<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
           (Mark One)
             | X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       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. 0-10966

                       NATIONAL TRANSACTION NETWORK, INC.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                 75-1535237
         --------                                 ----------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)

117 Flanders Road
WESTBOROUGH, MASSACHUSETTS                        01581
--------------------------                        -----
(Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code: (508) 870-3200
                                                    --------------

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:
                  TITLE OF CLASS: COMMON STOCK, $.15 PAR VALUE
                                  ----------------------------


         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 at least the past 90 days.

                                  Yes_X_ No___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 6, 1998: $355,395, based on the average low bid
and high asked prices on the over-the-counter market as reported on that date.

         Number of shares outstanding of registrant's common stock, $.15 par 
value, as of March 6, 1998:  3,280,662.

                    Documents are incorporated by reference:
             Portions of the Registrant's Definitive Proxy Statement
             for the Annual Meeting of Stockholders are incorporated
                  by reference into Part III of this Form 10-K.




<PAGE>   2

                                     PART I

ITEM 1. BUSINESS.
        --------

THE COMPANY AND ITS MARKETS
---------------------------

         National Transaction Network, Inc., a Delaware corporation ("NTN" or
the "Company"), is engaged in designing, developing, integrating, marketing, and
maintaining electronic payment systems for use in retail applications. NTN
software products are used to perform some or all of the tasks involved in
electronic payment transactions, including the collection of payment-related
data at the point of sale; the secure transmission of this data to a processing
computer; the authorization of the transaction; the collection of the completed
transactions; and the processing of these transactions for accountability, funds
management, and reporting reasons. NTN also provides support services relating
to the deployment and on-going operation of these systems.

         The Company's predecessor was incorporated under Texas law on September
26, 1976. It completed an initial public offering of shares of its common stock
in February 1983. In June 1987, the Company's predecessor completed a subsequent
public offering of units of shares of its common stock and common stock purchase
warrants. In March 1988, the stockholders of the Company's predecessor Texas
corporation approved the merger of the predecessor company with and into
National Transaction Network, Inc., a Delaware corporation which was a
wholly-owned subsidiary of the predecessor company. As a result of the merger,
National Transaction Network, Inc. has succeeded to all of the properties,
assets and liabilities of the predecessor company, and has carried on the
business of the predecessor company.

         In September 1996, International Verifact Inc. ("IVI"), a Toronto,
Ontario, Canada-based company, acquired beneficial ownership of approximately
84% of the outstanding common stock, $.15 par value, of the Company in a private
transaction. IVI acquired such shares in exchange for IVI common shares having
an aggregated market value of approximately $1,254,000. Due to the percentage
ownership of NTN acquired as a result of this transaction, NTN has become a
subsidiary of IVI and the financial position and results of operations of NTN
are included in IVI's consolidated financial position and results of operations
from the date of acquisition. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.

         In January 1998, the Company purchased the rights to certain software
products from BancTec USA, Inc. ("BancTec"). Also included in the purchase were
certain customer software maintenance contracts and tangible assets used to
support such contracts. The software products acquired by the Company complement
NTN's existing software products and services. The purchase price is based on
75% of the revenues derived by the Company from the software maintenance
contracts acquired for the twelve-month period following the date of purchase.
It is estimated that the revenues from such software maintenance contracts will
be approximately $400,000. As a consequence, the purchase price for the BancTec
software products is estimated to approximate $300,000 and is payable 30 days
following receipt of such revenue.

ELECTRONIC PAYMENT SYSTEMS
--------------------------

         Electronic Payment Systems ("EPS") automate the acceptance of non-cash
payment media at a retail location. This automation process speeds customer
service, reduces retail operating expenses and attracts new customers by
allowing new forms of payment to be accepted. Automation reduces fraud and
eliminates many of the paper documents traditionally associated with non-cash
payments. Common types of payment media automated by EPS include:

o Electronic Funds Transfer ("EFT") using consumer ATM access (debit) cards. EFT
transactions result in the nearly immediate transfer of funds from the
consumer's bank account to the merchant's bank account in exchange for
merchandise and cash. On-line EFT requires the secure transmission of the
consumer's Personal Identification Number ("PIN") for verification at the
financial institution, as well as capture and transmission of the transactional
data.


                                       -2-


<PAGE>   3

o Credit Cards. This includes bank issued cards (MasterCard, Visa), travel and
entertainment cards (American Express, Diner's Club) and retailer issued cards
(Sears, Discover, J.C. Penney, etc.). Credit card transactions are authorized
and electronically captured, resulting in faster service and lower operating
costs.

o Checks. Payments by check may be automated to verify the consumer's past check
payment history and assure that no returned check items are outstanding. Often,
customer identification is based on a valid driver's license or a retailer
issued check cashing card.

o Electronic checks using the Automated Clearing House ("ACH"). This consumer
payment option replaces a paper check with an electronic item submitted to the
ACH for settlement between financial institutions. EPS identify the consumer,
capture the data and eliminate the need for the traditional paper check.

o Electronic Government Benefits Transfer ("EBT"). EBT replaces labor intensive
paper food stamps and other forms of government benefits with electronic
transactions. These programs are in pilot tests or roll-out in several states.
The government expects to measure results based on reduced administrative
expenses and reduced fraud.

o Retailer-issued Gift Certificates. Traditionally, gift certificates have been
treated as manually processed, paper-based transactions. Due to renewed emphasis
on increased speed of acceptance, detailed management reporting, and fraud
protection, retailers are using EPS to automate this process by converting to
plastic card-based programs.

o Frequent Shopper Transactions. Retailers are rewarding their best customers
and incenting these and other customers to exhibit chain loyalty through
frequent shopper and targeted marketing programs. EPS are being used to collect
the customer history and to evaluate the effect of certain promotions on the
recipients of these promotions.

PRODUCT STRATEGY
----------------

         NTN seeks to identify specific niches in the retail industry and to
design complete electronic payment systems to meet the needs of its targeted
markets. Components of an electronic payment system may include transaction
terminals and peripherals, software at the point of sale for originating
transactions and communicating to other systems in the store, such as electronic
cash registers, communications methodologies for transmitting the transactions
to a processing computer, software for authorizing, processing, or re-routing
the transactions to a service provider, and support services to ensure the
smooth operation of these disparate parts.

         NTN in-store systems are primarily built around the Company's software
products operating in customer-activated terminals and back office personal
computers. NTN products address the requirements for in-store systems, which are
usually connected to one or more of many host processors.

         NTN selects hardware platforms for characteristics providing easy
consumer operation, data security, reliability and availability. The Company's
software products are written to enhance and complement these features.

         NTN communications controllers manage a number of terminals and provide
communications over a single telephone line or satellite uplink. NTN works with
the retailer and the transaction processing service provider to determine the
most appropriate communications strategy given retailer requirements for economy
and speed. In addition to consolidating communications, the controller handles
reporting on in-store EPS activity.

         The Mainsail software product acquired by the Company from BancTec
("Mainsail") allows retailers to authorize and process such retailer's EFT
transactions at their corporate office as opposed to utilizing the services of
an outside, third party transaction processor. The Mainsail product enables
retailers to centralize their check and EFT transaction authorizations thereby
significantly reducing the retailer's costs of handling



                                      -3-
<PAGE>   4

electronic payments by reducing their reliance on costly third party processors.
By delivering both store and corporate level products, NTN now offers a single
source, end-to-end electronic payment solution to retailers giving the Company a
significant technical and price advantage over competitors who offer payment
solutions at either the store or corporate level only.

         NTN has sought to standardize its product offerings as much as
possible. In 1997, the Company continued to standardize its products by
releasing both UNIX and Microsoft NT operating system-based versions of its
in-store electronic payment system products. Significant development was also
completed on the Company's next generation products based on the Microsoft NT
and JAVA operating system platforms in order to enable NTN to adapt to the new
technologies used by retailers. This product development effort further
reinforces the Company's initiative to conform with new retail technology
requirements such as Microsoft's Active Store products, the Internet, and the
new system products of major point of sale cash register vendors.

INTELLECTUAL PROPERTY
---------------------

         NTN relies on a combination of trade secrets, copyrights, and
trademarks to protect its intellectual property.

STRATEGIC ALLIANCES
-------------------

         To facilitate product development and marketing, NTN has entered into
several key strategic alliances which provide access to hardware platforms and
markets for the Company's products. These alliances are all related to NTN's
strategic direction of providing products and services to meet the EPS needs of
retailers.

         In December 1990, NTN entered into a distribution agreement with IVI.
Pursuant to the distribution agreement, IVI granted the Company a two year,
non-exclusive right to market, distribute and sell IVI products in the United
States. Since the expiration of the agreement on December 31, 1992, the Company
has continued working with IVI under an informal extension of the non-exclusive
distribution agreement. In September 1996, IVI acquired beneficial ownership of
approximately 84% of the outstanding common stock of NTN. IVI's product line
includes point of sale terminals and peripherals for electronic transaction
processing applications. Alternate sources of supply are available.

         In January 1993, NTN entered into a value-added reseller agreement with
Inacom Corporation. The agreement allows NTN to purchase IBM or compatible
personal computers from Inacom at preferential prices. These personal computers
may be used as the communications controller for NTN's payment systems. The
initial one year term of the agreement automatically renews for successive one
year terms unless the agreement is otherwise terminated by either party, which
has not occurred to date.

         In September 1993, NTN entered into a master purchase agreement with
VeriFone, Inc., a leading manufacturer of electronic payment terminals. Pursuant
to the terms of the agreement, NTN receives discount pricing on VeriFone
hardware and software components. These VeriFone products are incorporated into
NTN's payment systems and sold to end-users in the United States on a
non-exclusive basis. The initial one year term of the agreement automatically
renews for successive one year terms unless the agreement is otherwise
terminated by either party, which has not occurred to date.

MARKETING
---------

         NTN has historically focused on producing Electronic Payment Systems
specifically designed for supermarkets and similar multi-lane retailers. NTN has
also begun marketing into other retail markets to expand the market for the
Company's products to include additional applications.

