-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AbnjYLH5owxZQ1mS2R78Py2YoazKPr+O+ipk8QRFZqkL4q3fTyBiCOL6cXFCDti8 UXXOoIFQIyw4aQbzi6C7eA== 0000921895-99-000828.txt : 19991115 0000921895-99-000828.hdr.sgml : 19991115 ACCESSION NUMBER: 0000921895-99-000828 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NYFIX INC CENTRAL INDEX KEY: 0000099047 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 061344888 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12292 FILM NUMBER: 99749935 BUSINESS ADDRESS: STREET 1: 333 LUDLOW STREET CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2034258000 FORMER COMPANY: FORMER CONFORMED NAME: TRINITECH SYSTEMS INC DATE OF NAME CHANGE: 19940404 10-Q 1 QUARTERLY REPORT ON FORM 10-Q 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. 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 NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, ASSETS 1999 1998 ---- ---- (Unaudited) (a) CURRENT ASSETS: 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 ============ ============
(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 NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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: 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 ============ ============ ============ ============
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 4 NYFIX, INC. AND SUBSIDIARY (Formerly Trinitech Systems, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Month Nine Month Period Ended Period Ended September 30, September 30, 1999 1998 ---- ---- 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 =========== ===========
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 5 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
Three Month Nine Month Period Ended Period Ended ------------------------------ ------------------------- September September September September 30, 1999 30, 1998 30, 1999 30, 1998 -------- --------- --------- --------- 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) =========== =========== =========== ===========
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 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 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:
Three Month Nine Month Period Ended Period Ended ------------------------------- ------------------------------ September September September September 30, 1999 30, 1998 30, 1999 30, 1998 ------------------------------- --------------- ------------- 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) ============ ============ ============ ============
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 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 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 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 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 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 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 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 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 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 EX-27 2 ARTICLE 5 FDS FOR 10-QSB
5 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. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 3,583,505 0 6,904,298 150,952 1,186,481 12,559,154 7,446,844 2,254,042 19,536,602 5,730,289 0 0 0 9,636 11,546,677 19,536,602 2,584,384 8,443,317 2,542,450 7,818,436 0 0 143,255 575,046 27,036 548,010 0 0 0 548,010 0.06 0.05
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