<PAGE>
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 March 31, 1996
Commission File Number: 0-23856
TRANSACTION NETWORK SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of incorporation or organization)
54-1555332
(I.R.S. Employer Identification Number)
1939 ROLAND CLARKE PLACE
RESTON, VA 20191
(Address of principal executive offices)
(703) 453-8300
(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 requirement for the past 90 days. X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Shares Outstanding as of May 13, 1996
12,236,150 Shares of Common Stock, $0.01 par value
Page 1 of 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSACTION NETWORK SERVICES, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,296 $ 18,681
Short-term investments 6,195 4,551
Accounts receivable, net of allowance for doubtful
accounts of $456 and $432, respectively 8,244 7,716
Other current assets 536 630
-------- --------
Total current assets 26,271 31,578
-------- --------
EQUIPMENT, at cost:
Network equipment 18,708 17,067
Office equipment 2,164 1,249
Less - Accumulated depreciation (7,095) (6,291)
-------- --------
13,777 12,025
-------- --------
INTANGIBLE ASSETS:
Software and intangibles 13,540 12,090
Less - Accumulated amortization (2,040) (1,701)
-------- --------
11,500 10,389
-------- --------
OTHER ASSETS 1,288 1,350
NOTE RECEIVABLE 3,600 3,600
LONG-TERM INVESTMENTS 8,489 2,406
-------- --------
Total assets $ 64,925 $ 61,348
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current portion of capital lease obligations $ 14 $ 18
Accounts payable and accrued expenses 8,126 5,781
-------- --------
Total current liabilities 8,140 5,799
DEFERRED INCOME TAX, net of current amount 956 956
-------- --------
Total liabilities 9,096 6,755
-------- --------
STOCKHOLDERS' EQUITY
Common Stock 81 81
Additional paid-in capital 48,490 48,160
Unearned compensation (99) (106)
Accumulated equity 7,357 6,458
-------- --------
Total stockholders' equity 55,829 54,593
-------- --------
Total liabilities and stockholders' equity $ 64,925 $ 61,348
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
TRANSACTION NETWORK SERVICES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues $10,933 $ 8,421
Cost of network services 6,226 4,651
--------- ---------
Gross profit 4,707 3,770
--------- ---------
Other operating expenses:
Engineering & development 689 563
Selling, general & administrative 1,716 1,273
Depreciation 913 681
Amortization of intangibles 339 240
--------- ---------
Total other operating expenses 3,657 2,757
--------- ---------
Income from operations 1,050 1,013
Interest income 400 102
--------- ---------
Income before provision for income taxes 1,450 1,115
Provision for income taxes 551 424
--------- ---------
Net income $ 899 $ 691
--------- ---------
--------- ---------
Net income per common and
equivalent share $ 0.07 $ 0.06
--------- ---------
--------- ---------
Weighted average common and
equivalent shares outstanding 12,603 10,949
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
TRANSACTION NETWORK SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 899 $ 691
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,252 921
Stock option compensation 7 14
Loss on disposal of equipment --- (3)
Increase in accounts receivable (528) (378)
Decrease (increase) in other current assets 94 (3)
Decrease in other assets 62 ---
Increase in accounts payable and accrued expenses 2,519 257
--------- ---------
Net cash provided by operating activities 4,305 1,499
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (2,680) (1,261)
Purchase of intangible assets (1,450) ---
Proceeds from disposal of equipment 7 54
Purchases of short-term investments (1,644) ---
Purchases of long-term investments (6,083) ---
--------- ---------
Net cash used in investing activities (11,850) (1,207)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from options, warrants and employee stock
purchase plan 164 61
Repayment of equipment notes and capital leases (4) (83)
--------- ---------
Net cash provided by (used in) financing activities 160 (22)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (7,385) 270
CASH AND CASH EQUIVALENTS, beginning of period 18,681 7,313
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 11,296 $ 7,583
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Common Stock issued for 401k matching contribution $ 161 $ 56
Cash paid for income taxes $ 768 $ 12
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
TRANSACTION NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Transaction Network Services, Inc. (the "Company" or "TNS") was
incorporated on August 20, 1990, in the state of Delaware and is a nationwide
communications network company specializing in transaction-oriented data
services. The Company currently addresses two primary markets through its
service offerings: (1) the point-of-sale/point-of-service ("POS") transaction
market through its TransXpress-Registered Trademark- network services, and (2)
the telephone call billing validation and fraud control market through its
CARD*TEL-Registered Trademark- telecommunications services. The Company provides
participants in these markets with high speed, reliable, inexpensive
communications for real-time validation necessary to reduce losses resulting
from the bad debt and fraud often associated with credit cards, debit cards and
"0+" telephone calls.
