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, 2000
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 |_|
25,009,975 shares of Common Stock were issued and outstanding as of October 27,
2000.
<PAGE>
NYFIX, INC.
FORM 10-Q
For the quarterly period ended September 30, 2000
CONTENTS PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Income (unaudited)
for the three month and nine month periods ended
September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine month periods ended
September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 14
2
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,658,088 $ 1,565,649
Accounts receivable - less allowance of $234,000 and $125,000, respectively 10,207,943 7,088,820
Inventories, net 1,547,738 1,303,658
Prepaid expenses and other current assets 735,768 478,641
Due from NYFIX Millennium 772,472 861,970
Receivable from officers 152,212 156,992
------------ ------------
Total Current Assets 18,074,221 11,455,730
EQUIPMENT, net 8,026,715 5,873,037
INVESTMENT IN NYFIX MILLENNIUM 19,500,000 19,500,000
OTHER ASSETS, net 2,551,117 1,999,258
------------ ------------
TOTAL ASSETS $ 48,152,053 $ 38,828,025
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,631,937 $ 1,845,996
Accrued expenses 2,051,942 1,269,070
Current portion of debt 2,250,000 500,000
Advance billings 4,291,939 3,178,636
Payroll and other taxes payable 61,420 149,043
------------ ------------
Total Current Liabilities 11,287,238 6,942,745
LONG-TERM DEBT -- 2,000,000
------------ ------------
Total Liabilities 11,287,238 8,942,745
------------ ------------
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock - par value $1.00; 5,000,000 shares authorized;
none issued
Common stock - par value $.001; 60,000,000 authorized, 24,962,725 and
15,903,302 shares issued and outstanding, respectively 24,963 15,903
Warrants 246,170 189,509
Additional paid-in capital 39,041,790 35,681,437
Accumulated deficit (1,863,748) (5,369,945)
Due from officers and directors (584,360) (631,624)
------------ ------------
Total Stockholders' Equity 36,864,815 29,885,280
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,152,053 $ 38,828,025
============ ============
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
3
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
REVENUES:
<S> <C> <C> <C> <C>
Sales $ 1,376,245 $ 709,878 $ 3,524,332 $ 2,584,384
Subscription revenues 4,270,851 1,839,024 10,837,021 4,565,074
Service contracts 863,729 447,687 2,063,808 1,293,859
------------ ------------ ------------ ------------
Total Revenues 6,510,825 2,996,589 16,425,161 8,443,317
------------ ------------ ------------ ------------
COST OF REVENUES:
Cost of sales 143,970 88,856 534,893 405,476
Cost of subscription revenues 1,422,029 670,022 3,424,225 1,742,800
Cost of service contracts 183,946 143,732 478,784 394,174
------------ ------------ ------------ ------------
Total Cost of Revenues 1,749,945 902,610 4,437,902 2,542,450
------------ ------------ ------------ ------------
GROSS PROFIT 4,760,880 2,093,979 11,987,259 5,900,867
------------ ------------ ------------ ------------
EXPENSES:
Selling, general and administrative 2,648,101 1,543,162 7,205,575 4,839,879
Depreciation and amortization 272,975 155,392 755,335 436,107
------------ ------------ ------------ ------------
Total Expenses 2,921,076 1,698,554 7,960,910 5,275,986
------------ ------------ ------------ ------------
EARNINGS FROM OPERATIONS 1,839,804 395,425 4,026,349 624,881
Interest expense (64,872) (44,009) (196,842) (143,255)
Interest and other income 35,850 32,813 111,334 93,420
------------ ------------ ------------ ------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 1,810,782 384,229 3,940,841 575,046
PROVISION FOR INCOME TAXES 145,404 16,561 434,644 27,036
------------ ------------ ------------ ------------
NET EARNINGS $ 1,665,378 $ 367,668 $ 3,506,197 $ 548,010
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.07 $ 0.02 $ 0.14 $ 0.03
============ ============ ============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 24,823,736 21,306,683 24,458,917 21,274,061
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ 0.06 $ 0.02 $ 0.13 $ 0.02
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 26,995,836 23,032,616 26,480,142 22,545,776
============ ============ ============ ============
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Period Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,083,584 $ 426,277
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for equipment (3,757,868) (3,138,830)
Payments for software development costs and other assets (1,399,954) (1,197,441)
----------- -----------
Net cash used in investing activities (5,157,822) (4,336,271)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (250,000) --
Proceeds from line of credit -- 700,000
Issuance of common stock 3,416,677 2,845,495
----------- -----------
Net cash provided by financing activities 3,166,677 3,545,495
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,092,439 (364,499)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,565,649 3,948,004
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,658,088 $ 3,583,505
=========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
5
<PAGE>
NYFIX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
----------------------------------------------------------------
1. ORGANIZATION
NYFIX, Inc. and subsidiary (the "Company") is listed on the Nasdaq
Stock Market under the symbol NYFX. Prior to March 6, 2000, the
Company's common stock was traded on the American Stock Exchange
under the ticker symbol NYF.
