UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission File No. 0-21324
NYFIX, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 06-1344888
(State of incorporation) (I.R.S. Employer identification number)
333 LUDLOW STREET, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 425-8000
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 / /
10,511,351 shares of Common Stock were issued and outstanding as of November 11,
1999.
<PAGE>
NYFIX, INC. (Formerly Trinitech Systems, Inc.)
FORM 10-Q
For the quarterly period ended September 30, 1999
CONTENTS PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of September 30, 1999
(unaudited) and December 31, 1998 3
Condensed consolidated statements of operations (unaudited)
for the Three Month and Nine Month periods ended September 30,
1999 and 1998 4
Condensed consolidated statements of cash flows (unaudited)
for the Nine Month periods ended September 30, 1999 and 1998 5
Notes to condensed consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 17
2
<PAGE>
NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
---- ----
(Unaudited) (a)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,583,505 $ 3,948,004
Accounts receivable - less allowance of $150,952 and $92,986, respectively 6,753,346 3,417,418
Inventories, net 1,186,481 1,279,302
Due from joint venture 363,970 --
Prepaid expenses and other current assets 535,950 283,912
Receivable from officers 135,902 120,583
------------ ------------
Total Current Assets 12,559,154 9,049,219
EQUIPMENT, net of accumulated depreciation of $2,254,042 and
$1,453,882, respectively
5,192,802 2,854,131
OTHER ASSETS, net of accumulated amortization of $2,045,469 and
$1,538,504, respectively 1,784,646 1,094,169
------------ ------------
TOTAL $ 19,536,602 $ 12,997,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,542,290 $ 873,817
Accrued expenses 928,457 635,943
Advanced Billings 2,813,569 1,489,057
Payroll and other taxes payable 195,973 79,953
Credit Line Payable - Short term 250,000 --
------------ ------------
Total Current Liabilities 5,730,289 3,078,770
CREDIT LINE PAYABLE - LONG TERM 2,250,000 1,800,000
------------ ------------
Total Liabilities 7,980,289 4,878,770
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock - par value $1.00; 1,000,000 shares
authorized; -0- issued and outstanding
Common stock - par value $.001; 15,000,000 authorized; 9,636,351 and
9,408,530 shares issued and outstanding, respectively 9,636 9,409
Warrants 169,572 125,513
Additional paid-in capital 17,713,864 14,767,116
Accumulated deficit (5,782,354) (6,330,364)
Due from officers and directors (554,405) (452,925)
------------ ------------
Total Stockholders' Equity 11,556,313 8,118,749
------------ ------------
TOTAL $ 19,536,602 $ 12,997,519
============ ============
</TABLE>
(a) The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
3
<PAGE>
NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Three Month Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Sales $ 709,878 $ 528,998 $ 2,584,384 $ 1,666,456
Subscription Revenue 1,839,024 589,258 4,565,074 1,424,748
Service Contracts 447,687 325,038 1,293,859 953,913
------------ ------------ ------------ ------------
Total Revenues 2,996,589 1,443,294 8,443,317 4,045,117
COST OF RECURRING CONTRACTS and SALES 902,610 653,361 2,542,450 1,721,011
------------ ------------ ------------ ------------
GROSS PROFIT 2,093,979 789,933 5,900,867 2,324,106
------------ ------------ ------------ ------------
EXPENSES:
Selling, general and administrative 1,543,162 1,237,543 4,839,879 4,193,569
Depreciation 150,332 130,199 421,342 298,831
Amortization 5,060 4,596 14,765 13,786
------------ ------------ ------------ ------------
Total Expenses 1,698,554 1,372,338 5,275,986 4,506,186
------------ ------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 395,425 (582,405) 624,881 (2,182,080)
OTHER (EXPENSE) INCOME - NET (11,196) 6,865 (49,835) 84,760
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) BEFORE PROVISION FOR INCOME TAXES 384,229 (575,540) 575,046 (2,097,320)
PROVISION FOR INCOME TAXES 16,561 4,064 27,036 8,284
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 367,668 $ (579,604) $ 548,010 $ (2,105,604)
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE $ 0.04 $ (0.07) $ 0.06 $ (0.24)
============ ============ ============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,469,637 8,771,530 9,455,138 8,682,780
============ ============ ============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 0.04 $ (0.07) $ 0.05 $ (0.24)
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,236,718 8,771,530 10,020,345 8,682,780
============ ============ ============ ============
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE>
NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Nine Month
Period Ended Period Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 426,277 $(1,081,812)
----------- -----------
INVESTING ACTIVITIES:
Payments for equipment, net of retirements (3,138,830) (1,377,419)
Payments for other assets (1,197,441) (576,105)
----------- -----------
Net cash used in investing activities (4,336,271) (1,953,524)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from line of credit 700,000 2,000,000
Issuance of common stock 2,845,495 890,313
Repayment of borrowings -- (593,564)
----------- -----------
Net cash provided by financing activities 3,545,495 2,296,749
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (364,499) (738,587)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,948,004 2,141,307
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,583,505 $ 1,402,720
=========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
5
<PAGE>
NYFIX, INC. (Formerly Trinitech Systems, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. ORGANIZATION
On October 21, 1999, shareholders of Trinitech Systems, Inc. approved
the Board of Directors decision to change the name of the company to
NYFIX, Inc. ("NYFIX" or the "Company"), effective October 25, 1999. In
conjunction with the name change the Company changed its ticker symbol
on the American Stock Exchange to "NYF".
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q. In the opinion of management, all adjustments, which
comprise normal and recurring accruals considered necessary for a fair
presentation, have been included. Operating results for the three and
nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1998.
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
3. PER SHARE INFORMATION
The Company's basic EPS is calculated based on net earnings available
to common shareholders and the weighted-average number of shares
outstanding during the reported period. Diluted EPS includes additional
dilution from common stock equivalents, such as stock issuable pursuant
to the exercise of stock options and stock warrants.
6
<PAGE>
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended
------------------------------ -------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings (Loss) $ 367,668 $ (579,604) $ 548,010 $(2,105,604)
=========== =========== =========== ===========
Basic Weighted Average Shares Outstanding 9,469,637 8,771,530 9,455,138 8,682,780
----------- ----------- ----------- -----------
Basic Earnings (Loss) per Common Share $ 0.04 $ (0.07) $ 0.06 $ (0.24)
----------- ----------- ----------- -----------
Dilutive Options 647,595 -- 471,762 --
Dilutive Warrants 119,486 -- 93,446 --
----------- ----------- ----------- -----------
Dilutive Weighted Average Shares Outstanding 10,236,718 8,771,530 10,020,345 8,682,780
=========== =========== =========== ===========
Dilutive Earnings (Loss) per Common Share $ 0.04 $ (0.07) $ 0.05 $ (0.24)
=========== =========== =========== ===========
</TABLE>
Stock options and warrants were excluded from the earnings per share
calculation for the three and nine month periods ended September 30,
1998 since the amounts would be anti-dilutive.
4. INCOME TAXES
The Company's projected annual Federal income tax provision has been
offset through the utilization of net operating loss carry-forwards.
The Company's income tax provision consists of estimated state and
local income taxes.
5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following:
September 30, December 31,
1999 1998
---- ----
Parts $773,491 $823,429
Finished goods 494,990 537,873
Less: allowance for obsolescence 82,000 82,000
---------- ----------
Total $1,186,481 $1,279,302
========== ==========
7
<PAGE>
6. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of
all derivatives as assets or liabilities measured at their fair value.
Gains or losses resulting from changes in the fair value of derivatives
would be recognized in earnings in the period of change unless certain
hedging criteria are met. The Company does not expect the Statement to
have a material impact on the consolidated financial statements. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000.
7. BUSINESS SEGMENT INFORMATION
The Company has two principal business groups: Equities and Futures &
Options. The Equities Group operates primarily out of Stamford/New York
offices, while the Futures & Options Group operate primarily out of the
London and Chicago offices. However, each office has the opportunity to
sell all of the Company's products. The Company views each office as
its own business segment and measures its performance based on the
revenues of each location. The Company makes decisions on each segment
based on gross profit.
