==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 JUNE 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 (I.R.S. Employer
of incorporation 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 26,444,945 shares of outstanding Common Stock of the registrant
as of August 9, 1996.
================================================================================
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE NATIONAL REGISTRY INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
June 30, December 31,
ASSETS 1996 1995
-------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 3,477 $ 178
Receivables 1,038 21
Prepaid expense 231 182
Deferred charges 100 159
Inventory -- 143
Note receivable-related party 60 60
Other 20 12
-------- --------
Total current assets 4,926 755
-------- --------
EQUIPMENT
Computer equipment 2,052 1,848
Office Equipment and other 479 215
-------- --------
2,531 2,063
Less accumulated depreciation (1,533) (1,323)
-------- --------
998 740
-------- --------
Investment 105 105
-------- --------
TOTAL ASSETS $ 6,029 $ 1,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 562 $ 510
-------- --------
Total current liabilities 562 510
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value
Authorized - 50,000,000 shares
Issued and outstanding - 26,033,268
and 24,244,253 as of June 30, 1996
and December 31, 1995, respectively 261 242
Preferred stock, $.01 par value convertible
Authorized - 1,000,000 shares
Issued and outstanding - 100,510 and 100,000
shares as of June 30, 1996 and December 31,
1995, respectively (liquidation preference
of $100 per share for Series A Preferred
Stock and $10,000 per share for Series B
Preferred Stock) 1 1
Capital in excess of par value 34,097 26,475
Deficit accumulated in the development stage (28,734) (25,376)
Unamortized deferred compensation (158) (252)
-------- --------
5,467 1,090
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,029 $ 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
Three Months Ended Six Months Ended October 23,
June 30, June 30, 1991 to
June 30,
1996
(Inception
to
1996 1995 1996 1995 Date)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue $ 359 $ 18 $ 1,443 $ 31 $ 1,844
Cost of Revenue 251 13 830 20 1,104
-------- -------- -------- -------- --------
GROSS PROFIT 108 5 613 11 740
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Selling and marketing 719 260 1,239 367 7,269
Royalty fees 125 125 250 250 2,125
Product development 433 530 756 1,004 8,630
General and administrative 894 463 1,584 866 11,916
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES 2,171 1,378 3,829 2,487 29,940
OTHER INCOME:
Interest income 63 51 121 60 729
======== ======== ======== ======== ========
NET LOSS ($ 2,000) ($ 1,322) ($ 3,095) ($ 2,416) ($28,471)
======== ======== ======== ======== ========
Loss per common share ($ .08) ($ .05) ($ .12) ($ .11) ($ 1.47)
Weighted average number of common
shares 25,234 24,049 24,784 22,322 19,417
</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
Six Months Ended 23, 1991
June 30, (Inception)
to June 31,
1996 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash used in operating activities:
Net Loss ($ 3,095) ($ 2,416) ($28,471)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensation applicable to stock option 94 136 3,183
grants
Compensation applicable to stock gifts by
principal stockholder -- -- 195
Compensation applicable to Phoenix stock -- -- 183
grant
Compensation applicable to Cogent warrants -- -- 176
Compensation applicable to Cogent stock -- -- 250
Depreciation 210 290 2,022
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 (1,017) -- (1,017)
Prepaid expense (49) 1 (231)
Deferred charges 59 (51) (100)
Inventory 143 -- --
Note from related party -- -- (60)
Other assets (8) (28) (35)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 52 71 563
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (3,611) (1,997) (22,686)
-------- -------- --------
Cash used by investing activities:
Additions to organizational costs -- -- (6)
Purchase of equipment (468) (207) (2,841)
Increase in investments -- -- (105)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (468) (207) (2,952)
-------- -------- --------
Cash provided by financing activities:
Proceeds from issuance of common stock 173 4,230 12,240
Proceeds from issuance of preferred stock 7,205 -- 12,205
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 3,299 2,026 3,467
Cash and cash equivalents at beginning of period 178 645 --
Cash received from merger -- -- 10
======== ======== ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,477 $ 2,671 $ 3,477
======== ======== ========
</TABLE>
See accompanying notes
4
<PAGE>
THE NATIONAL REGISTRY INC.
(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
("SEC") on March 29, 1996, and as amended as of July 3, 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 quarter and six months ended June 30, 1996 and 1995, and for the
period October 23, 1991 (inception) to June 30, 1996, the loss per common share
was computed by dividing the net loss by the weighted average number of shares
of common stock outstanding during the period. Since the Company reported net
losses, the loss per share calculations do not include any common stock
equivalents because their inclusion would be anti-dilutive.