References herein to "we" and "our" refer to NYFIX, Inc. and
consolidated subsidiary unless the context specifically requires
otherwise.
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. 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. Operating results for the three
and nine month periods ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December
31, 1999.
Certain 1999 balances have been reclassified to conform to the 2000
presentation.
3. CAPITAL STOCK
On March 13, 2000, the Board of Directors authorized a three for two
stock split in the form of a 50% stock dividend to stockholders of
record on March 24, 2000, payable April 4, 2000.
All share and per share information included in the accompanying
consolidated financial statements have been retroactively restated
for the stock split.
4. PER SHARE INFORMATION
The Company's basic earnings per share ("EPS") is calculated based
on net earnings available to common stockholders 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 warrants.
6
<PAGE>
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Earnings $ 1,665,378 $ 367,668 $ 3,506,197 $ 548,010
=========== =========== =========== ===========
Basic Weighted Average Shares
Outstanding 24,823,736 21,306,683 24,458,917 21,274,061
=========== =========== =========== ===========
Basic Earnings per Common Share $ 0.07 $ 0.02 $ 0.14 $ 0.03
=========== =========== =========== ===========
Basic Weighted Average
Shares Outstanding 24,823,736 21,306,683 24,458,917 21,274,061
Dilutive Options 2,138,299 1,457,089 1,987,978 1,061,463
Dilutive Warrants 33,801 268,844 33,247 210,252
----------- ----------- ----------- -----------
Diluted Weighted Average Shares
Outstanding 26,995,836 23,032,616 26,480,142 22,545,776
=========== =========== =========== ===========
Diluted Earnings per Common Share $ 0.06 $ 0.02 $ 0.13 $ 0.02
=========== =========== =========== ===========
</TABLE>
5. INCOME TAXES
The Company's projected annual Federal income tax provision has been
offset through the utilization of net operating loss carryforwards.
The Company's income tax provision consists of estimated state,
local, and foreign income taxes.
6. INVENTORIES
Inventories consist of parts, finished goods and minor materials and
are stated at the lower of cost, determined on an average cost
basis, or market.
September 30, December 31,
2000 1999
---- ----
Parts $1,028,801 $ 828,259
Finished goods 600,937 557,399
Less: allowance for obsolescence 82,000 82,000
---------- -----------
Total $1,547,738 $ 1,303,658
========== ===========
7
<PAGE>
7. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued 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 its consolidated financial statements.
The FASB issued SFAS No. 137 and SFAS No. 138, which deferred the
effective date for SFAS No. 133 to January 1, 2001.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain of
the SEC's views in applying generally accepted accounting principles
to revenue recognition in financial statements. On June 26, 2000,
the SEC issued SAB 101B to defer the effective date of
implementation of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 31, 1999. The
Company is required to adopt SAB 101 by December 31, 2000. The
Company does not expect the adoption of SAB 101 to have a material
impact on its consolidated financial statements.