Information on reportable segments is as follows (in 000's):
Three Month Nine Month
Period Ended Period Ended
-----------------------------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
-------- ---------- ---------- ---------
Revenues:
Stamford/New York $ 2,039 $ 1,042 $ 6,145 $ 2,522
London 807 400 2,105 1,498
Chicago 151 1 193 25
Inter-Segment Sales 38 6 59 47
Inter-Segment Elimination (38) (6) (59) (47)
------- ------- ------- -------
Total Revenues $ 2,997 $ 1,443 $ 8,443 $ 4,045
======= ======= ======= =======
Gross Profit:
Stamford/New York $ 1,264 $ 465 $ 3,882 $ 955
London 691 325 1,844 1,352
Chicago 139 -- 175 17
------- ------- ------- -------
Gross Profit $ 2,094 $ 790 $ 5,901 $ 2,324
======= ======= ======= =======
8
<PAGE>
8 CAPITAL STOCK
On September 7, 1999, the Company completed a private placement of
125,000 shares of Common Stock to an institutional investment firm at a
price of $20.375 per share for an aggregate value of $2,546,875.
On October 21, 1999, shareholders approved an increase in the
authorized shares of the Company's Common and Preferred Stock. Common
shares will increase from 15 million to 60 million shares and Preferred
shares from 1 million to 5 million shares. Along with this increase,
the Board of Directors authorized a 3 for 2 stock split in the form of
a 50% stock dividend to all shareholders of record on November 1, 1999,
payable November 15, 1999.
The following tables show the proforma effect of the stock split on the
earnings per share for the three month and nine month periods ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended
------------------------------- ------------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
------------------------------- --------------- -------------
<S> <C> <C> <C> <C>
Net Earnings (Loss) $ 367,668 $ (579,604) $ 548,010 $ (2,105,604)
============ ============ ============ ============
Basic Weighted Average Shares Outstanding 14,204,456 13,157,295 14,182,707 13,024,170
------------ ------------ ------------ ------------
Basic Earnings (Loss) per Common Share $ 0.03 $ (0.04) $ 0.04 $ (0.16)
------------ ------------ ------------ ------------
Dilutive Options 971,393 -- 707,643 --
Dilutive Warrants 179,229 -- 140,169 --
------------ ------------ ------------ ------------
Dilutive Weighted Average Shares Outstanding 15,355,078 13,157,295 15,030,519 13,024,170
============ ============ ============ ============
Dilutive Earnings (Loss) per Common Share $ 0.02 $ (0.04) $ 0.04 $ (0.16)
============ ============ ============ ============
</TABLE>
Stock options and warrants were excluded from the earnings per share
calculation for the three and nine month periods ended September 30,
1998 since the amounts would be anti-dilutive.
9 STOCK OPTION PLAN
On March 30, 1999, the Board of Directors formally approved the second
amendment to the Amended and Restated 1991 Incentive and Nonqualified
Stock Option Plan. Under this amendment, the number of options reserved
for issuance has been increased from 1,500,000 shares to 2,500,000
shares of common stock. This amendment was approved at the Company's
Annual Meeting of Shareholders held on June 7, 1999. In connection with
the aforementioned stock split payable on November 15, 1999, the number
of shares reserved for issuance will be increased to 3,750,000.
9
<PAGE>
10. JOINT VENTURE
On October 27, 1999, NYFIX, Inc. announced the formation of NYFIX
Millennium, L.L.C. ("NYFIX Millennium") with a consortium of leading
international banks and brokerage firms. NYFIX Millennium intends to
operate as an alternative trading system. All of the members of the
consortium, including NYFIX, Inc. have invested $2,000,000 each in
NYFIX Millennium. Pursuant to the Operating Agreement, NYFIX Millennium
profits will be allocated 80% to NYFIX and 20% to the non-NYFIX, Inc.
partners. The first $14,000,000 in losses will be allocated to the
seven non-NYFIX, Inc. investors, which equals the extent of their
capital investment in NYFIX Millennium. NYFIX, Inc. has incurred
operating and capital costs on behalf of NYFIX Millennium. Such costs
are reflected as Due from Joint Venture on the Company's balance sheet.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto. Historical
results and percentage relationships are not necessarily indicative of the
operating results for any future period.