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)
common share equivalents, relating to the assumed conversion of the Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), into
approximately 4,123,000 shares of Common Stock, assuming conversion at June 30,
1996 (but subject to anti-dilution adjustment based upon a discount adjustment
to market price of the Common Stock at the time of conversion and under certain
other circumstances), (3) exercise of certain vested stock options to purchase
up to 2,825,334 shares of Common Stock and (4) 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 the Company issued 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"). Shares of Series B Preferred Stock are
convertible at the option of the holder thereof into shares of Common Stock,
based upon the result obtained by dividing the $10,000 per share purchase price
(increasing at the rate of eight per cent per annum) (the "Stated Value") by a
conversion price equal to the lesser of (i) $2.53 per share or (ii) 85% of a
floating price equal to the average closing bid price of the Common Stock for
the five trading days immediately proceeding the date of such conversion. The
Company treats the eight percent per annum accretion to the Stated Value as a
dividend resulting in a charge to accumulated deficit and a credit to capital in
excess of par value. For the period ended June 30, 1996, the Company recorded
$263,000 accretion to the Stated Value. All outstanding shares of Series B
Preferred Stock will automatically convert into Common Stock on January 19,
1999. During the quarter ended June 30, 1996, 290 shares of Series B Preferred
Stock were converted into 1,673,515 shares of Common Stock. The Company may
redeem the Series B Preferred Stock, in cash, at a premium of up to 125% of the
Stated Value commencing on July 30, 1996, or, under certain other circumstances,
at a price based on the Stated Value in the event of a notice of conversion at
less than $2.53 per share of Common Stock. The shares of Series B Preferred
Stock have no voting rights except as required by law and have a liquidation
preference equal to the Stated Value.
In connection with the Series B Preferred Stock Private Placement, the
Company issued to Swartz Investments, LLC, the placement agent, 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 on Form
S-3, as amended on July 3, 1996 ("the Form-3"), to register certain shares of
Common Stock issuable upon conversion of the Series B Preferred Stock, certain
shares of Common Stock held by the selling stockholders named in such
registration statement and certain shares of Common Stock issuable upon the
exercise of warrants including the shares of Common Stock issuable upon exercise
of the warrants to purchase Common Stock sold to Swartz Investments, LLC as part
of the Series B Preferred Stock Private Placement. The Company has agreed with
the holders of the Series B Preferred Stock to use its reasonable best efforts
to cause such registration of Series B Preferred Stock to become effective as
soon as practicable.
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 the Private Securities Litigation Reform Act of 1995 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.
A. RESULTS OF DEVELOPMENT ACTIVITIES
The following is a discussion of material changes in the consolidated
results of operations of The National Registry Inc. and its subsidiaries (the
"Company") which occurred in the quarter and six months ended June 30, 1996,
compared to the quarter and six months ended June 30, 1995. The Company's
primary business is the development and marketing of electronic identification
systems and services utilizing finger image identification technology.
REVENUE AND GROSS PROFIT
For the quarter and six months ended June 30, 1996, the Company reported
operating revenues of $359,000 and $1,443,000 respectively, compared to $18,000
and $31,000 in the same periods last year. 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) and a welfare fraud control contract with the State of Connecticut
in January 1996 (representing revenue of approximately $860,000 for the three
months ended March 31, 1996 and an additional $139,000 for the quarter ended
June 30, 1996). Revenues for the Connecticut contract are anticipated at
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 due to sale of software with higher margins in the first quarter
7
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
compared to the sale of services in the second quarter. The operating revenues
and gross profit for the six month period ended June 30, 1996, are not
necessarily indicative of the results for the balance of 1996 or any other
future period.
OPERATING EXPENSES
The operating expenses for the quarter and six months ended June 30, 1996,
increased over the same periods in 1995 by $793,000 or 57% and $1,342,000 or
53%, respectively The increases are primarily due to increases in selling and
marketing expense resulting principally from the hiring of marketing personnel,
increases in general and administrative expense primarily due to the hiring of
additional staff and increases in corporate communications expense, offset by
decreases in product development expenses associated with development of the
Microreader (as hereinafter defined) and decreases in depreciation expense for
equipment which became fully depreciated in 1995. Operating expenses, including
the functional areas of selling and marketing, product development and general
and administrative, are expected to increase for the remainder of the year 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 quarter and six
month periods ended June 30, 1996, as compared to the same periods in 1995:
CHANGES IN OPERATING EXPENSES
- -----------------------------
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------- -------------
(In thousands, except %)
$ % $ %
Change Change Change Change
------ ------ ------ ------
Selling and marketing 459 176 872 237
Product development (97) (18) (248) (24)
General and administrative 431 93 718 82
--------- --------
793 57 1,342 53
========= ========
8
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
SELLING AND MARKETING
Selling and marketing expense increased by $459,000 or 176% and $872,000
or 237% for the quarter and six months ended June 30, 1996, 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 finger image identification
technology to a wide range of potential commercial markets including computer
access security, voter registration systems, national identification cards for
foreign countries, and identification services for selected components of the
healthcare industry (i.e. insurers, physicians, pharmacies, laboratories,
clinics and hospitals). The Company is continuing its efforts to obtain
agreements from governmental agencies to provide welfare fraud control systems
and services, and is currently involved in discussions with a number of
governmental authorities to seek their authorization to develop and install
fraud control systems using finger image identification technology. While the
Company has received favorable response 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 these 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 quarter and six months ended June 30,
1996, decreased $97,000, or 18%, and $248,000 or 24%, respectively, compared to
the same periods in 1995 due to a decrease in consulting expenses associated
with the development of low cost optical scanning computer peripheral products
designed to, among other things, optically scan a user's fingerprint (the
"Microreader). In 1996, the Company replaced higher priced consultants with
permanent employees, reducing expenses by $160,000 for the six months ended June
30, 1996. Additionally, depreciation expense decreased by $156,000 due to
equipment purchased in 1992 becoming fully depreciated in 1995.