         NTN primarily markets its products through a direct selling force. The
Company's headquarters and regional sales offices provide the sales force with
nationwide coverage. The sales force focuses its efforts on supermarket
retailers primarily, with additional efforts targeted at retailers in other
industry segments and the



                                      -4-
<PAGE>   5

field sales force of strategic partners of the Company. The direct sales force
is supported by promotional plans including trade show exhibits, regional
seminars, direct mail campaigns, and press coverage.

         NTN also markets its products through several indirect sales channels.
These indirect channels influence the multi-lane retailer and EPS industries,
including cash register vendors, supermarket wholesalers, third party networks,
and other software developers.

         The acquisition of approximately 84% of the Company's outstanding
common stock by IVI has made available to NTN the financial resources of IVI to
help the Company expand its products and markets. The Company believes that
additional benefits from IVI's investment are being achieved by (i) creating a
competitive advantage through combining complementary product offerings; (ii)
leveraging combined software development organizations and technologies; and
(iii) economies of scale in sales, product support, and marketing initiatives.

PRODUCTS
--------

         NTN PINnacle(TM) Payment Systems are a family of standardized products
which provide retailers with the ability to accept electronic payments in a
variety of operating environments. These payment systems must work in
conjunction with several characteristics of the retailer's store environment
including the type of store system (cash register) used, the routing of
transactions for processing and the communications methods employed for
transmitting financial transactions. In addition, the retailer may choose one of
several models of electronic payment terminals on the market. The Company's
product line also includes services related to the operation of an electronic
payment system, such as systems integration, installation, training, and
hardware and software maintenance. All of these products and services are
designed to allow for development of common features across the Company's
customer base.

         The NTN PINnacle(TM) Payment Controller is the heart of NTN's product
line. Controller software functionality centers around a variety of
communications interfaces, data collection routines and reporting of in-store
data. NTN is placing increased emphasis on being architecturally and
functionally compatible with the store system chosen by the retailer. NTN is
able to provide modifications and enhancements customized to the retailer's
needs.

         NTN PINnacle(TM) Payment Terminal Software is compatible with the NTN
controller. Terminal software originates electronic transactions through cashier
and consumer input. In some environments, the terminal software interacts with
compatible software on the cash register system to share data and to use the
cash register printer for receipt generation. NTN software is compatible with
the products of major store system providers including Fujitsu-ICL, IBM, and
NCR.

         NTN's Mainsail(TM) Software drives a retailer's corporate office-based,
in-house electronic payments processing system. An open systems software
application, Mainsail receives all of a retailer's electronic payment
transactions routed to it from its store locations, distinguishes transaction
type, and wherever applicable, re-routes transactions to the appropriate
financial institution authorizer. Mainsail also maintains a relational data base
of customer transaction information against which it validates in-house
transactions relating to check authorization and other retailer-sponsored
programs. The product's capability in this area is used by retailers to reduce
fraudulent check activity and enable expanded customer loyalty, gift
certificate, and electronic marketing programs.

         Mainsail supports all types of electronic payment transactions and,
when integrated with NTN's complementary PINnacle product solutions, allows NTN
to serve as a retailer's single source electronic payments solution provider.
The Company's product offerings enable it to provide retailers with complete yet
economic end-to-end electronic payment solutions.

         NTN assists its customers by offering a comprehensive set of
professional services necessary for the start-up and on-going support of
electronic payment systems. These services may include project management,



                                      -5-
<PAGE>   6

procurement and preparation of hardware components, hardware and software
maintenance, installation, training, custom software design and development and
new product evaluation for specific customers.

CUSTOMERS
---------

NTN's customer base consists of large retail companies, principally in the
supermarket industry, located throughout the United States. In 1997, Albertsons,
Inc. accounted for 57% of the Company's total revenue.

COMPETITION
-----------

         NTN has positioned itself as a full service provider of EPS for
multi-lane retailers. This market niche has attracted other suppliers of
competing products and services, some of whom have significantly greater
financial and marketing resources than NTN and may develop products that are
superior to NTN's products or that achieve greater customer acceptance. These
suppliers include point of sale hardware vendors and EPS providers, system
integrators, cash register vendors, and third party transaction processing
organizations. It is the Company's objective to successfully compete against its
competitors by focusing on the multi-lane retail market and providing the most
appropriate and complete electronic payment system available. NTN distinguishes
itself from its competitors through its system integration capabilities and its
wide array of professional services available to its customers. NTN's success
will depend in large part on its ability to increase its market share of its
targeted market segments and to sell additional products and services to
existing customers. Competition expected to be encountered by the Company could
result in pricing pressures and reduced margins which could have a material
effect on the Company's financial condition and results of operations in the
future.

DEVELOPMENT
-----------

         During the years ended December 31, 1995, 1996, and 1997, the Company
incurred $1,016,521, $947,087 and $922,117 respectively, in research and
development expenses for software development in connection with its existing
and proposed products. During 1997, an additional $286,228 of costs incurred
were capitalized and accounted for in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." During 1995 and 1996, there were no
research and development expenses incurred that required capitalization.

REGULATION
----------

         In some applications, users of EFT terminals may be subject to federal
or state regulation under statutes and regulations relating to electronic funds
transfer systems, credit cards and debit cards. Such laws may limit the
transactions capable of being performed, limit the locations where terminals may
be placed, limit card customer liability for fraudulent transfers and require
certain written documents to be produced at the time of transfer, among other
matters. There can be no assurance that compliance with such regulations will
not be burdensome and costly.

EMPLOYEES
---------

         As of December 31, 1997, the Company had thirty four employees. As of
March 13, 1998, the Company had thirty six employees: Milton A. Alpern, its
Chief Financial Officer, Vice President of Finance and Treasurer, Sheila C.
Birney, its Vice President of Product Development and Professional Services,
Jeffrey A. Wakefield, its National Sales Manager, fourteen software engineers,
eight marketing and sales employees, eight customer service employees and three
finance and administrative employees.



                                      -6-
<PAGE>   7

ITEM 2. PROPERTIES.
        ----------

         The Company's principal executive offices, located at 117 Flanders
Road, Westborough, Massachusetts, are leased pursuant to a five-year lease
executed in November 1996. The Company's occupancy under the lease began on
February 1, 1997. The lease expires on January 31, 2002. The total rental is
approximately $9,081 per month during the first two years of the lease,
approximately $9,445 per month during the next two years of the lease, and
approximately $9,808 per month during the last year of the lease. The Company
believes that the space, consisting of approximately 17,400 square feet, is
sufficient for the Company's needs for 1998. One sales office, located at 12200
East Briarwood Avenue, Englewood, Colorado, has a monthly rental of $460. Other
employees of the Company, not located at the Company's executive offices, work
out of home offices for which the Company incurs no rental expense.

ITEM 3. LEGAL PROCEEDINGS.
        -----------------
         
         The Company has no material legal proceedings at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
        ---------------------------------------------------

         There were no matters submitted to a vote of the security holders in
the quarter ended December 31, 1997.


                                      -7-

<PAGE>   8

                                     PART II
                                                            
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
        ---------------------------------------------------------------------

         From January 10, 1991 through the present, the Company's common stock
has been listed on the pink sheets of the National Quotations Bureau, Inc., and
certain broker-dealers have held themselves out as market makers in the common
stock. Additionally, the Company's common stock is included on the OTC Bulletin
Board. The quotations below reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual transactions.

<TABLE>
<CAPTION>
                        1996                                                     HIGH                      LOW
                        ----                                                     ----                      ---

<S>                                                                             <C>                       <C>  
First quarter (1/1 - 3/31).............................................         $0.31                     $0.25
Second quarter (4/1 - 6/30)............................................         $0.41                     $0.25
Third quarter (7/1 - 9/30).............................................         $0.52                     $0.19
Fourth quarter (10/1 - 12/31)..........................................         $0.50                     $0.25

                       1997                                                      HIGH                      LOW
                       ----                                                      ----                      ---

First quarter (1/1 - 3/31).............................................         $0.28                     $0.25
Second quarter (4/1 - 6/30)............................................         $0.84                     $0.25
Third quarter (7/1 - 9/30).............................................         $0.80                     $0.75
Fourth quarter (10/1 - 12/31)..........................................         $0.78                     $0.56

</TABLE>

         As of March 6, 1998, there were 569 holders of record of the Company's
common stock. The Company has not paid dividends on its common stock and does
not anticipate paying dividends in the foreseeable future. The Company
anticipates that all earnings will be retained for development of the Company's
business.

                                      -8-
<PAGE>   9



ITEM 6.  SELECTED FINANCIAL DATA.
         -----------------------

STATEMENT OF OPERATIONS DATA


<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                           ------------------------
          
                                            1997                 1996                 1995                1994            1993
                                            ----                 ----                 ----                ----            ----

<S>                                        <C>                   <C>                 <C>                 <C>            <C>       
Revenue.................................   $5,318,371            $5,013,023          $8,006,417          $7,968,148     $9,509,907
Cost of Revenue.........................    3,039,907             2,609,901           4,593,041           4,948,350      5,903,732
                                            ---------             ---------           ---------           ---------      ---------
Gross Margin............................    2,278,464             2,403,122           3,413,376           3,019,798      3,606,175
Total Operating
 Expenses...............................    2,689,930             3,038,245           3,518,522           4,272,107      3,418,972
                                            ---------             ---------           ---------           ---------      ---------
Income (Loss) from Operations...........     (411,466)             (635,123)           (105,146)         (1,252,309)       187,203
Other Income (Expense)..................      (37,297)               20,128              16,445              15,879       (177,682)
                                            ---------             ---------           ---------           ---------      --------- 
Income (Loss) before Income
 Taxes..................................     (448,763)             (614,995)            (88,701)         (1,236,430)         9,521
Provision for Income Taxes..............
                                            ---------             ---------           ---------           ---------      ---------
Net Income (Loss).......................    $(448,763)            $(614,995)           $(88,701)        $(1,236,430)        $9,521
Income (Loss) per Common
 Share:
    Basic and Diluted Net
     Income (Loss)......................       $(.14)                 $(.19)              $(.03)             $(.38)           $.00
Weighted Average Number of
 Common Shares Outstanding..............    3,254,055             3,248,606           3,248,606           3,248,606      2,471,161


BALANCE SHEET DATA

                                                                                AS OF DECEMBER 31,
                                                                                ------------------
                                            1997                  1996                1995              1994             1993
                                            ----                  ----                ----              ----             ----

Working Capital........................    $1,155,167              $427,353            $997,032         $993,108       $1,873,150
Total Assets...........................     2,638,768             2,161,092           2,344,698        2,877,998        4,207,735
Long Term Liabilities..................     1,548,592                12,053                   0                0                0
Stockholders' Equity...................       196,488               634,250           1,249,245        1,337,946        2,574,376

</TABLE>

NOTES:
------

All share and per share information has been restated to reflect the
one-for-fifteen reverse stock split of the Company's common stock, effected on
October 22, 1993.