The Company commenced its present business operations in January 1991 through
the acquisition of a software license for its Guided-Input(R) Touchpad system.
Since that time, the Company has transitioned from a hardware vendor to a
software development company focusing exclusively on applications for the
financial marketplace. The Company provides a complete line of workstation
products for the financial trading desk environment and its systems provide
order management and routing software for firms engaged in financial trading.
The Company currently offers its trading products (integrated systems including
hardware and software) together with linkage through its NYFIX data center. The
data center is a communication infrastructure enabling the Company to provide
its customers with global electronic connectivity for order routing and allows
Trinitech to deploy and monitor its systems and services from a single location.
Customers subscribe to various products, paying a monthly fee per terminal for
the Company's integrated software systems. Most contracts provide the customer
with a basic system or infrastructure, via the Company's NYFIX data center and
are entered into by the customer with the intention to expand the level of
services subscribed to, once the basic system and infrastructure are
operational. Subscription revenue contracts range from one to three year
periods. The Company begins recording subscription revenue once installation is
complete. In addition to significant logistical improvements in delivery and
support of its products, the Company expanded its business to offer the industry
a central electronic meeting place between the buy-side and sell-side, while
simultaneously providing a single point of universal access to different
exchange floor environments.
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems and changes to its business
model to that of a subscription-based product offering. The Company believes
this expansion of personnel, facilities, product portfolio and
subscription-based model will continue to benefit the Company and its future
growth. In the previous model, the Company would only receive revenue one time
for products or services sold. It is important to note that this transition is
causing revenue to be recognized over a longer period of time than the previous
capital sales model. Management believes our subscription business model has
strengthened the Company's market share as well as its financial position going
forward.
On October 27, 1999, the Company announced the formation of NYFIX Millennium LLC
("NYFIX Millennium") with a consortium of leading international banks and
brokerage firms. NYFIX Millennium is registering as a Broker/Dealer and plans to
operate in compliance with Regulation ATS. NYFIX Millennium is an "Integrated
ATS, Exchange Access and Intelligent `Best Execution' Order-Routing System"
designed to provide the financial community with "Best-Execution." NYFIX
Millennium is built upon NYFIX's proprietary "Super FIX Engine" technology and
existing NYFIX network infrastructure. NYFIX Millennium is a Hybrid Market
System leveraging new regulation and technology with the power of the
traditional markets.
11
<PAGE>
REVENUES
Overall revenue for the three months ended September 30, 1999 exceeded 1998 by
108% from $1,443,000 to $2,997,000. Sales increased 34%, subscription revenue
increased 212% and service revenue increased 38% over the comparable period in
1998. Revenue for the nine months ended September 30, 1999 increased by 109%,
from $4,045,000 to $8,443,000 from the same period in 1998. Sales increased 55%,
subscription revenue increased 220% and service revenue increased 36%.
The increase in sales was primarily due to strong demand for the Company's Order
Book Management System ("OBMS") Futures & Options Product. The increase in
service revenue is principally a result of the increase in subscription revenue.
The increase in subscription revenue is due in part to the increased signups
from the fourth quarter of 1998 through the first half of 1999. In the second
half of 1998 the Company announced record signings of subscription customers.
Revenue from export sales approximated $8,000 and $30,000 (.3% and .4% of
revenue) during the three and nine month periods ended September 30, 1999,
respectively as compared to approximately $8,000 and $226,000 (1% and 6% of
revenue) during the comparable periods in 1998, respectively.
COST OF SALES AND SERVICE AND GROSS PROFIT
The Company's cost of recurring contracts and sales are principally comprised of
labor, materials, overhead, subscription communication lines, amortization of
capitalized product enhancement costs and depreciation of subscription-based
equipment. Gross profit, as a percentage of total revenue was approximately 70%
for the three month and nine month period ended September 30, 1999,
respectively, as compared to 55% and 57% for the same time periods in 1998,
respectively. The increase in gross profit percentage experienced by the Company
during the three and nine months ended September 30, 1999 principally resulted
from increased software sales which have higher margins than hardware sales and
improvement in the Company's pricing structure for subscription revenue which is
reflected in the increased subscription revenue year over year. The Company
obtains its materials and supplies from a variety of vendors in the US and Far
East. During the three and nine months ended September 30, 1999, the Company did
not experience any significant price increases in its component parts purchased.