The Company currently intends to develop both analog and digital
Microreader prototypes for use in a wide range of potential applications that
require positive identification, including welfare fraud control, medical
insurance fraud control, medical record access security, voter registration and
voting fraud control, credit card fraud control and computer access control.
Although the Company's sales efforts are not dependent upon the successful
development of a Microreader, the Company believes that the development of the
Microreader will give the Company a competitive advantage in selling and
implementing its finger image identification systems. While the Company expects
that additional modifications will be necessary, it is currently testing a
possible prototype of the Microreader. Completion of testing of a prototype, is
expected by November 1996. The Company is continuing its efforts to refine the
software technology used with the Microreader and other similar systems. The
Company has established tentative relationships with certain manufacturers who
9
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
may both produce the Microreader, once developed, and serve as an original
equipment manufacturer in an attempt to create additional sales opportunities
for the product. There is no assurance that the Company will successfully
develop the Microreader or any other similar system.
GENERAL AND ADMINISTRATIVE
For the quarter and six months ended June 30, 1996, general administrative
expenses increased $431,000, or 93% and $718,000 or 82%, 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, an increase in legal
expenses due to the reimbursement of certain legal fees of a director of the
Company in connection with a Company related lawsuit, an increase in expenses
related to corporate communications, and increases in various other expenses
associated with increased personnel. The Company expects the trend of increased
general and administrative expenses over the previous year's expenses will
continue.
B. LIQUIDITY AND CAPITAL RESOURCES
Cash and working capital as of June 30, 1996, was $3,477,000 and
$4,364,000, respectively as compared to $178,000 and $245,000, as of December
31, 1995, respectively. Cash and working capital at June 30, 1995 was $2,671,000
and $2,649,000, respectively.
The increase in the Company's cash and working capital as of June 30,
1996, from December 31, 1995 primarily relates to $7,378,000 in capital
contributions from the equity financing described below and the exercise of
certain employee stock options, offset in part, by cash operating expenses and
certain capital expenditures.
During the six months ended June 30, 1996, the Company had capital
expenditures of $468,000 for various purchases of computer hardware and
software. The Company anticipates additional 1996 capital expenditures of
approximately $400,000 to support anticipated growth in personnel, purchase
computer hardware to support various product development projects and support
additional development of the Microreader.
On January 29, 1996, the Company completed an equity financing pursuant to
which the Company issued 800 shares of Series B Preferred for an aggregate
purchase price of $8.0 million (before commissions and expenses of approximately
$795,000 in the aggregate). Shares of Series B Preferred Stock are convertible
at the option of the holder thereof into shares of Common Stock, based upon the
result obtained by dividing the $10,000 per share purchase price (increasing at
the rate of eight percent per annum) (the "Stated Value") by a conversion price
equal to the lesser of (i) $2.53 per share of (ii) 85% of a floating price equal
to the average closing bid price of the Common Stock for the five trading days
immediately proceeding the date of such conversion. The Company treats the eight
10
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
percent per annum accretion to the Stated Value as a dividend resulting in a
change to accumulated deficit and a credit to capital in excess of par value.
For the period ended June 30, 1996, the Company recorded $263,000 of accretion
to the Stated Value. All outstanding shares of Series B Preferred Stock will
automatically convert into Common Stock on January 19, 1999. During the quarter
ended June 30, 1996, 290 shares of Series B Preferred stock were converted into
1,673,515 shares of Common Stock. As of August 9, 1996, 475 shares of Series B
Preferred Stock are available to be converted to Common Stock. If all remaining
such shares were converted on August 9, 1996, approximately 5,648,000 shares of
Common Stock would be issued. The Company may redeem the Series B Preferred
Stock, in cash, at a premium commencing on July 30, 1996, or under certain
circumstances, at a price based on the Stated Value in the event of a notice of
conversion at less than $2.53 per share of Common Stock. Any exercise by the
Company of its redemption rights, absent new financing, would adversely impact
the Company's liquidity. The shares of Series B Preferred Stock have no voting
rights except as required by law and have a liquidation preference equal to
their Stated Value.