In 1997, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," and has restated all periods presented
to conform to the new presentation.

                                      -9-
<PAGE>   10



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         ---------------------------------------------------------------
         RESULTS OF OPERATIONS.
         ---------------------

OVERVIEW

         The Company's business strategy focuses on the development and
marketing of software products and professional services designed to address the
electronic payment system needs of multi-lane retailers. Turn-key system
solutions including customer-activated payment terminals, in-store controllers,
point of sale system integration and transaction processing network interfaces
are also provided to customers. These solutions enable retailers to automate
payment transactions involving consumer debit (ATM) cards, bank and retailer
issued credit cards, paper check authorization, electronic government benefits
and electronic checks.

         In January 1998, the Company purchased the rights to certain software
products from BancTec USA, Inc. ("BancTec"). Also included in the purchase were
certain customer software maintenance contracts and tangible assets used to
support such contracts. The software products acquired by the Company complement
NTN's existing software products and services. The Mainsail software product
acquired from BancTec enables retailers to centralize their check and EFT
transaction authorizing and processing at their corporate office thereby
significantly reducing the retailer's costs of handling electronic payments by
reducing their reliance on costly third party transaction processors.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Total revenue for the year ended December 31, 1997 increased by 6.1% to
$5,318,371 compared to $5,013,023 for the year ended December 31, 1996. The
increase in revenue was primarily due to a significant customer's decision to
upgrade a large number of its currently installed systems during 1997. The
revenue derived from this customer accounted for approximately 57% of the
Company's total revenue for the year ended December 31, 1997 compared to
approximately 48% of total revenue for the year ended December 31, 1996.

         Gross margins as a percent of revenue were 42.8% for the year ended
December 31, 1997 compared to 47.9% for the year ended December 31, 1996. The
decrease in gross margin percentage was primarily due to increases in certain
categories of expenses resulting from the assignment of certain personnel to
costs of goods sold in 1997 who had been previously assigned to sales and
marketing expenses in 1996. The resulting decrease in gross margin percentage
was partially offset by a shift in mix between hardware, software, and
professional services revenue. Higher margin software and professional services
revenue accounted for approximately 46.8% of total revenue for the year ended
December 31, 1997 compared to approximately 43.7% for the year ended December
31, 1996.

         Total operating expenses for the year ended December 31, 1997 decreased
by 11.5% to $2,689,930 compared to $3,038,245 for the year ended December 31,
1996. Sales and marketing expenses decreased by 10.3% in 1997 to $997,710
compared to $1,111,665 in 1996. Sales and marketing expenses include the costs
of distribution, product marketing, and account management. As noted above, a
change in the assignment of certain personnel to costs of goods sold in 1997 who
had been previously assigned to sales and marketing expenses in 1996 contributed
to the decrease in sales and marketing expenses.

         Research and development expenses decreased by 2.6% to $922,117 for the
year ended December 31, 1997 compared to $947,087 for the year ended December
31, 1996. Increases in compensation and fringe benefit expenses, recruiting
expenses, travel and entertainment expenses, and other expenses associated with
an increase in the number of research and development personnel were generally
offset by the capitalization of certain software development costs in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", resulting
in the small decrease in research and development expenses for 1997 compared to
1996. For the year ended December

                                      -10-
<PAGE>   11

31, 1997, capitalized software development costs totaled $286,228. For the year
ended December 31, 1996, there were no costs incurred that required
capitalization.

         General and administrative expenses decreased by 21.4% to $770,103 for
the year ended December 31, 1997 compared to $979,493 for the year ended
December 31, 1996. The decrease was primarily due to the accrual, in September
1996, of severance expenses associated with the termination of the Company's
former president and recruiting expenses related to the hiring of a new general
manager of the Company totaling approximately $181,000. In addition, bad debt
expense related to write-offs of uncollectible customer account balances
decreased by approximately $32,000 for the year ended December 31, 1997 compared
to the year ended December 31, 1996.

         Other expense for the year ended December 31, 1997 totaled $37,297 and
consisted primarily of interest expense on convertible subordinated notes
payable to IVI ($24,208) and interest expense incurred on capitalized lease
obligations and borrowings made during the year under the Company's
bank-financed working capital line of credit. Other income for the year ended
December 31, 1996 totaled $20,128 and consisted primarily of interest earned on
invested cash balances.

         No tax provision was required in 1997 due to the loss incurred.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         Total revenue for the year ended December 31, 1996 decreased by 37.4%
to $5,013,023 compared to $8,006,417 for the year ended December 31, 1995. The
decrease in revenue was primarily due to the inability of the Company to acquire
the necessary capital to properly invest in appropriate research and
development, marketing, and sales activities. In addition, primarily due to
resource constraints, the Company has been delayed in its ability to deliver new
payment system products to meet the new technology demands of several customers
and prospects. Lastly, revenues for 1996 were impacted by several customers of
the Company having completed large roll-outs of the Company's systems in 1995.

         For the year ended December 31, 1996, gross margins as a percent of
revenue increased to 47.9% from 42.6% for the year ended December 31, 1995. The
increase in gross margin percentage relates to higher margin software and
professional services revenue comprising a larger percentage of the Company's
total revenue. For the year ended December 31, 1996, software and professional
services accounted for approximately 44% of total revenue compared to
approximately 36% of total revenue for the year ended December 31, 1995.

         Total operating expenses for the year ended December 31, 1996 decreased
by 13.6% to $3,038,245 compared to $3,518,522 for the year ended December 31,
1995. Sales and marketing expenses decreased by 37.3% in 1996 to $1,111,665
compared to $1,771,800 in 1995. A significant portion of the decrease in sales
and marketing expenses was due to a reduction of staff in the sales and
marketing organization in the fourth quarter of 1995. The reduction of staff
resulted in a decrease in compensation and fringe benefits expenses of
approximately $359,000 for the year ended December 31, 1996 compared to the year
ended December 31, 1995. The reduction of staff was also primarily responsible
for a decrease in travel and entertainment expenses between the two years
totaling approximately $174,000. Additionally, sales commission expense
decreased by approximately $178,000 due to the decrease in revenue experienced
in 1996. These decreases in sales and marketing expenses were partially offset
by increases in outside consulting expenses ($69,000) resulting from the
utilization in 1996 of outside contractors to assist the Company in managing a
specific project to enable a customer to automate their acceptance of certain
proprietary payment transactions and in coordinating the Company's trade show
participation.

         Research and development expenses decreased by 6.8% to $947,087 for the
year ended December 31, 1996 compared to $1,016,521 for the year ended December
31, 1995. The decrease in 1996 was primarily due to a reduction in the
utilization of independent, outside programming contractors.

                                      -11-
<PAGE>   12

         General and administrative expenses increased by 34.1% to $979,493 for
the year ended December 31, 1996 compared to $730,201 for the year ended
December 31, 1995. The increase in these expenses for 1996 was primarily due to
severance and recruitment costs totaling approximately $181,000 incurred in
connection with certain management personnel changes made immediately following
the acquisition in September 1996 of approximately 84% of NTN's outstanding
common stock by IVI. In addition, bad debt expense of $44,000 relating to
certain uncollectible customer balances and moving expenses of $25,000 relating
to the relocation of the Company's executive offices contributed to the increase
in general and administrative expenses for the year ended December 31, 1996.

         Other income and expense, consisting primarily of interest earned on
invested cash balances, totaled $20,128 in 1996 compared to $16,445 in 1995. The
increase in interest income resulted from an increase in the amount of funds
available for investment in 1996.

         No tax provision was required in 1996 due to the loss incurred.

LIQUIDITY AND CAPITAL RESOURCES

         Cash balances at December 31, 1997 were $457,857 compared to $266,045
at December 31, 1996. Net cash used for operating activities was $855,714 for
the year ended December 31, 1997 compared to net cash used for operating
activities of $86,577 for the year ended December 31, 1996 and net cash provided
by operating activities of $357,870 for the year ended December 31, 1995. The
net loss for the year ended December 31, 1997 coupled with an increase in
inventory ($521,329) and a decrease in deferred revenue ($514,856) and offset by
an increase in accounts receivable ($620,516) accounted for the majority of cash
used by operations during 1997. The increase in inventory was in preparation for
a large volume of shipments to one customer scheduled for the first quarter of
1998, a significant portion of which occurred in January 1998. The decrease in
deferred revenue was the result of billings on 1998 customer maintenance
contracts being delayed until the first quarter of 1998. The net loss for the
year ended December 31, 1996 offset by an increase in deferred revenue
($517,846) accounted for the majority of cash used by operations during 1996.
The increase in deferred revenue resulted from billings on 1997 customer
maintenance contracts having been made at the end of 1996. Cash provided by
operations for the year ended December 31, 1995 primarily resulted from a
decrease in inventory of $854,960 offset by a decreases in accounts payable and
accrued liabilities ($485,622). The decrease in inventory was due to
management's programs to reduce the Company's investment in hardware inventory
held for resale while improving purchasing and expediting methods necessary to
continue to meet customer delivery requirements.