Included in cost of sales is amortization expense for product enhancement costs
of approximately $193,000 and $492,000 for the three and nine month periods
ended September 30, 1999 respectively, as compared to $124,000 and $330,000 for
the same periods in 1998, respectively. Also included in cost of sales is
depreciation expense for subscription based equipment of approximately $149,000
and $379,000 for the three and nine month periods ended September 30, 1999
respectively, as compared to $88,000 and $205,000 for the same periods in 1998,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 1999 were approximately $1,543,000 and $4,840,000 as
compared to $1,238,000 and $4,194,000 in the comparable periods in 1998, an
increase of 25% and 15%, respectively. Part of the increase in expenses for the
Company is from continuing expansion of the development teams both in the U.S.
and in London. The expansion in development efforts relates to the Company's
plans of providing an increased number of product enhancements as well as new
additional services. As a result, the Company experienced increases in salaries
and related personnel costs, travel expenses and various office expenses. The
Company's recruitment effort continues to strengthen the Company's
infrastructure and position the Company to respond to increasing market and
revenue opportunities. In addition, during June 1999, the Company
12
<PAGE>
relocated its London office, which resulted in higher office occupancy costs.
Management believes that the continued investment in development of the NYFIX
data center, and its services, are designed to better leverage the existing
products together with providing additional sources of revenue. The Company has
continued its marketing programs in 1999 primarily focusing on representation at
technology exhibitions planned throughout the year but did experience some cost
savings as a result of a decrease in print media advertising during 1999.
Research and development (new explorative research) expenses for the three
months and nine months ended September 30, 1999 were approximately $75,000 and
$219,000, respectively, as compared to $147,000 and $490,000 for the comparable
periods in 1998 (a decrease of 49% and 55%, respectively) and are included in
selling, general and administrative expenses. The decrease resulted from the
continuation of the Company's strategy, incorporated during 1998, to balance
resources between research and development and product enhancements, which
strengthens our existing product lines.
DEPRECIATION
Depreciation expense for the three and nine month periods ended September 30,
1999 was approximately $150,000 and $421,000 as compared to $130,000 and
$299,000 in the comparable periods in 1998, an increase of 15% and 41%,
respectively. Such increases principally reflect the continued investment in the
Company's infrastructure in its state-of-the-art NYFIX data center on Wall
Street.
OTHER (EXPENSE) INCOME
Financing and interest expense for the three and nine months ended September 30,
1999 approximated $44,000 and $143,000 as compared to $15,000 and $27,000 for
the comparable periods in 1998, respectively. The increases are primarily
because of higher balances outstanding on the Company's line of credit during
1999, combined with an increase in interest rates during 1999 and the effect of
financing expense on the warrants issued in connection with the line of credit
(see Liquidity and Capital Resources below).
Other income primarily consists of interest income earned on cash balances and
notes receivable. Interest income for the three and nine month periods ended
September 30, 1999 approximated $25,000 and $85,000 as compared to $19,000 and
$62,000 in the same periods in 1998. The increase in interest income was
principally because of higher average cash balances maintained by the Company
during the three and nine months ended September 30, 1999 versus the comparable
period in 1998.
NET EARNINGS (LOSS)
Net earnings for the three months ended September 30, 1999 was $367,668 ($0.04
per basic and diluted common share) compared to a net loss of $579,604 ($(.07)
per basic and diluted common share) for the three months ended September 30,
1998. Net earnings for the nine months ended September 30, 1999 was $548,010
($0.06 per basic and $0.05 per diluted common share) compared to a net loss of
$2,105,604 ($(.24) per basic and diluted common share) for the nine months ended
September 30, 1998. The net earnings principally resulted from the higher level
of revenues and margins, stable product costs and minimal increases in Selling,
General and Administrative expenses.
13
<PAGE>
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems which began in 1993 and
continues into 1999 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model has
positioned the Company to facilitate its future growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been equity capital and drawdowns
from its line of credit. In November of 1998 NYFIX raised approximately
$3,450,000 and in September of 1999 raised approximately $2,547,000 from private
placements of its securities. At September 30, 1999, cash balances decreased to
$3,583,505 from $3,948,004 at December 31, 1998 as a result of the Company's
working capital needs and continued desire to strengthen its NYFIX and
subscription infrastructure.