The financial statements include the accounts of Transaction Network
Services, Inc. and of Fortune Telecommunications, Inc. ("FTI") which was a
wholly owned subsidiary from the date of its acquisition, June 6, 1994, through
February 28, 1995, when FTI was merged into the Company. Significant
intercompany accounts have been eliminated in consolidation.
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that its disclosures are adequate to make the information presented
not misleading. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The results of operations for the three
month period ended March 31, 1996 and 1995 are not necessarily indicative of
the results to be expected for the full year.
STOCK SPLIT
On April 18, 1996, the Company declared a 3-for-2 stock split of the
outstanding shares of its Common Stock. This stock split entitled shareholders
to receive one additional share for each two outstanding shares of Common Stock
held of record as of the close of business on April 30, 1996. The payable date
was May 10, 1996. All share and per share data presented has been adjusted to
reflect the stock split as if it took effect on January 1, 1995.
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 the 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company considers all securities purchased with a maturity of three
months or less to be cash equivalents.
At December 31, 1995 and March 31, 1996, the Company's securities
consisted primarily of U.S. government and government agency securities,
investment grade corporate bonds, money market accounts (classified as cash
equivalents), and overnight reverse repurchase agreements (classified as cash
equivalents), all of which the Company has both the positive intent and ability
to hold until maturity. These securities are reported at amortized cost.
5
<PAGE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
SHORT TERM AND LONG TERM INVESTMENTS
The fair values of the investments, which consist of U.S. government
and government agency securities and investment grade corporate bonds,
are estimated based on quoted market prices on national exchanges and
approximate the carrying amounts.
NOTE RECEIVABLE
Management believes that the fair value of the note receivable
approximates its carrying value. Fair value is based upon discounting
future cash flows using the current rate at which a similar loan would
be made to similar borrowers with similar credit ratings and the same
remaining maturity.
REVENUE RECOGNITION
The Company recognizes revenue as the related services are performed.
Advance payments for services are deferred and recognized as revenue when
earned. As of January 1, 1996 the Company began reporting a single line item of
revenue which includes POS services revenue, Telecom services revenue and
International revenue. POS services revenue, from the Company's POS transaction
communications business, is derived primarily from the transmission through its
network of transaction information between merchant or service provider POS
terminals and transaction-processing computer centers. Telecom services
revenue consists primarily of fees charged on a per query basis to customers for
telephone call fraud-control and billing validation services. International
revenue currently consists primarily of development fees and in the future may
consist also of hardware sales revenue, maintenance and software license fee
revenue and royalties.
RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to
conform with current period presentation. In 1996, the Company chose to condense
its revenue reporting into one line item due to the anticipated increase in the
number of product and service offerings.
2. PUBLIC OFFERING:
On August 16, 1995, the Company completed a public offering of
1,800,000 shares of Common Stock (not adjusted for April 18, 1996 three for two
stock split). Of the 1,800,000 shares, 1,000,000 were sold by the Company and
800,000 were sold by selling shareholders. After underwriting discounts,
commissions and other professional fees, net proceeds to the Company from the
offering were approximately $23 million.