         Net cash used in investing activities totaled $428,177, $47,512, and
$24,645 for the years ended December 31, 1997, 1996, and 1995, respectively.
Capital equipment expenditures, principally for computer, test and sales
demonstration equipment, accounted for $141,949, 47,512, and $24,645 of these
amounts in 1997, 1996, and 1995, respectively. The capitalization of software
development costs accounted for the balance of net cash used in investing
activities in 1997. Capital equipment expenditures in 1998 are expected to be
approximately $168,000. Net capitalized software development costs in 1998 are
expected to be approximately $667,500.

         Net cash provided by financing activities totaled $1,475,703 in 1997
primarily resulting from the issuance of convertible subordinated notes payable
to IVI. See discussion below.

         On March 11, 1997, the Company entered into an agreement with its bank
to amend and restate the terms of its working capital line of credit. The
agreement, which expires on January 4, 1999, provides for borrowings up to a
maximum amount of the lessor of $750,000 or certain levels of eligible accounts
receivable. Borrowings under the line are subject to monthly and quarterly
financial performance covenants, bear interest at a rate per annum equal to the
bank's prime rate plus 1.5%, are collateralized by the Company's assets, and are
guaranteed by IVI. At December 31, 1997, there were no borrowings outstanding
under the credit line. Borrowing availability under the credit line at December
31, 1997 approximated $229,000.


                                      -12-
<PAGE>   13

         On August 18, 1997, the Company entered into a Convertible Subordinated
Note Purchase Agreement (the "Note Agreement") with IVI whereby the Company may
from time to time issue and sell to IVI, and IVI agrees to purchase, the
Company's Convertible Subordinated Notes (the "Notes"), up to an aggregate
principal amount of $1,000,000. On October 31, 1997, the aggregate principal
amount of Notes which can be issued by the Company under the Note Agreement was
increased to $2,000,000 in order to cover additional anticipated working capital
needs of the Company. The Notes have a five year term, bear interest at a rate
per annum equal to the prime rate plus 2%, are secured by the Company's assets,
and are subordinate to the Company's working capital line of credit. The Notes
are convertible into the Company's common stock, $.15 par value, at any time in
accordance with the terms of the Note Agreement, however the conversion price
per share shall be equal to no less than the fair market value as determined in
the Note Agreement. Additionally, the Notes are subject to certain registration
rights in the event that the Company determines to register additional shares of
common stock, $.15 par value, under the Securities Act. Interest payments on the
Notes are deferred until maturity.

         On September 19, 1997 and November 24, 1997, the Company issued Notes
to IVI in the principal amounts of $400,000 and $1,100,000, respectively.
Interest payable on the Notes totaled $24,208 at December 31, 1997.

         Management believes that sources of liquidity for future needs can be
generated from existing cash balances, cash generated from operations, and
borrowings available to the Company under its bank-financed working capital line
of credit and the Note Agreement with IVI.

ACQUISITION OF COMPANY'S COMMON STOCK

         In September 1996, IVI acquired beneficial ownership of approximately
84% of the outstanding common stock, $.15 par value, of the Company in a private
transaction. IVI acquired such shares in exchange for IVI common shares having
an aggregated market value of approximately $1,254,000. Due to the percentage
ownership of NTN acquired as a result of this transaction, NTN has become a
subsidiary of IVI and the financial position and results of operations of NTN
are included in IVI's consolidated financial position and results of operations
from the date of acquisition.

         IVI is engaged in the design, development, and sale of electronic
payment solutions for retailers, financial institutions, governments, and other
businesses in Canada, the United States, and internationally. IVI's hardware and
software products include point of sale debit/credit/EFT/EBT terminals, check
readers, smart card readers, check encoders, and secure PIN (personal
identification number) entry devices.

         NTN software products support complementary IVI hardware devices and
the Company has marketed IVI products in the United States under a non-exclusive
distribution agreement since 1990. At the same time, NTN has also supported
other EPS providers' hardware products and operating environments with its
software products. The investment by IVI has provided a renewed business
relationship between the companies and has made available to NTN the financial
resources of IVI to help the Company expand its products, services, and markets.
NTN believes that IVI's investment has helped the Company increase its market
penetration by gaining access to the IVI customer base and has allowed NTN to
create a competitive advantage by leveraging combined products, technologies,
and other resources. Both companies, however, support the importance of NTN's
independence with regard to the hardware environments which its software
products support and the underlying relationships the Company has or establishes
with other parties who influence the EPS market. These parties include other
point of sale hardware vendors, electronic payment system resellers, cash
register vendors, transaction processing networks, and other software
developers. Accordingly, NTN continues to market its products and services on
multiple hardware platforms and operating environments necessary to achieve its
business objectives. Management believes that IVI's investment in NTN has not
adversely affected the Company's business or its relationships with its
customers or the aforementioned parties influencing the EPS market.


                                      -13-
<PAGE>   14

YEAR 2000 COMPLIANCE

         The latest versions of the Company's software products are designed to
be "Year 2000 Compliant." The Company defines "Year 2000 Compliant" as the
software product's ability to accurately process date and time data (including
calculating, comparing, and sequencing) from, into, and between the years 1999
and 2000 and later, including correctly calculating date and time data for leap
years. In addition, the software product, when used in combination with other
software, will accurately process date and time data if such other software
properly exchanges date and time data with it. There can be no assurance,
however, that the Company's software products that are designed to be Year 2000
Compliant contain all necessary code changes and modifications to be compliant
with all possible Year 2000 issues.

         The Company also uses certain computer software programs in its
internal operations, including applications used in product development,
financial and business systems, and various administrative functions. The
Company is reviewing the areas within its business and operations which could be
adversely affected by Year 2000 issues and evaluating the costs which may be
associated with modifying and testing its systems for Year 2000 compliance.
Although the Company is not yet able to estimate any incremental cost for Year
2000 issues, based on its preliminary review to date, the Company does not
believe that any Year 2000 issues relating to internal systems will have a
material adverse effect on its business, financial condition, or results of
operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, "Software Revenue Recognition" (the "SOP"). The SOP
provides guidance on when revenue should be recognized and in what amounts for
licensing, selling, leasing, or otherwise marketing computer software. The SOP
supersedes Statement of Position 91-1, "Software Revenue Recognition", and will
be required to be adopted by the Company for transactions entered into after
December 31, 1997. Adoption of the SOP is not anticipated to change the way the
Company recognizes revenue.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Both
Standards will be adopted by the Company during 1998 and are not expected to
have material effects on its financial position or results of operations.

CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS

         The Company does not provide forecasts of the future financial
performance of the Company. The forward-looking statements in this Form 10-K
including, without limitation, statements regarding management's plans and
objectives for future operations, and product plans and performance are made
under the safe harbor provisions of Section 21E of the Securities Exchange Act
of 1934, as amended. The Company's actual results of operations and financial
condition have varied and may in the future differ materially from those
contained in forward-looking statements contained herein. The Company's future
results remain difficult to predict and depend on factors including, without
limitation, fluctuations in quarterly results, dependence on large customers,
dependence on principal products, dependence on third parties for hardware and
equipment, rapid technological changes, potential for new product delays and
defects, competition and competitive pricing pressures, and fluctuations in
economic and market conditions. Because of these and other factors, past
financial performance should not be considered an indication of future
performance.


                                      -14-
<PAGE>   15


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
         -------------------------------------------

         Please refer to pages F-1 through F-13 and S-1.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ------------------------------------------------
         ACCOUNTING AND FINANCIAL DISCLOSURE.
         -----------------------------------

         None.



                                      -15-
<PAGE>   16



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
         --------------------------------------------------

         The information required under this item is incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year.

ITEM 11. EXECUTIVE COMPENSATION.
         ----------------------

         The information required under this item is incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         ---------------------------------------------------
         MANAGEMENT.
         ----------

         The information required under this item is incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
         ----------------------------------------------

         The information required under this item is incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year.


                                      -16-
<PAGE>   17



                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
         ---------------------------------------------------
         ON 8-K.
         ------

     (a) THE FOLLOWING FINANCIAL STATEMENTS, NOTES THERETO AND INDEPENDENT
         AUDITORS' REPORT ARE FILED AS PART OF THIS REPORT:

         (1) Financial Statements:

             Independent Auditors' Report
             Balance Sheets
             Statements of Operations
             Statements of Stockholders' Equity
             Statements of Cash Flows
             Notes to Financial Statements

         (2) Financial Statement Schedules:

             The following financial statement schedule is included in Item 8:

                 Schedule II - Valuation and Qualifying Accounts

         (3) Listing of Exhibits:

             The following exhibits, required by Item 601 of
             Regulation S-K, are filed as part of this Annual
             Report on Form 10-K. (Exhibit numbers, where
             applicable, in the left column correspond to those of
             Item 601 of Regulation S-K).