The Company at September 30, 1999 had total debt of $2,500,000, which represents
amounts drawn down from its line of credit. See discussion below. In addition,
at September 30, 1999, the Company had no material commitments for capital
expenditures or inventory purchases.
On July 13, 1998, the Company entered into a three year $3,000,000 line of
credit agreement (the "Agreement") with a financial institution with advances on
such agreement available to the Company during the first 18 months. The
Agreement is primarily intended to finance existing and future equipment
expenditures. The Agreement bears interest at either LIBOR plus 1.25% or the
Bank's Prime rate. The rate used is management's discretion. The Company drew
down an aggregate of $1,800,000 under the agreement during 1998 and an
additional $700,000 during 1999. The Agreement requires monthly payments of
interest only until January 30, 2000. Principal drawdowns under the Agreement
can not be prepaid in the first eighteen months. Repayment of principal
commences on July 30, 2000 with twelve monthly installments of $83,333 with the
remaining balance due on July 30, 2001. A Company shareholder and the Company's
president personally secure the debt. In consideration for securing the
Agreement, the said shareholder and president received 150,000 and 25,000
warrants respectively, to purchase the Company's common stock at $6.375 per
share, which was the market value of the Company's common stock on the date such
warrants were issued. Expense related to the warrants issued to the non-employee
shareholder will be recognized over the three-year term of the Agreement.
In association with obtaining the $3,000,000 line of credit facility, the
Company terminated its previous $500,000 line of credit agreement (revised from
$1,000,000 line of credit agreement in September 1998) and repaid all
outstanding term loans.
The Company believes that with its available capital, the line of credit
facility and anticipated funds generated from operations it will be able to fund
its cash needs through the end of 1999 without the need for additional capital
or financing. The Company intends to utilize its projected positive financial
position to internally finance its continuing research and development
activities and anticipated sales growth. The Company's financial requirements
and its ability to meet them thereafter will depend largely on its future
financial performance. However, in the event the Company's operations grow more
rapidly than anticipated and do not generate cash to the extent currently
anticipated by management of the Company, it
14
<PAGE>
is possible that the Company could require additional funds beyond 1999. At this
time, the Company does not know what sources, if any, would be available to it
for such funds, if required.
In addition, the Company has warrants outstanding for the purchase of 253,250
shares of its Common Stock. Assuming the exercise of all such outstanding
Warrants, the Company would receive approximately $1,533,000 in gross proceeds.
WORKING CAPITAL
At September 30, 1999 and December 31, 1998 the Company had working capital of
approximately $6,829,000 and $5,970,000, respectively. The Company's present
capital resources include proceeds from its September 1999 and November 1998
private placement of Common Stock and drawdowns from its bank credit facility.
CASH PROVIDED BY / USED IN OPERATING ACTIVITIES
During the nine months ended September 30, 1999, net cash provided by operations
was approximately $426,000 as compared to net cash used in operations for the
nine months ended September 30, 1998 of approximately $1,082,000.
CASH USED IN INVESTING ACTIVITIES
During the nine months ended September 30, 1999 and 1998, net cash used in
investing activities was approximately $4,336,000 and $1,954,000, respectively,
and principally represents payments for the purchases of equipment related to
the Company's data center and subscription equipment and payments related to
product enhancement costs for the Company's product portfolio.
PROCEEDS FROM FINANCING ACTIVITIES
During the nine months ended September 30, 1999 and 1998, proceeds from
financing activities were approximately $3,545,000 and $2,297,000, respectively.
The increase is primarily due to the $2,500,000 private placement in September
of 1999.
YEAR 2000 COMPLIANCE
Overview. The Company is aware of industry wide issues related to Year 2000 that
are associated with the programming code in computer systems. Systems that do
not properly recognize the Year 2000 could generate erroneous data or cause a
system to fail. The Company has developed a Year 2000 plan for our customers as
well as for our internal needs, consisting of several phases which include risk
assessment, manual and automated review of programming code, baseline testing,
unit testing, integrated testing and a review of third party products.