3. PURCHASE OF CONTRACT RIGHTS
On June 30, 1995, the Company completed the purchase from Intellicall
of certain contract rights related to Intellicall's telephone call validation
and fraud control services, including Intellicall's validation services
contracts with customers. The Company also purchased a validation services
contract with Intellicall and an exclusive U.S. license to Intellicall's VICS
software (excluding certain markets). Intellicall also agreed not to compete for
ten years with the Company in the provision of validation services and to
exclusively market the Company's validation services to Intellicall's customers
(excepting, in each case, such excluded markets). The Company paid $3 million in
cash at closing for these assets. The cost of these assets has been included in
intangible assets in the December 31, 1995 accompanying balance sheet. The
Company will amortize the cost of these assets over ten years.
6
<PAGE>
On March 29, 1996, the Company completed an asset purchase from
AMNEX, Inc. ("AMNEX") of AMNEX's proprietary fraud-control system and related
databases. The transaction also provided for a ten year exclusive Service
Agreement, a joint Marketing Agreement to cross-sell each other's services
and a Warrant Agreement giving the Company the right to purchase 100,000
shares of AMNEX Common Stock at $3.91. The Company paid approximately $1.5
million in cash for these assets. The Company will amortize the cost of the
depreciable assets over five to ten years.
4. INCOME TAXES
The Company recorded a provision for income taxes of $551,000 for the
three months ended March 31, 1996. The Company's provision for income taxes for
the three month period ended March 31, 1996 is based upon the anticipated
effective income tax rate of 38%. This effective income tax rate differs from
the Federal statutory rate as follows:
Statutory Federal income tax rate 35.0%
Effect of graduated rate (1.0)
State income taxes, net of Federal benefit 4.0
-----
Anticipated effective income tax rate 38.0%
-----
-----
5. NOTE RECEIVABLE
On October 10, 1995, the Company funded a $3.6 million promissory note
to Pond Building, L.L.C., the purchaser of the office building in which the
Company's headquarters are located. The note is due in full on June 15, 1996,
but can be extended for up to three periods of six months each under certain
limited circumstances and as a result is being classified as long term in the
accompanying balance sheets. The note is secured by a first lien on the
property under a deed of trust with Pond Building, L.L.C. The note carries
interest at 9.5% per annum through June 15, 1996, and in the event that the note
is extended, at 1% over the prime rate of interest for each six month extension
period.
7
<PAGE>
Item 2.
TRANSACTION NETWORK SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in August 1990 to build and operate a
communications network focused on the network services needs of the POS
(Point-of-Sale/Point-of-Service) transaction processing industry. Between August
1990 and May 1991, the Company was primarily engaged in raising capital from
investors and in the initial development of its network. In June 1991 the
Company transmitted its first POS transaction, and since then has increased its
average daily transaction volume from approximately 17,000 in the third quarter
of 1991 to more than 3.7 million in the first quarter of 1996. In June 1994, the
Company acquired Fortune Telecommunications, Inc. ("FTI") of Ft. Lauderdale,
Florida, which provided customers in the telecommunications industry with
telephone call fraud control and billing validation services. In 1995, the
Company reorganized around its two key service offerings: (1) POS services which
include the Company's TransXpress-Registered Trademark- network services for the
POS transaction processing industry, and (2) Telecom services which include
FTI's CARD*TEL-Registered Trademark- telephone call billing validation and fraud
control services and other services targeted primarily to the telecommunications
industry. TNS has strengthened its position in the telephone call billing
validation and fraud control market through the purchase of assets -- primarily
contract rights, marketing and services agreements, non-compete agreements and
computer software and databases -- from Intellicall Corporation in June of 1995
and from AMNEX, Inc. in March of 1996. In the first quarter of 1996, the
Company began to recognize revenue for products and services sold
internationally and continues to actively market its products and services to
potential international customers.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased by 30% to $10,933,000 for the three month
period ended March 31, 1996 from $8,421,000 for the same period in 1995. Of the
$2,512,000 increase for the three month period, 54% was due to the increased
usage of the TNS network by the Company's POS services customers.
Telecommunications service customers contributed 38% of the growth. The
remaining 8% resulted primarily from development fees derived from the Company's
International activities. As of January 1, 1996 the Company began reporting a
single line item of revenue which includes POS services revenue, Telecom
services revenue and International revenue.