                                                                       Form 10-K
Exhibit                                                              consecutive
NUMBER                    EXHIBIT                                    PAGE NUMBER
------                    -------                                    -----------

2                Asset Purchase Agreement between                
                the Company and BancTec USA, Inc.
                dated January 10, 1998

3(a)            Amended and restated Certificate of
                Incorporation filed October 22, 1993                see note (9)

3(b)            Certificate of Amendment dated June 30,
                1997 to the Amended and Restated
                Certificate of Incorporation filed
                October 22, 1993                                   see note (13)

3(c)            Bylaws, as amended                                  see note (4)

4(a)            National Transaction Network, Inc.
                1993 Director Stock Option Plan                     see note (8)

4(b)            National Transaction Network, Inc.
                1995 Director Stock Option Plan                    see note (11)

                                      -17-
<PAGE>   18

4(c)            Convertible Subordinated Note Purchase
                Agreement between the Company and
                International Verifact Inc. dated
                August 18, 1997                                    see note (13)

4(d)            Amendment to Convertible Subordinated
                Note Purchase Agreement between the
                Company and International Verifact Inc.
                dated October 31, 1997                             see note (13)

4(e)            Convertible Subordinated Note of the
                Company dated September 19, 1997                   see note (13)

4(f)            Security Agreement between the Company
                and International Verifact Inc. dated
                September 19, 1997                                 see note (13)

4(g)            Amendment to Security Agreement between
                the Company and International Verifact Inc.
                dated October 31, 1997                             see note (13)

4(h)            Convertible Subordinated Note of the
                Company dated November 24, 1997

10(a)           1983 Incentive Stock Option Plan,
                as amended                                          see note (1)

10(b)           Form of Stock Option Grant and
                Exercise Notice for 1983 Incentive
                Stock Option Plan                                   see note (3)

10(c)           1988 Stock Plan, as amended                         see note (3)

10(d)           Form of Incentive Stock Option
                Agreement for 1988 Stock Plan                       see note (3)

10(e)           Form of Non-Qualified Stock Option
                Agreement for 1988 Stock Plan
                (Consultants)                                       see note (3)

10(f)           Form of Non-Qualified Stock Option
                Agreement for 1988 Stock Plan
                (Directors)                                         see note (3)

10(g)           Agreement for IBM Licensed Program
                Stand-Beside Electronic Payment
                System Debit Application between the
                Company and International Business
                Machines Corporation dated as of
                March 18, 1988                                      see note (2)


    
                                      -18-
<PAGE>   19



10(h)           Lease between the Company and
                Alden H. Kane and Shirley M. Kane,
                Trustees of the Kane Industrial
                Trust, dated December 27, 1988                      see note (3)

10(i)           Distribution Agreement between the
                Company and International Verifact
                Inc. dated December 31, 1990                        see note (5)

10(j)           Lease between the Company and Alden H.
                Kane and Roger K. Kane, Trustees of the
                Kane Industrial Trust, dated November 1, 1992       see note (6)

10(k)           Severance Agreement between the Company and
                Paul Siegenthaler dated January 30, 1993            see note (6)

10(l)           National Transaction Network, Inc. Retirement
                Savings 401(k) Plan                                 see note (7)

10(m)           Value-Added Reseller Agreement between the
                Company and Inacom Corporation dated
                January 11, 1993                                    see note (9)

10(n)           Promissory Note and Security Agreement
                between the Company and Silicon Valley Bank
                dated June 11, 1993                                 see note (9)

10(o)           Master Purchase Agreement between the Company
                and VeriFone, Inc. dated September 22, 1993         see note (9)

10(p)           Joint Marketing Agreement between the Company
                and Card Establishment Services, Inc. dated
                December 7, 1993                                    see note (9)

10(q)           Severance Agreement between the Company and
                Milton Alpern dated March 17, 1994                  see note (9)

10(r)           Form of the Director Stock Option Agreement
                for the 1993 Director Stock Option Plan            see note (10)

10(s)           Form of the Director Stock Option Agreement
                for the 1995 Director Stock Option Plan            see note (11)

10(t)           Industry Remarketer Agreement between the
                Company and International Business Machines
                Corporation dated June 3, 1996                     see note (12)

10(u)           Lease Agreement between the Company and
                Aetna Real Estate Associates, L.P. dated
                November 8, 1996                                   see note (12)

23              Consent of Deloitte & Touche LLP

27              Financial Data Schedule           
------------------------------


                                      -19-
<PAGE>   20

(1) Exhibit is incorporated by reference to the Exhibits to the Form S-1
    Registration Statement No. 2-91030.

(2) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1987.

(3) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1988.

(4) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1989.

(5) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1990.

(6) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1992.

(7) Exhibit is incorporated by reference to the Exhibits to the Form 8 dated May
    4, 1993.

(8) Exhibit is incorporated by reference to the Exhibits to the Form S-8
    Registration Statement No. 33-66732 dated July 29, 1993.

(9) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
    the fiscal year ended December 31, 1993.

(10) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
     the fiscal year ended December 31, 1994.

(11) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
     the fiscal year ended December 31, 1995.

(12) Exhibit is incorporated by reference to the Exhibits to the Form 10-K for
     the fiscal year ended December 31, 1996.

(13) Exhibit is incorporated by reference to the Exhibits to the Form 10-Q for
     the fiscal quarter ended September 30, 1997.

---------------------------------


     (b)   REPORTS ON FORM 8-K:
           -------------------

           No report on Form 8-K was filed during the last quarter of the fiscal
           year ended December 31, 1997.

     (c)   EXHIBITS:
           --------

           The Company hereby files as part of this Form 10-K the exhibits 
           listed in Item 14(a) (3) above.

     (d)   FINANCIAL STATEMENT SCHEDULES:
           -----------------------------

           The Company hereby files as part of this Form 10-K in Item 14 (a) 
           (2) above.


                                      -20-

<PAGE>   21



                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15 (d) 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.

                                     NATIONAL TRANSACTION NETWORK, INC.


March 18, 1998              By:     /S/  L. BARRY THOMSON
                                   ----------------------
                                    L. Barry Thomson, Chief Executive Officer,
                                    President and Chairman of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



March 18, 1998                      /S/  L. BARRY THOMSON
                                   ----------------------
                                   L. Barry Thomson, Chief Executive Officer,
                                   President and Chairman of the Board
                                   (Principal Executive Officer)



March 18, 1998                      /S/  MILTON A. ALPERN
                                   ----------------------
                                   Milton A. Alpern, Vice President of Finance
                                   and Administration (Principal Financial and
                                   Accounting Officer)



March 18, 1998                      /S/  CHRISTOPHER F. SCHELLHORN
                                   -------------------------------
                                   Christopher F. Schellhorn, Director



March 18, 1998                      /S/  GEORGE C. WHITTON
                                   -----------------------
                                   George C. Whitton, Director



                                      -21-
<PAGE>   22






                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE




                                                                     PAGE
                                                                     ----

Independent Auditors' Report                                         F-1

Balance Sheets as of December 31, 1997 and 1996                      F-2

Statements of Operations for the Years Ended                         F-3
         December 31, 1997, 1996, and 1995

Statements of Stockholders' Equity for the Years                     F-4
         Ended December 31, 1997, 1996, and 1995

Statements of Cash Flows for the Years Ended                         F-5
         December 31, 1997, 1996 and 1995

Notes to Financial Statements                                        F-6-13

Schedule II - Valuation and Qualifying Accounts                      S-1


    
                                  -22-
<PAGE>   23







INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
  National Transaction Network, Inc.:

We have audited the accompanying balance sheets of National Transaction Network,
Inc. (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in Item 14(a)(2). These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
February 17, 1998



                                      F-1
<PAGE>   24

<TABLE>
<CAPTION>

NATIONAL TRANSACTION NETWORK, INC.

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------------------------------------------------------------
<S>                                                     <C>            <C>       
ASSETS                                                  1997           1996      

CURRENT ASSETS:                                                                  
  Cash and equivalents                                 $ 457,857      $ 266,045 
  Accounts receivable (less allowance for                                       
    doubtful accounts of $40,000 and $100,000                                   
    in 1997 and 1996, respectively)                      785,597      1,406,113 
  Inventory                                              754,919        233,590 
  Prepaid expenses                                        50,482         36,394 
                                                      ----------     ----------

           Total current assets                        2,048,855      1,942,142 
                                                      ----------     ----------
PROPERTY AND EQUIPMENT:                                                         
  Furniture and fixtures                                 130,401        114,657 
  Machinery and equipment                                871,602        670,394
                                                      ----------     ----------
                                                        
           Total                                       1,002,003        785,051 

  Less accumulated depreciation and amortization        (712,981)      (578,032)
                                                      ----------     ----------
 
           Property and equipment - net                  289,022        207,019
                                                      ----------     ----------
 
OTHER ASSETS:                                                                   
  Capitalized software development costs                 286,228              - 
  Deposits and other                                      14,663         11,931 
                                                      ----------     ----------
                                                               
           Total other assets                            300,891         11,931 
                                                      ----------     ----------
TOTAL                                                $ 2,638,768    $ 2,161,092 
                                                      ==========     ==========

                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                      1997            1996                
                                                                                           
CURRENT LIABILITIES:                                                                       
  Accounts payable                                     $ 265,708       $ 497,569          
  Accounts payable to stockholder                        318,858          95,287          
  Customer deposits                                       11,709           2,166          
  Accrued liabilities                                    211,748         346,620          
  Deferred revenue                                        49,067         563,923          
  Short-term portion of capital lease                     36,598           9,224          
                                                      ----------      ----------
                                  
           Total current liabilities                     893,688       1,514,789
                                                      ----------      ----------          
                                                                                          
LONG-TERM LIABILITIES:                                                                    
  Long-term portion of capital lease                      24,384          12,053         
  Convertible subordinated notes payable
    to stockholder                                     1,524,208               -          
                                                      ----------      ----------
                                                                                          
           Total long-term liabilities                 1,548,592          12,053
                                                      ----------      ----------         
                                                                                          
           Total liabilities                           2,442,280       1,526,842         
                                                      ----------      ---------- 
COMMITMENTS                                                                      
                                                                                 
STOCKHOLDERS' EQUITY                                                           
  Preferred stock, $.10 par value - authorized,                                           
    5,000,000 shares; none outstanding                         -               -         
  Common stock, $.15 par value - authorized,                                              
    20,000,000 and 6,666,667 shares; issued and                                           
    outstanding 3,273,162 and 3,248,606 shares                                            
    in 1997 and 1996, respectively                       490,974         487,291         
  Additional paid-in capital                          12,596,573      12,589,255         
  Accumulated deficit                                (12,891,059)    (12,442,296)
                                                      ----------      ----------        
                                                                                          
          Total stockholders' equity                     196,488         634,250
                                                      ----------      ----------         
                                                                                           