8. 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 operates 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):
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
------------------------------------------- ---------------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------------------------------------- ---------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Stamford/New York $4,931 $2,039 $12,640 $6,145
London 393 807 2,216 2,105
Chicago 1,187 151 1,569 193
Inter-Segment Sales - 38 5 59
Inter-Segment Elimination - (38) (5) (59)
------------------------------------------- ---------------------------------------------
Total Revenues $6,511 $2,997 $16,425 $8,443
========================================== ===============================================
Gross Profit:
Stamford/New York $3,314 $1,264 $ 8,568 $3,882
London 282 691 1,904 1,844
Chicago 1,165 139 1,515 175
------------------------------------------- ---------------------------------------------
Gross Profit $4,761 $2,094 $11,987 $5,901
========================================== ===============================================
</TABLE>
8
<PAGE>
9. JOINT VENTURE
On October 27, 1999, the Company announced the formation of NYFIX
Millennium, L.L.C. ("NYFIX Millennium") with seven leading
international investment banks and brokerage firms (the
"Consortium"). NYFIX owns 50% of the joint venture and the
Consortium owns the remaining 50%. NYFIX Millennium intends to
operate as an alternative trading system. All of the members of the
Consortium, and the Company, have invested $2,000,000 each in NYFIX
Millennium. Each Consortium partner received 281,250 shares of
common stock of the Company, for an aggregate 1,968,750 shares, in
return for granting the Company an option allowing the Company the
right to purchase up to an additional 30% of NYFIX Millennium. The
Company may exercise the option through the exchange of one share of
the Company's common stock for each unit to be purchased, subject to
adjustments in the event of any split, combination, reclassification
or other adjustments to the capital structure of the Company.
NYFIX's total investment in the joint venture of $19,500,000
consists of $17,500,000 (1,968,750 shares x $8.89) plus the capital
cash contribution of $2,000,000. Pursuant to the Operating
Agreement, the first $14,000,000 in losses will be allocated to the
Consortium investors, which equals the extent of their capital
investment in NYFIX Millennium, and no portion of those losses will
be borne by the Company. The Company has incurred operating and
capital costs on behalf of NYFIX Millennium. Such costs are
reflected as Due from NYFIX Millennium on the Company's balance
sheet.
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 allowing
the Company 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 has 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 considerable effort with respect to an expansion of the
Company's 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.
9
<PAGE>
On October 27, 1999, the Company announced the formation of NYFIX Millennium
with a Consortium of leading international banks and brokerage firms. NYFIX
Millennium has registered 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.
Revenues
Overall revenue for the three and nine months ended September 30, 2000 exceeded
the same periods in 1999 by 117% and 95%, respectively, increasing from $3
million to $6.5 million and from $8.4 million to $16.4 million, respectively.
Increase in demand across all the Company's products contributed to the
continued growth in the three and nine month results. With the markets for
electronic trading systems expanding at a rapid rate, both domestically and
globally, the Company believes the opportunity for continued growth will remain
strong. Subscription revenues was the most improved component of revenue,
demonstrating that the Company's overall strategy to lease its products has
enabled steady growth in subscription revenue period over period. Subscription
revenues increased 132% over the three-month period and 137% over the nine-month
period, or $2.4 and $6.3 million over the same respective periods in 1999.
Service revenues increased 93% and 60% over the comparable three and nine month
periods in 1999. The increase in service revenues was principally due to the
increase in subscription revenues, partially offset by a decrease in service
revenue from sales resulting from the Company's strategy to focus on
subscription basis revenue. Sales revenue increased 94% and 36% over the
comparable three and nine month periods in 1999, primarily due to sales in our
OBMS product line (Futures & Options).
Cost of Revenues
While the Company is primarily focusing on leasing its equity software products,
its derivatives products have been very successful using its capital sales
model. From time to time the Company generates sales on its hardware products.
