is no assurance that the Company will successfully develop additional
scanner technology, or that the Company, its licensee Key Tronic Corporation or
any other person or entity will successfully market any keyboards or peripheral
devices incorporating the Company's technology.
General and Administrative
For the three and nine months ended September 30, 1996, general
administrative expenses increased $420,000, or 97%, and $1,137,000, or 87%,
respectively, compared to the same period in 1995 due primarily to increases in
employee and consulting expenses due to the hiring of various management
personnel, increases in expenses related to corporate communications, and
increases in various other expenses associated with increased personnel. The
Company expects that the trend of increased general and administrative expenses
will continue if the Company is successful in selling and marketing its products
and services.
B. Liquidity and Capital Resources
Cash and working capital as of September 30, 1996, was $2,432,000 and
$2,389,000, respectively, as compared to $178,000 and $245,000, respectively, as
of December 31, 1995 and $1,237,000 and $1,235,000, respectively, as of
September 30, 1995. This represents an increase from the Company's cash and
working capital as of December 31, 1995, of $2,254,000 and $2,144,000,
respectively, and an increase from that as of September 30, 1995, of $1,195,000
and $1,154,000, respectively.
12
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
The increase in the Company's cash and working capital as of September 30,
1996, from that as of September 30, 1995 primarily relates to $7,378,000 in
capital contributions from the equity financing described below and exercise of
certain employee stock options offset, in part, by cash operating expenses and
certain capital additions. The increase in the Company's cash and working
capital as of September 30, 1996 from that as of December 31, 1995, primarily
relates to $7,378,000 in capital contributions offset, in part, by cash
operating expenses and certain capital additions made during 1996.
The Company anticipates additional 1996 capital expenditures of at least
$75,000 to support anticipated growth in personnel, purchase computer hardware
to support various product development projects and support additional
development of the NRIdentity(TM) Personal Authentication Scanner. The Company
estimates additional capital expenditures during the first six months of 1997 of
approximately $400,000 to support development and production of the
NRIdentity(TM) Personal Authentication Scanner.
On January 29, 1996, the Company completed an equity financing (the
"Series B Preferred Stock Private Placement") pursuant to which certain
investors purchased from the Company 800 shares of Series B Preferred Stock for
an aggregate purchase price of $8.0 million before commissions and expenses
(estimated at approximately $795,000 in the aggregate). The Series B Preferred
Stock carried an eight percent per annum accretion which the Company treated as
a dividend resulting in a charge to accumulated deficit and a credit to capital
in excess of par value. For the nine months ended September 30,1996 the Company
recorded an aggregate of $162,000 of accretion to the stated value. During the
nine months ended September 30, 1996, all 800 shares of Series B Preferred Stock
were converted into an aggregate of 9,926,252 shares of Common Stock.
In connection with the Series B Preferred Stock Private Placement, the
Company issued to Swartz Investments, LLC, the placement agent involved in the
Series B Preferred Stock Private Placement, warrants to purchase 284,585 shares
of Common Stock at an exercise price of $2.53 per share. Such warrants are
exerciseable at any time and expire on January 29, 2001. The Company has also
agreed to certain registration rights with respect to such warrants.
On February 20, 1996, the Company filed a registration statement to
register certain shares of Common Stock issuable upon conversion of certain
shares of Series B Preferred Stock, certain shares of Common Stock held by
certain selling stockholders named in such registration statement and certain
shares of Common Stock issuable upon the exercise of certain warrants.
13
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
On May 24, 1994, the Company, Blue Cross Blue Shield of New Jersey, Inc.
("BCBSNH") and a wholly owned subsidiary of BCBSNH entered into the Stockholders
Agreement pursuant to which the parties agreed to form a corporation jointly
owned by the Company and such BCBSNJ subsidiary, BIOMETRX, Inc. ("BIOMETRX"),
for the purpose of marketing the Company's finger image identification
technology to, among other markets, the healthcare industry nationwide and to
certain governmental agencies in New Jersey. The Company and BCBSNJ have each
agreed to loan up to $300,000 to BIOMETRX for working capital purposes Through
November 13, 1996, the Company and BCBSNJ have each loaned $60,000 to BIOMETRX
to fund preliminary organizational and development activities. As of November
13, 1996, BIOMETRX has not commenced operations. There is no assurance that
BIOMETRX will commence operations or, if it commences operations, when such
operations will commence and whether such operations will be successful in the
marketing of any systems, services, or products.
Management believes that the adequacy of its cash resources will be
dependent on its ability to achieve sales and obtain additional capital to
complete the development and marketing of its finger image identification
systems and services. There can be no assurance that the Company will be able to
complete significant additional sales of its systems or services during 1996.
The Company continues to spend net cash at a recurring rate of approximately
$600,000 to $700,000 per month (including capital expenditures). The Company
believes that its existing working capital, together with anticipated cash flows
from operations and other funding sources will be sufficient to meet its
expected working capital needs through the remainder of 1996. However, the
Company will require additional funds thereafter to continue, among other
things, development, testing, and marketing of its finger image identification
systems and services and to maintain its operations. There is a significant
likelihood that such additional funds will not be available on terms acceptable
to the Company, if at all. It is likely that any such additional infusion of
capital would be in the form of the sale and issuance of additional shares of
Common Stock, or other securities convertible into or exercisable for Common
Stock which would substantially increase the number of shares of Common Stock
outstanding on a fully-diluted basis. The failure to obtain such additional
funds may cause the Company to cease or curtail operations. Even if such
additional funding is obtained, there can be no assurance that the Company will
be able to complete developing and testing of its systems and services or, if
completed, that it will be able to consummate significant sales of its systems
or services or if the Company is able to consummate significant sales, that any
such sales would be profitable.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On September 9, 1996, David E. Brogan was hired as the Treasurer,
Controller and Vice President of Finance of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (Electronic filing only)
(b) Reports on Form 8-K
None
15
<PAGE>
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.
THE NATIONAL REGISTRY INC.
DATE: November 14, 1996 BY: /s/David E. Brogan
--------------------------
David E. Brogan
Treasurer and Controller
(duly authorized officer and
principal financial officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE NATIONAL REGISTRY INC., FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
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