The growth in POS services revenue resulted primarily from an
increase in transaction volume and associated revenue from the Company's
existing POS customers. POS transaction volume increased by 42% to 341
million from 240 million transactions for the first quarter of 1996 versus
1995. The transaction volume growth rate exceeded the revenue growth rate
primarily because the average revenue per transaction declined by
approximately 15% for the three month period. This decline in average
revenue per transaction occurred as a result of several factors. First Data
Corporation ("FDC"), the Company's largest customer, entered into a new five
year service contract with TNS which resulted in a significant price
reduction for FDC effective January 1, 1996. Under the terms of the contract,
FDC has agreed to a minimum revenue commitment to TNS of $55 million over the
term of the contract. Average revenue per transaction also declined as a
result of price discounts based on increasing transaction volumes for many
customers, contract renegotiations with several customers other than FDC, and
from the relative contribution to total transaction volume of certain of the
Company's customers.
Telecommunications revenue increased by 41% to $3,309,000 for the three
months ended March 31, 1996 from $2,345,0000 for the same period in 1995. These
revenues were generated primarily by fees charged on a per query basis to
telecommunications customers for the Company's telephone call fraud control and
billing validation services. The growth in revenue was due to growth in queries
processed for the Company's telecommunications customers for the three month
period, and from the inclusion of the revenues derived from the June 30, 1995
Intellicall asset purchase .
8
<PAGE>
On March 29, 1996, the Company completed an asset purchase from AMNEX,
Inc. ("AMNEX") of AMNEX's proprietary fraud-control system and related
databases. The transaction also provided for a ten year exclusive Service
Agreement, a joint Marketing Agreement to cross-sell each other's services and a
Warrant Agreement giving the Company the right to purchase 100,000 shares of
AMNEX Common Stock at $3.91. The Company paid approximately $1.5 million in
cash for these assets. The Company will amortize the cost of the depreciable
assets over five to ten years.
COST OF NETWORK SERVICES
Cost of network services increased by 34% to $6,226,000 for the three
months ended March 31, 1996 from $4,651,000 for the same period in 1995. This
growth resulted primarily from increases in local access, "800" usage charges
and charges for billing validation information resulting from increased
transaction and query volume. Growth in cost of network services also resulted
from costs associated with increases in network capacity purchased from outside
vendors and from increases in other costs associated with operating the
Company's network. As anticipated by the Company, cost of network services
increased as a percentage of revenue to 57% in the first quarter of 1996 from
55% in the first quarter of 1995. The reduction in average revenue per
transaction was significantly, but not fully offset by several factors,
resulting in a net increase in cost of network services as a percentage of
revenue of about 2%. In August 1995, a reduction in the cost per minute of
usage for local access charged by local exchange carriers went into effect by
FCC mandate, effectively reducing the Company's variable cost per transaction.
Also, the Company was able to continue to achieve economies of scale on its
network as the growth in transaction and query volume and associated revenue was
larger than the increase in recurring costs for network capacity and network
management.
GROSS PROFIT
Gross profit increased by 25% to $4,707,000 for the three months ended
March 31, 1996 from $3,770,000 for the same period of 1995. This represents 43%
and 45% of total revenues in the first quarter of 1996 and 1995, respectively.
The 2% decrease in gross profit as a percentage of total revenues for the three
month periods reflects the fact that the reduction in average revenue per POS
transaction over the periods was largely, but not completely, offset by local
access rate reductions and network efficiencies resulting from transaction
volume and query growth. For the remainder of 1996, the incremental increase in
transaction volume and revenue is not anticipated to fully offset the
significant price reduction and network cost increases associated with the
new FDC contract. As a result, a continuation of gross profit margins at
levels below those recorded for comparable periods in 1995 is expected. The
eventual level of the gross profit margin depends on number of factors
including total transaction volume growth, the relative growth and
contribution to total transaction volume of each of the Company's customers,
the timing and extent of the Company's network expansion and the timing and
extent of any network cost reductions of which the Company may be able to
take advantage. In addition, any significant loss of transaction volume
could lead to a decline in gross margin because a significant portion of
network costs are fixed costs.