Customers. The Company participated in industry wide Year 2000 testing between
March through April of 1999. The objective of these tests was to ensure our
customer base is in full Year 2000 compliance before the end of the year. All of
these tests were successful. To date, the Company has already issued Year 2000
enhancements to our customers. The Company does not envision that further
industry wide tests will reveal any significant software errors. However, should
there be unforeseen problems, the Company has established a Year 2000 Quality
Assurance Team that will stay in place well into the Year 2000.
15
<PAGE>
The Company estimates that the most likely worst case scenario would be a
failure of exchange and utility systems caused by an unforeseen Year 2000
complication. Such a condition could affect our ability and the ability of
brokerage houses and other service providers to submit order executions
electronically.
NYFIX can not assure that third-party utilities and service providers will be in
a position to address an unforeseen concern in a timely basis. Failure of a
third party to correct an issue could result in significant loss of revenue,
cause business disruption, a loss of customers, and could materially affect our
financial condition.
Were this contingency to arise, our application programs would automatically
alert our customers that the exchange or utility has not successfully
acknowledged their orders. All of the exchanges and utilities have a documented
process for reporting technical concerns and events.
However, at the time of this report and after extensive testing with exchanges
and utilities, the Company has not identified any Year 2000 compliance problem
relating to our systems that would harm our business operations or financial
condition.
It is possible that a significant amount of litigation will arise out of Year
2000 compliance issues. The Company has established a workable plan and Quality
Assurance team to help minimize these risks. Because of the unprecedented nature
of such litigation, it is uncertain whether such issues may affect the Company.
Therefore, there can be no assurances that the Company will not experience
serious unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in the Company's internal
systems or in third party systems that the Company employs.
Internal needs. The Company has identified and evaluated all internal software
and hardware systems for Year 2000 compliance. Vendors of such systems were
contacted to document compliance and at the time of this filing, report that
critical facilities and equipment will not be affected by Year 2000 concerns. In
addition, the Company formulated and published contingency procedures.
The Company is also evaluating Year 2000 compliance of third parties that
provide services to the Company, such as banking and payroll processing.
Non-information technology systems will also be subjected to evaluation
including building support systems provided by the lessors of our offices and
our telecommunications systems.
The costs incurred to date have principally been the payroll related costs
associated with the time spent by our personnel in identifying, evaluating and
testing systems and products. To date, the Company has not identified any
systems that would require significant expenditures to become Year 2000
compliant nor is the Company aware of any significant costs that would be
incurred as a result of ensuring the internal needs are Year 2000 compliant.
SEASONALITY
The Company believes that its operations are not significantly effected by
seasonality.
16
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the fair value of derivatives would be
recognized in earnings in the period of change unless certain hedging criteria
are met. We do not expect the Statement to have a material impact on our
consolidated financial statements. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after September 15, 2000.
RISK FACTORS: FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to market and develop its products.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this document will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information purposes only and not filed.
(b) REPORTS ON FORM 8-K
None
17
<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.
NYFIX, INC.
(Registrant)
By: /s/ Richard A. Castillo
---------------------------
Richard A. Castillo
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,583,505
<SECURITIES> 0
<RECEIVABLES> 6,904,298
<ALLOWANCES> 150,952
<INVENTORY> 1,186,481
<CURRENT-ASSETS> 12,559,154
<PP&E> 7,446,844
<DEPRECIATION> 2,254,042
<TOTAL-ASSETS> 19,536,602
<CURRENT-LIABILITIES> 5,730,289
<BONDS> 0
0
0
<COMMON> 9,636
<OTHER-SE> 11,546,677
<TOTAL-LIABILITY-AND-EQUITY> 19,536,602
<SALES> 2,584,384
<TOTAL-REVENUES> 8,443,317
<CGS> 2,542,450
<TOTAL-COSTS> 7,818,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,255
<INCOME-PRETAX> 575,046
<INCOME-TAX> 27,036
<INCOME-CONTINUING> 548,010
<DISCONTINUED> 0
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<NET-INCOME> 548,010
<EPS-BASIC> 0.06
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