Cost of sales increased over the three and nine month periods by $55,000 and
$129,000 or 62% and 32%, respectively. This increase for both periods was
primarily due to a larger percentage of hardware sales for the periods ended
September 30, 2000 over the same periods in 1999. The cost of subscription
revenue increased over the three and nine month periods by $752,000 and
$1,681,000 or 112% and 96%, respectively. These increases are attributable to an
increased number of customers, translating into increased costs of
subscriptions. Included in cost of subscription are product enhancement
amortization costs (development costs for enhancements to existing products)
which have increased by $116,000 or 60% from $193,000 to $309,000 over the
comparable three month period in 1999 and $353,000 or 72% from $492,000 to
$845,000 over the comparable nine month period. Also included in cost of
subscription is depreciation expense for subscription-based equipment of
approximately $331,000 and $852,000 for the three and nine month periods,
respectively. This is a 122% increase or $182,000 over the comparable three
months and 125% or $473,000 over the comparable nine-month period. Cost of
service increased for both the three and nine month periods by $40,000 and
$85,000 or 28% and 21%, respectively. Increases for both the cost of
subscription and the cost of service can be linked directly to the increases in
subscription and service revenues.
Gross Profit
Overall gross profit improved over the three and nine month periods by $2.7 and
$6.1 million or 127% and 103%, respectively. This represents a 3-point margin
improvement from 70% to 73% from the same three-month and nine-month periods in
1999. The increase in gross profit margin can be attributable to a growing
market for our desktop products. As of September 30, 2000, placement of our
desktop products has grown to approximately 1,100 units. This is an increase of
approximately 600 units from the number of units at September 30, 1999. Sales
revenue, subscription revenue and service revenue all had significant gross
profit improvements for the three-month period of 98%, 144%, and 124%,
respectively. The nine-month gross profit improvements were 37%, 163%, and 76%,
respectively.
10
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 2000 were $2.6 and $7.2 million as compared to $1.5
and $4.8 million in the comparable periods in 1999. The increase in expenses for
the Company is primarily due to the Company's continued growth, which has led to
increased salary and related personnel costs. The Company's recruitment effort
continues to strengthen the Company's infrastructure and position the Company to
respond to increasing market and revenue opportunities. To accommodate this
increase in personnel, the Company expanded the size of its leased square
footage by approximately fifty percent at its US headquarters during the current
year's third quarter. In addition, in June of 1999, the Company relocated its
London office. The combination of these two events has resulted in higher office
occupancy costs. Management believes that the ongoing investment in development
of the NYFIX data center, and its services, will position the Company to
leverage existing products together with providing additional sources of
revenue. The Company has improved its customer service by adding resources in
its installation and project management organization. Research and development
(new explorative research) expenses for the three and nine month periods ended
September 30, 2000 were $132,000 and $346,000, as compared to $75,000 and
$219,000 for the comparable periods in 1999, an increase of 76% and 58% for
three and nine month periods, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three and nine month periods ended
September 30, 2000 was $273,000 and $755,000, respectively, as compared to
$155,000 and $436,000 in the comparable periods in 1999, an increase of 76% and
73%, respectively. Such increases principally reflect the continued investment
in the Company's infrastructure for its NYFIX data center.
Interest Expense
Interest expense for the three and nine month periods ended September 30, 2000
was $65,000 and $197,000, as compared to $44,000 and $143,000 for the comparable
periods in 1999, respectively. The increase was primarily due to higher average
balances outstanding in 2000 versus 1999 on the Company's line of credit due to
the draw down of an additional $700,000 in August of 1999, combined with the
effect of continued financing expense on the warrants issued in connection with
the line of credit.
Interest and Other Income
Interest and other income primarily consists of interest earned on cash balances
and notes receivable. Interest income for the three and nine month periods ended
September 30, 2000 was $35,000 and $110,000 as compared to $25,000 and $85,000
for the comparable periods in 1999, respectively. The increase in interest
income was principally due to increased average cash balances during the three
and nine months ended September 30, 2000. Along with bank interest, interest
income is also being derived through notes receivable from officers and
directors.