ENGINEERING AND DEVELOPMENT
Engineering and development expense increased by 22% to $689,000 for
the three months ended March 31, 1996 from $563,000 for the same period of 1995.
Engineering and development expense is composed of the salaries, personnel
expenses and other expenses related to the Company's network equipment systems
integration, software development and technology assessment activities. These
expenses are incurred primarily to develop and enhance network software and
systems, to develop specialized software and equipment for new customers, to
conduct research and develop new service offerings, and to build, test, maintain
and modify existing network software and systems. The Company has not
capitalized any costs associated with software or other development performed by
its engineering and development groups.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 35% to
$1,716,000 for the three months ended March 31, 1996 from $1,273,000 for the
same period of 1995. Selling, general and administrative expenses include sales,
marketing, finance, accounting and administrative costs. The increase in these
expenses is attributable to several factors. Additional expenses were incurred
as a result of an increase in administrative staff and expenses associated with
the growth of the Company. An increase in sales costs resulting primarily from
an increase in sales staff and salary expense also contributed to the growth in
selling, general and administrative expenses. On June 30, 1995, TNS entered into
a billing agreement with Intellicall whereby, for a $1,500,000 prepayment,
Intellicall provides billing services to TNS for telecommunications services
provided by TNS to customers whose contract rights were acquired from
Intellicall by TNS. During the third quarter of 1995, TNS began recognizing the
billing services expenses associated with the Intellicall agreement and expects
that it will have fully utilized the prepayment for these services during the
next four to six years, depending on the volume of telecommunications services
billed through this agreement. In March 1996, the Company relocated to a new
headquarters facility and began incurring lease expense on the new building at
that time. Increased lease costs and other expenses related to the relocation
also contributed to the growth in selling, general and administrative expenses.
Total lease costs and building expenses related to the new headquarters
facility are expected to be approximately $750,000 for the full year of 1996.
DEPRECIATION
Depreciation expense increased by 34% to $913,000 for the three months
ended March 31, 1996 from $681,000 for the same period in 1995. Depreciation
expense increased primarily as a result of the acquisition of capital equipment
for network expansion to support growth in the Company's business. Capital
expenditures for network and office equipment amounted to $2,680,000 in the
first three months of 1996. Depreciation expense relating to network and office
equipment is recorded using the straight line method over an estimated useful
life of three to five years.
AMORTIZATION OF INTANGIBLES
The amortization of intangible assets increased by 41% to $339,000 for
the three months ended March 31, 1996 from $240,000 for the same period of 1995.
For the three month period, the increase resulted from amortization of certain
intangible assets acquired from Intellicall for approximately $3,000,000 on June
30, 1995. On March 29, 1996, the Company completed an asset purchase from AMNEX
of AMNEX's proprietary fraud-control system and related databases and entered
into long term marketing and service agreements with AMNEX. The Company paid
approximately $1.5 million in cash for these assets. Amortization of all
existing intangible assets is expected to be approximately $400,000 per quarter
over the next several years.
INCOME TAXES
Provision for income taxes was $551,000 for the three months ended
March 31, 1996 and $424,000 for the same period in 1995. The effective tax rate
in the first three months of 1996 and 1995 was approximately 38%.
NET INCOME AND EARNINGS PER SHARE
Net income increased by 30% to $899,000 for the three months ended
March 31, 1996 from $691,000 for the same period in 1995. On April 18, 1996, the
Company declared a 3-for-2 stock split of the outstanding shares of Common
Stock. This stock split entitled shareholders to receive one additional share
for each two outstanding shares of Common Stock held of record as of the close
of business on April 30, 1996. The payable date was May 10, 1996. All share
and per share data presented has been adjusted to reflect the stock split as if
it took effect as of January 1, 1995. Earnings per share grew to $0.07 for the
first quarter of 1996 from $0.06 for the first quarter of 1995. The weighted
average number of shares outstanding used to calculate earnings per share
increased to 12,603,000 for the first quarter of 1996 from 10,949,000 for the
first quarter of 1995. Shares outstanding increased primarily because of the
Company's secondary stock offering in August of 1995 in which 1,000,000 shares
were issued by the Company (1,500,000 as adjusted for the April 18, 1996 three
for two stock split).