TOTAL                                                $ 2,638,768     $ 2,161,092
                                                      ==========      ==========          
</TABLE>

See notes to financial statements.
                                                  
                                       F-2        
<PAGE>   25
                                                  

<TABLE>
<CAPTION>
NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
------------------------------------------------------------------------------------------------------------------------


                                                                           1997              1996               1995
<S>                                                                        <C>               <C>                <C>
REVENUE:
  Systems and equipment                                                $ 2,828,153       $ 2,823,236        $ 5,136,778
  Software and services                                                  2,490,218         2,189,787          2,869,639 
                                                                        ----------        ----------         ----------

          Total revenue                                                  5,318,371         5,013,023          8,006,417 
                                                                        ----------        ----------         ----------
COSTS AND EXPENSES:
  Cost of revenue                                                        3,039,907         2,609,901          4,593,041
  Sales and marketing                                                      997,710         1,111,665          1,771,800
  Research and development                                                 922,117           947,087          1,016,521
  General and administrative                                               770,103           979,493            730,201
                                                                        ----------        ----------         ----------
 
          Total costs and expenses                                       5,729,837         5,648,146          8,111,563 
                                                                        ----------        ----------         ----------

LOSS FROM OPERATIONS                                                      (411,466)         (635,123)          (105,146) 
                                                                        ----------        ----------         ----------

OTHER INCOME (EXPENSE):
  Interest expense                                                         (39,143)           (4,168)                 -
  Interest income                                                            1,846            24,296             16,445 
                                                                        ----------        ----------         ----------

          Total other income (expense)                                     (37,297)           20,128             16,445
                                                                        ----------        ----------         ---------- 

NET LOSS                                                                $ (448,763)       $ (614,995)         $ (88,701)
                                                                        ==========        ==========         ========== 


BASIC AND DILUTED LOSS PER
  COMMON SHARE                                                             $ (0.14)          $ (0.19)           $ (0.03)
                                                                        ==========        ==========         ========== 

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                                                     3,254,055         3,248,606          3,248,606
                                                                        ==========        ==========         ========== 

</TABLE>

See notes to financial statements.

                                                  
                                       F-3
<PAGE>   26



<TABLE>
<CAPTION>

NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
-----------------------------------------------------------------------------------------------------------------------------------

                                                            COMMON STOCK
                                                            ------------             ADDITIONAL                           TOTAL
                                                        SHARES                         PAID-IN        ACCUMULATED      STOCKHOLDERS'
                                                        ISSUED         AMOUNT          CAPITAL          DEFICIT           EQUITY

<S>                                                   <C>           <C>            <C>             <C>                <C>        
BALANCE, JANUARY 1, 1995                               3,248,606     $ 487,291      $ 12,589,255    $ (11,738,600)     $ 1,337,946

  Net loss                                                    -             -                 -           (88,701)         (88,701)
                                                      ----------     ---------        ----------       ----------       ---------- 

BALANCE, DECEMBER 31, 1995                             3,248,606       487,291        12,589,255      (11,827,301)       1,249,245

  Net loss                                                    -             -                 -          (614,995)        (614,995)
                                                      ----------     ---------        ----------       ----------       ---------- 

BALANCE, DECEMBER 31, 1996                             3,248,606       487,291        12,589,255      (12,442,296)         634,250

  Net loss                                                     -             -                 -         (448,763)        (448,763)
  Stock issued under stock
    option plans                                          24,556         3,683             7,318               -            11,001
                                                      ----------     ---------        ----------       ----------       ---------- 

BALANCE, DECEMBER 31, 1997                             3,273,162     $ 490,974      $ 12,596,573    $ (12,891,059)       $ 196,488
                                                      ==========     =========        ==========       ==========       ========== 
</TABLE>

See notes to financial statements.


                                       F-4
<PAGE>   27


<TABLE>
<CAPTION>
NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
------------------------------------------------------------------------------------------------------------------------------------


                                                                                           1997         1996         1995
<S>                                                                                       <C>          <C>          <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                              
  Net loss                                                                             $ (448,763)  $ (614,995)    $ (88,701)
  Adjustments to reconcile net loss to net cash (used for) provided by                             
    operating activities:                                                                          
      Depreciation and amortization                                                       134,949      117,427       116,470
      Interest converted to convertible subordinated notes payable to stockholder          24,208            -             -
      Increase (decrease) in cash from:                                                            
        Accounts receivable                                                               620,516      (21,891)     (119,305)
        Inventory                                                                        (521,329)      40,569       854,960
        Prepaid expenses                                                                  (14,088)      (9,547)       38,245
        Deposits and other                                                                 (2,732)      (8,252)          800
        Accounts payable to stockholder                                                   223,571     (152,115)       84,732
        Customer deposits                                                                   9,543      (23,099)          638
        Accounts payable and accrued  liabilities                                        (366,733)      67,480      (485,622)
        Deferred revenue                                                                 (514,856)     517,846       (44,347)
                                                                                       ----------   ----------    ---------- 
                                                                                                    
           Net cash (used for) provided by operating activities                          (855,714)     (86,577)      357,870
                                                                                       ----------   ----------    ----------
                                                                                                   
                                                                                                   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                              
  Purchases of property and equipment                                                    (141,949)     (47,512)      (24,645)
  Capitalization of software development costs                                           (286,228)           -             - 
                                                                                       ----------   ----------    ----------
                                                                                                   
           Net cash used in investing activities                                         (428,177)     (47,512)      (24,645)
                                                                                       ----------   ----------    ---------- 
                                                                                                   
CASH FLOWS FROM FINANCING ACTIVITIES:                                                              
  Repayment of capital lease                                                              (35,298)      (7,123)            -
  Proceeds from issuance of convertible subordinated notes payable to stockholder       1,500,000            -             -
  Proceeds from stock issued under stock option plans                                      11,001            -             -
  Proceeds from bank line of credit                                                       700,000            -             -
  Repayments to bank line of credit                                                      (700,000)           -             - 
                                                                                       ----------   ----------    ----------
                                                                                                   
          Net cash provided by (used in) financing activities                           1,475,703       (7,123)            - 
                                                                                       ----------   ----------    ----------
                                                                                                   
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                           191,812     (141,212)      333,225
                                                                                                   
CASH AND EQUIVALENTS, BEGINNING OF YEAR                                                   266,045      407,257        74,032 
                                                                                       ----------   ----------    ----------
                                                                                                   
CASH AND EQUIVALENTS, END OF YEAR                                                       $ 457,857    $ 266,045     $ 407,257
                                                                                       ==========   ==========    ========== 
                                                                                                   
SUPPLEMENTAL INFORMATION - Cash paid for interest                                       $  14,740    $   4,168     $       - 
                                                                                       ==========   ==========    ==========
                                                                                                   
NONCASH TRANSACTIONS:                                                                              
  Capital lease additions                                                               $  75,000    $  28,400     $       - 
                                                                                       ==========   ==========    ==========
                                                                                                   
  Accrued interest due to stockholder converted to convertible subordinated notes                  
   payable to stockholder                                                               $  24,208    $       -     $       -      
                                                                                       ==========   ==========    ==========
See notes to financial statements.                                                                 
                                                                                                  
</TABLE>
                                                
                                       F-5

<PAGE>   28


NATIONAL TRANSACTION NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS - National Transaction Network, Inc. (the "Company")
      designs, integrates and markets point-of-sale electronic payment systems 
      and software, principally to the retail industry.

      On September 13, 1996, International Verifact, Inc. ("IVI") acquired
      beneficial ownership of approximately 84% of the outstanding common stock
      of the Company. The Company relies on IVI to finance its operations as
      needed. To the extent necessary, IVI has committed to continue to
      guarantee the Company's line of credit (Note 2) and to provide financial
      support to meet the Company's cash requirements through December 31, 1998.

      USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and
      assumptions that affect 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 revenue and expenses
      during the reporting period. Actual results could differ from those
      estimates.

      FINANCIAL INSTRUMENTS - The carrying values of cash and equivalents,
      accounts receivable, and accounts payable approximate fair value due to
      the short-term nature of these instruments.

      REVENUE RECOGNITION - Revenue from product sales is generally recognized
      upon shipment. Revenue from maintenance agreements is recognized ratably
      over the term of the agreements. Consulting services revenue is recognized
      as services are performed.

      CASH AND EQUIVALENTS - The Company considers all highly liquid investments
      purchased with a remaining maturity of three months or less to be cash
      equivalents.

      INVENTORY - Inventory is recorded at the lower of cost (first-in,
      first-out basis) or market and consists primarily of electronic payment
      terminals and related peripherals.

      PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
      Depreciation and amortization are provided using the straight-line method
      over the estimated useful lives of the assets which range from three to
      five years. Repairs and maintenance are expensed as incurred, while
      betterments are capitalized. Depreciation expense was approximately
      $135,000, $117,000 and $116,000 for the years ended December 31, 1997,
      1996 and 1995, respectively.

      CAPITALIZED SOFTWARE COSTS - Costs of software products developed for
      resale are capitalized once technological feasibility is achieved.
      Capitalization ceases when the product is available for release, and the
      accumulated costs are amortized, based on the greater of revenue over
      projected revenue or on a straight-line basis, over the related product's
      estimated economic life. Capitalization of software development costs
      amounted to $286,228 during 1997. Research and development costs are
      expensed as incurred.


                                      F-6

<PAGE>   29


1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
      (CONTINUED)

      LONG-LIVED ASSETS - Upon occurrence of certain events or changes in
      circumstances, the Company reviews its long-lived assets to determine if
      the carrying value of its assets have been impaired.

      STOCK-BASED COMPENSATION - Compensation expense associated with awards of
      stock or options to employees is measured using the intrinsic value
      method. Compensation expense associated with awards to nonemployees is
      measured using the fair value method.