Net Earnings
Net earnings for the three and nine months ended September 30, 2000 were $1.7
and $3.5 million, respectively, or $0.07 per basic common share and $0.06 per
diluted common share for three months and $0.14 per basic common share and $0.13
per diluted common share for nine months. Net earnings for the three and nine
month periods in 1999 were $368,000 and $548,000, respectively, or $0.02 per
basic and diluted common share for three months and $0.03 per basic common share
and $0.02 per diluted common share for nine months. The net earnings principally
resulted from the higher level of revenues and margins, stable product costs and
lower Selling, General and Administrative expenses as a percentage of revenues.
11
<PAGE>
Liquidity and Capital Resources
Prior to achieving the Company's present levels of profitability, our primary
source of liquidity had been equity capital and draw downs from our line of
credit. At September 30, 2000 cash balances increased to $4.7 million, from $1.6
million at December 31, 1999, as a result of the increase in net earnings and
the exercise of stock options and warrants, partially offset by the acquisition
of equipment and other assets.
The Company at September 30, 2000 had total debt of $2.25 million, which
represents amounts drawn down from our line of credit agreement (the
"Agreement") net of repayments. In addition, at September 30, 2000, the Company
had no material commitments for capital expenditures or inventory purchases.
Under the terms of the Agreement, no further draw downs are available under the
Agreement and the Company must repay $83,333 per month for the next nine months
and the remaining balance of $1.5 million on July 30, 2001. The Company believes
that with its available capital and anticipated funds generated from operations
it will be able to fund its cash needs for the next twelve months without the
need for additional capital or financing. The Company intends to utilize its
projected positive financial position to internally finance its continued
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 is possible that the
Company could require additional funds. At this time, the Company does not know
what sources, if any, would be available to it for such funds, if required.
Working Capital
At September 30, 2000 and December 31, 1999 the Company had working capital of
$6.8 million and $4.5 million, respectively. The Company's present working
capital resources include proceeds from internal operations and from its
September 1999 and November 1998 private placement of common stock and drawings
from its line of credit.
Cash Provided by Operating Activities
During the nine months ended September 30, 2000, net cash provided by operations
was $5.1 million as compared to net cash provided by operations for the nine
months ended September 30, 1999 of $426,000. The increase is primarily due to
net earnings of $3.5 million for the nine months ended September 30, 2000 versus
net earnings of $548,000 for the nine months ended September 30, 1999.
Cash Used in Investing Activities
During the nine months ended September 30, 2000 and 1999, net cash used in
investing activities was $5.2 million and $4.3 million, respectively, which
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, 2000 and 1999, proceeds from
financing activities were $3.2 million and $3.5 million, respectively. The
decrease is primarily due to a $2.5 million private placement of common stock
which occurred in September 1999, offset by the exercise of stock options and
warrants in the current year's nine month period.
Seasonality
The Company believes that its operations are not significantly effected by
seasonality.
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New Accounting Pronouncements
In June 1998, the FASB 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. The Company does not expect
the Statement to have a material impact on its consolidated financial
statements. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is
effective on January 1, 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. On June 26, 2000, the SEC issued SAB 101B
to defer the effective date of implementation of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 31, 1999. The
Company is required to adopt SAB 101 by December 31, 2000. The Company does not
expect the adoption of SAB 101 to have a material impact on its consolidated
financial statements.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk principally with changes in interest
rates. Interest rate exposure is primarily limited to the $2.25 million of
long-term debt outstanding at September 30, 2000, under the Company's line of
credit agreement. Borrowings under the line of credit agreement bear interest at
rates that float with the market. Assuming a change of 100 basis points in the
interest rates on the line of credit agreement, interest expense and cash flows
would be affected by approximately $16,000 through July 30, 2001, at which time
the line of credit agreement expires. The Company does not use derivative
financial instruments for any purpose.
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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
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period presented.
================================================================================
SIGNATURE
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)
Dated: November 13, 2000
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