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes sources and uses of cash from the
Company's Statement of Cash Flows for the three month period ended March 31,
1996.
<TABLE>
<S> <C> <C>
Cash & equivalents as of December 31, 1995 $ 18,681,000
Net cash provided by operations $ 4,305,000
Investing activities:
Purchases of equipment (2,680,000)
Purchase of intangible assets (1,450,000)
Purchase of long-term investments (6,083,000)
Purchase of short-term investments (1,644,000)
Other investing activities 7,000
--------------
(11,850,000)
Financing activities:
Repayment of debt (4,000)
Other financing activities 164,000
--------------
160,000
Net decrease in cash & equivalents $ (7,385,000)
--------------
Cash & equivalents as of March 31, 1996 $ 11,296,000
--------------
--------------
</TABLE>
At March 31, 1996 principal sources of liquidity were cash and cash
equivalents of $11,296,000, short term investments of $6,195,000, and a bank
line of credit of up to $1,000,000. The line of credit bears an interest rate of
2% above the prime rate of interest and was entirely unused as of March 31,
1996.
At March 31, 1996 the Company had equipment notes and capital lease
obligations of which $14,000 is current, and had long term commitments to
purchase capital equipment in the amount of approximately $2.7 million, of which
$2.2 million is contingent upon the vendor meeting delivery in accordance with
development milestones. Except for these arrangements, the Company does not have
long-term supply contracts with these or any other limited source vendors. On
September 21, 1995 the Company entered into a lease which commenced in March
1996 on an office building which the Company began to use as its headquarters
facility beginning in March 1996. The lease term is 12 years and calls for the
payment of approximately $620,000 in 1996, and for the payment to escalate every
year thereafter based a factor tied to the change in the Consumer Price Index,
but not to exceed 3% per annum, and for a fixed increase in year six of
approximately $67,000.
During the three months ended March 31, 1996 operations provided $4,305,000
in cash.
Investing activities used $11,850,000 in cash during the three months ended
March 31, 1996. For the three month period in 1996, purchases of equipment used
$2,680,000, the purchase of certain assets and agreements from AMNEX, Inc. used
$1,450,000, purchases of long term investment-grade fixed-income securities with
original maturities of more than one year used $6,083,000, purchases of
short-term investments with original maturities of less than one year but more
than three months used $1,644,000 and other investing activities provided
$7,000.
During the three months ended March 31, 1996, financing activities provided
net cash of $160,000. For the three month period in 1996, repayment of debt
used $4,000 and other financing activities provided $164,000.
The Company believes that the proceeds from its 1995 public offering of
common stock, its other existing cash balances and line of credit, other current
assets and cash flow generated by operating activities will be sufficient to
meet the capital needs of its current business activities for the foreseeable
future.
11
<PAGE>
FORWARD LOOKING STATEMENTS
Statements in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this quarterly report that are not
descriptions of historical fact may be forward looking statements that are
subject to risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors, including , but not
limited to, the Company's reliance on a limited number of major customers,
dependence on market expansion, competition, technological change and necessity
of developing new services, dependence on proprietary rights, changes in
government regulation and seasonality and fluctuations in quarterly results.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. - Not Applicable
Item 2. Changes in Securities. - Not Applicable
Item 3. Default Upon Senior Securities. - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. - Not
Applicable
Item 6. Exhibits and Reports on Form 8-K .
(a.) Exhibits.
Financial Data Schedule.
(b.) Reports on Form 8-K. - None
Form 8-K, reporting Item 5 (Change of Address),
dated and filed March 4, 1996.
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.
Transaction Network Services, Inc.
(Registrant)
Date: May 13, 1996 By: /s/ John J. McDonnell, Jr.
------------------------------------
John J. McDonnell, Jr.
President and Chief
Executive Officer
Date: May 13 , 1996 By: /s/ Brian K. Barnum
------------------------------------
Brian K. Barnum
Vice President of Finance
(Principal Financial Officer)
14
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<FISCAL-YEAR-END> DEC-31-1996
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0
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