      LOSS PER COMMON SHARE - In 1997, the Company adopted the provisions of
      Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
      per Share," and has restated all periods presented to conform to the new
      presentation. SFAS No. 128 replaced the calculation of primary and fully
      diluted earnings per share with basic and diluted earnings per share.
      Basic net loss per common share is computed using the weighted-average
      number of shares of common stock outstanding. In determining the
      denominator for dilutive loss per common share, no shares resulting from
      the assumed exercise of options using the treasury stock method or
      resulting from the conversion of the convertible subordinated notes
      payable to stockholder are added to the denominator because the inclusion
      of such shares would be antidilutive due to the net loss for each of the
      years presented. Accordingly, diluted loss per common share is equal to
      basic loss per common share and is not separately disclosed.

      INCOME TAXES - The Company follows the asset and liability method of
      accounting for income taxes, under which deferred income taxes are
      recognized for the future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which the temporary differences are
      expected to be recovered or settled. The effect on deferred taxes of a
      change in tax rates is recognized in income in the period that includes
      the enactment date.

      RECENTLY ISSUED ACCOUNTING STANDARDS - In October 1997, the Accounting
      Standards Executive Committee issued Statement of Position ("SOP") 97-2,
      "Software Revenue Recognition." SOP 97-2 provides guidance on when revenue
      should be recognized and in what amounts for licensing, selling, leasing,
      or otherwise marketing computer software. SOP 97-2 supersedes SOP 91-1,
      "Software Revenue Recognition," and will be required to be adopted by the
      Company for transactions entered into after December 31, 1997. Adoption of
      SOP 97-2 is not anticipated to change the way the Company recognizes
      revenue.

      In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
      Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise
      and Related Information." SFAS No. 130 establishes standards for reporting
      and display of comprehensive income and its components (revenues,
      expenses, gains and losses) in a full set of general purpose financial
      statements. SFAS No. 131 establishes standards for the way that public
      business enterprises report information about operating segments in annual
      financial statements and requires that those enterprises report selected
      information about operating segments in interim financial reports. It also
      establishes standards for related disclosures about products and services,
      geographic areas and major customers. Both standards will be adopted by
      the Company during 1998 and are not expected to have material effects on
      its financial position and results of operations.


                                      F-7
<PAGE>   30


1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
     (CONTINUED)

      RECLASSIFICATION - Certain items in the 1996 and 1995 financial statements
      have been reclassified to conform to the 1997 presentation.

2.    LINE OF CREDIT

      On March 11, 1997, the Company entered into an agreement with the bank to
      amend and restate the terms of its working capital line of credit (the
      "agreement"). The agreement, which expires on January 4, 1999, provides
      for borrowings up to a maximum of the lessor of $750,000 or certain levels
      of eligible accounts receivable. Borrowings under the line are subject to
      monthly and quarterly financial performance covenants, bear interest at
      the bank's prime rate plus 1.5% and are collateralized by the Company's
      assets. The agreement prohibits the Company from participating in a merger
      or consolidation, pay dividends, dispose of any material assets, or incur
      certain indebtedness without prior written consent from the bank. At
      December 31, 1997, there were no borrowings outstanding under the line and
      availability under the line approximated $229,000.

3.    CONVERTIBLE SUBORDINATED NOTES PAYABLE TO STOCKHOLDER

      On August 18, 1997, the Company entered into a Convertible Subordinated
      Note Purchase Agreement (the "Note Agreement") with IVI whereby the
      Company may from time to time issue and sell to IVI the Company's
      Convertible Subordinated Notes (the "Notes") up to an aggregate amount of
      $2,000,000, as stated in the October 31, 1997 amendment to the Note
      Agreement. The Notes have a five-year term, bear interest at a rate per
      annum equal to the prime rate plus 2% (10.5% at December 31, 1997), are
      secured by the Company's assets, and are subordinate to the Company's line
      of credit. Interest on the Notes is deferred until maturity.

      The Notes are convertible into the Company's common stock at any time, at
      the option of the holder, in accordance with the terms of the Note
      Agreement. The conversion price shall be equal to no less than the fair
      market value. The Notes are also subject to certain registration rights in
      the event that the Company determines to register additional shares of
      common stock.

      On September 19, 1997 and November 24, 1997, the Company issued Notes in 
      the amounts of $400,000 and $1,100,000, respectively. Both Notes mature in
      2002. Accrued interest under the Notes aggregated $24,208 at December 31,
      1997.


                                      F-8
<PAGE>   31


4.    STOCK OPTIONS

      STOCK OPTION PLANS - Under the Company's 1988 and 1983 Stock Option Plans
      (the "Plans"), incentive stock options to purchase up to a maximum of
      933,333 shares of common stock may be granted to certain employees,
      officers, consultants and directors at exercise prices not less than fair
      market value at the date of the grant. Options become exercisable in
      varying annual installments. The period within which any option may be
      exercised cannot exceed ten years from the date of grant. At December 31,
      1997, 392,372 shares were available for grant under the Plans.

      DIRECTOR STOCK OPTION PLANS - Under the Company's 1995 and 1993 Director
      Stock Option Plans (the "Director Plans"), nonqualified options to
      purchase up to a maximum of 320,000 shares of common stock may be granted
      to members of the Board of Directors (the "Board"). The exercise price of
      the options may not be less than fair market value on the date of grant.
      Options under the Director Plans become exercisable upon grant and
      continue for the period determined by the Board but may not exceed ten
      years. As of December 31, 1997, 230,000 shares were available for grant
      under the Director Plans.

      The following is a summary of option activity under the Plans and the
      Director Plans:

<TABLE>
<CAPTION>
                                                            WEIGHTED    WEIGHTED
                                                NUMBER       AVERAGE     AVERAGE
                                                  OF        EXERCISE      FAIR
                                                SHARES       PRICE        VALUE

<S>                                            <C>          <C>         <C>
Outstanding at January 1, 1995                  298,125      $ 3.29
  Granted                                       437,545        0.41      $ 0.41
  Expired  or Canceled                         (143,685)       2.40
                                               --------

Outstanding at December 31, 1995                591,985        0.67
  Granted                                       251,000        0.42        0.42
  Expired  or Canceled                         (220,605)       0.88
                                               --------

Outstanding at December 31, 1996                622,380        0.50
  Exercised                                     (24,556)       0.45
  Granted                                        63,000        0.64        0.62
  Expired  or Canceled                          (13,195)       0.55
                                               --------

Outstanding at December 31, 1997                647,629        0.51
                                               ========     
</TABLE>

      Options exercisable under all stock option plans at December 31, 1997 and
      1996 were 393,258 and  270,601, respectively.


                                      F-9
<PAGE>   32


4.    STOCK OPTIONS (CONTINUED)

      The fair value of options on their grant date was measured using the
      Black/Scholes options pricing model. Key assumptions used to apply this
      pricing model are as follows:

<TABLE>
<CAPTION>
                                                                      1997        1996        1995
<S>                                                                   <C>         <C>         <C>  
Average risk-free interest rate                                       6.4 %       6.4 %       5.9 %
Expected life of option grants                                     7.5 years    7.5 years   7.5 years
Expected volatility of underlying stock                               148%        174%        174%
Expected dividend payment rate, as a percentage of the stock
    price on the date of grant                                          -           -           -
</TABLE>



      It should be noted that the option pricing model used was designated to
      value readily tradable stock options with relatively short useful lives.
      The options granted to employees are not tradable and have contractual
      lives of up to ten years. However, management believes that the
      assumptions used to value the options and the model applied yield a
      reasonable estimate of the fair value of the grants made under the
      circumstances.

      The following table sets forth information regarding options at December
      31, 1997:

<TABLE>
<CAPTION>

                         OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
   ----------------------------------------------------------------  -----------------------------------
   <S>              <C>               <C>              <C>             <C>                <C>
      OPTIONS                          WEIGHTED                           OPTIONS
    OUTSTANDING                         AVERAGE         WEIGHTED        OUTSTANDING        WEIGHTED
        AT            RANGE OF         REMAINING         AVERAGE             AT             AVERAGE
    DECEMBER 31,      EXERCISE           LIFE           EXERCISE        DECEMBER 31,       EXERCISE
       1997            PRICES          (IN YEARS)         PRICE             1997             PRICE

      572,962       $0.22 - 0.46         6.92           $ 0.42            376,591            $0.41
       58,000        0.66 - 0.83         9.59             0.67               -                 -
       16,667            3.00            4.67             3.00             16,667             3.00
</TABLE>


      As described in Note 1, the Company uses the intrinsic value method to
      measure compensation expense associated with grants of stock options to
      employees. Had the Company used the fair value method to measure
      compensation, reported net loss and loss per share, net of estimated
      forfeitures before vesting of 25% would have been as follows:

<TABLE>
<CAPTION>

                                                                 1997             1996             1995
<S>                                                         <C>              <C>               <C>       
Net loss as reported                                         $ (448,763)      $ (614,995)       $ (88,701)
Pro forma net loss                                             (501,220)        (653,876)        (110,942)
Basic and diluted loss per common share                           (0.14)           (0.19)           (0.03)
Pro forma basic and diluted loss per common share                 (0.15)           (0.20)           (0.03)
</TABLE>


                                      F-10
<PAGE>   33


5.    INCOME TAXES

      Significant components of the Company's deferred tax assets and
      liabilities as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                                        1997              1996

<S>                                                                  <C>               <C>        
Deferred tax liabilities - Property and equipment                 $    (3,000)       $   (12,000)
                                                                  -----------        ----------- 

Deferred tax assets:
  Compensated absences                                                 16,000             27,000
  Accounts receivable                                                  31,000             40,000
  Inventory                                                            23,000             20,000
  Net operating loss carryforwards                                  4,816,000          4,857,000
                                                                  -----------        -----------  

                                                                    4,886,000          4,944,000
                                                                  -----------        ----------- 

Valuation allowance                                                (4,883,000)        (4,932,000)
                                                                  -----------        ----------- 

Deferred taxes, net                                               $         -        $         - 
                                                                  ===========        ===========
</TABLE>


      For the years ended December 31, 1997 and 1996, the net changes in the
      valuation allowance are primarily related to the change in net deferred
      tax assets as such assets are fully reserved in each year.