On February 20, 1996, the Company filed a registration statement to
register shares of Common Stock issuable upon conversion of certain shares of
Series B Preferred Stock, certain shares of Common Stock held by selling
stockholders named in such registration statement and certain of Common Stock
issuable upon the exercise of certain outstanding warrants. The Company has
agreed with the holders of the Series B Preferred Stock to use its reasonable
best efforts to cause such registration of Series B Preferred Stock to become
effective as soon as practicable.
On May 24, 1994, the Company, Blue Cross Blue Shield of New Jersey, Inc.
("BCBSNJ") and a wholly owned subsidiary of BCBSNJ 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
August 12, 1996, the Company and BCBSNJ have each loaned $60,000 to BIOMETRX to
fund preliminary organizational and development activities. As of August 12,
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.
Since its incorporation, the Company has not paid or declared dividends on
the Common Stock, nor does it intend to pay or declare cash dividends on its
Common Stock in the foreseeable future. While the Series B Preferred Stock does
not carry any dividend obligation, the Stated Value of such shares increases at
the rate of eight percent per annum.
11
<PAGE>
THE NATIONAL REGISTRY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED)
Management believes that the adequacy of its cash resources will be
dependent on its ability to achieve sales and, to the extent necessary, 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 or thereafter. The Company continues to spend net cash at a
recurring rate of approximately $600,000 - $700,000 per month (including capital
expenditures). The Company believes that its existing working capital, together
with anticipated cash flows from operations will only be sufficient to meet its
expected working capital needs through early January 1997. Absent a significant
increase in sales, 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, especially in light of recent financial market
activities in general and recent movements of the price of the Common Stock on
the NASDAQ SmallCap Market in specific, 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 equity securities of the Company or other securities of the Company
convertible into equity securities, 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 25, 1996
(the "Annual Meeting") the stockholders of the Company approved the following
proposals:
Proposal 1. Election of Directors
The following persons were elected as directors of the Company at
the Annual Meeting to hold office for a term of one year or until their
successors have been duly elected and qualified:
12
<PAGE>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
J. Anthony Forstmann 19,362,084 37,700
John L. Gustafson 19,362,084 37,700
Kevin J. McKeon 19,362,084 37,700
W. Lee Shevel 19,362,084 37,700
Proposal 2. Amendment to 1992 Stock Incentive Plan
--------------------------------------
The proposed amendment to the Company's 1992 Stock Incentive Plan to
increase from 2,700,000 to 3,700,000 the number of shares of Common Stock
authorized for issuance thereunder was approved with 18,613,881 votes for
the proposal, 327,142 votes against and 52,727 votes abstaining.
Proposal 3. Amendment to Certification of Incorporation
-------------------------------------------
The proposed amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 50,000,000
shares to 75,000,000 shares was approved with 18,994,658 votes for the
proposal, 343,816 votes against and 53,910 votes abstaining.
Proposal 4. Appointment of Independent Auditors
-----------------------------------
The appointment by the Board of Directors of the Company of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 1996 was ratified with 19,317,824 votes for the proposal,
49,300 votes against and 32,660 votes abstaining.
ITEM 5. OTHER INFORMATION
Joan E. Halfaker resigned as Chief Financial Officer of the Company
effective August 9, 1996. Steven T. Price is acting as interim Controller of the
Company. The Company is undertaking a search to find a new Chief Financial
Officer and Controller.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule (Electronic filing only)
13
<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: August 13, 1996 BY: /s/ John L. Gustafson
----------------------
JOHN L. GUSTAFSON
Chief Executive Officer
and President
(duly authorized officer)
BY: /s/ Steven T. Price
-----------------------
STEVEN T. PRICE
Acting Controller
(chief accounting officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE NATIONAL REGISTRY INC., FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,477
<SECURITIES> 0
<RECEIVABLES> 1,038
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,926
<PP&E> 2,531
<DEPRECIATION> 1,533
<TOTAL-ASSETS> 6,029
<CURRENT-LIABILITIES> 562
<BONDS> 0
<COMMON> 261
0
1
<OTHER-SE> 5,205
<TOTAL-LIABILITY-AND-EQUITY> 6,029
<SALES> 0
<TOTAL-REVENUES> 1,443
<CGS> 0
<TOTAL-COSTS> 830
<OTHER-EXPENSES> 3,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,095)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