      A reconciliation between the U.S. statutory tax rate and the effective tax
      rate for the years ended December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>

                                                                        1997         1996         1995
<S>                                                                    <C>          <C>          <C>  
Statutory tax rate                                                      (34)%        (34)%        (34)%
State rate, net of federal benefit                                       (6)          (6)          (7)
Change in valuation allowance due to the uncertainty
  of future realization of currently generated net
  operating loss carryforwards                                           38            39           34
Nondeductible expenses                                                    2             1            7 
                                                                        ----          ----         ----
Effective tax rate                                                        - %           - %          - %
                                                                        ====          ====         ==== 
</TABLE>


      At December 31, 1997, the Company has net operating loss carryforwards for
      tax purposes of approximately $19,400,000, which expire in varying amounts
      through 2012. Due to changes in ownership in 1989 and in 1996, the
      Company's ability to utilize these carryforwards is likely to be limited
      to approximately $1,800,000 in the aggregate.


                                      F-11

<PAGE>   34


6.    COMMITMENTS

      OFFICE LEASE - In November of 1996, the Company signed a noncancelable
      lease for new office space, which commenced in February 1997. The lease
      requires reimbursement of certain tenant improvements and operating costs
      throughout the term of the lease. The lease has a five-year term with one
      five-year renewal option to extend the lease through January 2007.

      Rent expense for the years ended December 31, 1997, 1996 and 1995 was
      approximately $119,000, $87,000 and $109,000, respectively. Future minimum
      lease payments, as of December 31, 1997, under this noncancelable
      operating lease approximate the following:

<TABLE>
<CAPTION>

         <S>                                               <C>      
          1998                                              $ 122,000
          1999                                                126,000
          2000                                                126,000
          2001                                                130,000
          2002                                                 13,000 
                                                            ---------
     
          Total                                             $ 517,000 
                                                            =========  
</TABLE>


7.    CAPITAL LEASE

      In 1997 and 1996, the Company entered into capital leases for certain
      software and equipment, respectively. The agreements have been capitalized
      at the present value of the future minimum rental payments and are
      included in machinery and equipment at December 31, 1997 and 1996 at a
      value of $103,400 and $28,400, respectively, less accumulated amortization
      of $22,813 and $7,123, respectively. Future minimum payments, by year and
      in the aggregate, under capitalized lease obligations at December 31,
      1997, consist of the following:


<TABLE>
<CAPTION>
    <S>                                                            <C>     
     1998                                                           $ 41,657
     1999                                                             25,476
                                                                    -------- 

     Total minimum lease payment                                      67,133

     Less amount representing interest at a weighted average
     interest rate of 13% per annum                                   (6,151)
                                                                    -------- 

     Present value of net minimum lease payments                      60,982

     Less current portion                                            (36,598)
                                                                    -------- 

     Long-term portion of net minimum lease payments                $ 24,384
                                                                    ======== 
</TABLE>


                                      F-12

<PAGE>   35


8.    CUSTOMERS

      The Company's customer base consists of large retail companies,
principally in the supermarket industry, located throughout the United States.

      Major customers accounted for the following percentages of revenue:

<TABLE>
<CAPTION>
     Customers                            1997        1996       1995
        <S>                               <C>         <C>        <C> 
         A                                 57 %        48 %       34 %
         B                                  -          13         13
         C                                  -          10         11
</TABLE>


9.    RELATED-PARTY TRANSACTIONS

      PRODUCT DISTRIBUTION AGREEMENT - The Company sold certain products under
      the terms of a product distribution agreement (the "Agreement") with IVI.
      The Agreement granted the Company the nonexclusive right to market,
      distribute or sell IVI's products in the United States. The Agreement
      expired on December 31, 1992, and the Company and IVI have continued to
      transact business under an informal extension of the Agreement. Total
      purchases from IVI were approximately $1,870,000, $453,000 and $1,190,000
      for the years ended December 31, 1997, 1996 and 1995, respectively. Sales
      to IVI were approximately $168,000 for the year ended December 31, 1997.
      At December 31, 1997 and 1996 accounts payable to IVI were $318,858 and
      $95,287, respectively.

10.   401(K) RETIREMENT SAVINGS PLAN

      The Company has a 401(k) Retirement Savings Plan (the "401(k) plan")
      covering substantially all employees. Under the 401(k) plan, participants
      are allowed to contribute an amount not to exceed 20% of compensation,
      subject to certain limitations. The Company may make matching
      contributions at its discretion. No contributions were made by the Company
      during 1997, 1996, or 1995.

11.   SUBSEQUENT EVENTS

      In January 1998, the Company purchased certain intellectual property,
      related software maintenance contracts and tangible assets used to support
      such contracts. The purchase price is based on 75% of the revenues derived
      from the software maintenance contracts for the twelve-month period
      following the date of purchase, which is estimated to approximate
      $300,000, and is payable 30 days from the receipt of such revenue.

                                   * * * * * *







                                      F-13

<PAGE>   36



                       NATIONAL TRANSACTION NETWORK, INC.

                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
                                     BALANCE AT       ADDITIONS      ADDITIONS                        BALANCE AT
                                      BEGINNING       CHARGED TO    CHARGED TO       DEDUCTIONS         END OF
                                      OF PERIOD        EXPENSES     OTHER ACCTS.     (DESCRIBE)         PERIOD
                                     ----------       ----------    -----------      ----------       ----------

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

   <S>                               <C>                 <C>           <C>             <C>           <C>     
    Year Ended December 31, 1995      $100,000            $0            $0              $0            $100,000

    Year Ended December 31, 1996      $100,000            $0            $0              $0            $100,000

    Year Ended December 31, 1997      $100,000            $0            $0          $60,000(a)         $40,000

-------------------
</TABLE>


      (a) Write-off of uncollectible accounts ($15,000); Relief of allowance for
      doubtful accounts balance ($45,000) based on review of accounts receivable
      totals.







                                       S-1






<PAGE>   37


<TABLE>
<CAPTION>
                                  EXHIBIT INDEX


                                                                                            Form 10-K
Exhibit                                                                                    consecutive
Number                               Exhibit                                              page number
-------                    ---------------------------------                              ------------
                                                        
<S>                       <C>                                                             <C>                                      
2                          Asset Purchase Agreement between
                           the Company and BancTec USA, Inc.
                           dated January 10, 1998

3(a)                       Amended and restated Certificate of
                           Incorporation filed October 22, 1993                               see note (9)

3(b)                       Certificate of Amendment dated June 30,
                           1997 to the Amended and Restated
                           Certificate of Incorporation filed
                           October 22, 1993                                                  see note (13)

3(c)                       Bylaws, as amended                                                 see note (4)

4(a)                       National Transaction Network, Inc.
                           1993 Director Stock Option Plan                                    see note (8)

4(b)                       National Transaction Network, Inc.
                           1995 Director Stock Option Plan                                   see note (11)

4(c)                       Convertible Subordinated Note Purchase
                           Agreement between the Company and
                           International Verifact Inc. dated
                           August 18, 1997                                                   see note (13)

4(d)                       Amendment to Convertible Subordinated
                           Note Purchase Agreement between the
                           Company and International Verifact Inc.
                           dated October 31, 1997                                            see note (13)

4(e)                       Convertible Subordinated Note of the
                           Company dated September 19, 1997                                  see note (13)

4(f)                       Security Agreement between the Company
                           and International Verifact Inc. dated
                           September 19, 1997                                                see note (13)

4(g)                       Amendment to Security Agreement between
                           the Company and International Verifact Inc.
                           dated October 31, 1997                                            see note (13)

4(h)                       Convertible Subordinated Note of the
                           Company dated November 24, 1997

10(a)                      1983 Incentive Stock Option Plan,
                           as amended                                                         see note (1)
</TABLE>






<PAGE>   38
<TABLE>
<CAPTION>

<S>                       <C>                                                                <C>
10(b)                      Form of Stock Option Grant and
                           Exercise Notice for 1983 Incentive
                           Stock Option Plan                                                  see note (3)

10(c)                      1988 Stock Plan, as amended                                        see note (3)

10(d)                      Form of Incentive Stock Option
                           Agreement for 1988 Stock Plan                                      see note (3)

10(e)                      Form of Non-Qualified Stock Option
                           Agreement for 1988 Stock Plan
                           (Consultants)                                                      see note (3)

10(f)                      Form of Non-Qualified Stock Option
                           Agreement for 1988 Stock Plan
                           (Directors)                                                        see note (3)

10(g)                      Agreement for IBM Licensed Program
                           Stand-Beside Electronic Payment
                           System Debit Application between the
                           Company and International Business
                           Machines Corporation dated as of
                           March 18, 1988                                                     see note (2)

10(h)                      Lease between the Company and
                           Alden H. Kane and Shirley M. Kane,
                           Trustees of the Kane Industrial
                           Trust, dated December 27, 1988                                     see note (3)

10(i)                      Distribution Agreement between the
                           Company and International Verifact
                           Inc. dated December 31, 1990                                       see note (5)

10(j)                      Lease between the Company and Alden H.
                           Kane and Roger K. Kane, Trustees of the
                           Kane Industrial Trust, dated November 1, 1992                      see note (6)

10(k)                      Severance Agreement between the Company and
                           Paul Siegenthaler dated January 30, 1993                           see note (6)

10(l)                      National Transaction Network, Inc. Retirement
                           Savings 401(k) Plan                                                see note (7)

10(m)                      Value-Added Reseller Agreement between the
                           Company and Inacom Corporation dated
                           January 11, 1993                                                   see note (9)

10(n)                      Promissory Note and Security Agreement
                           between the Company and Silicon Valley Bank
                           dated June 11, 1993                                                see note (9)

10(o)                      Master Purchase Agreement between the Company
                           and VeriFone, Inc. dated September 22, 1993                        see note (9)

</TABLE>





<PAGE>   39
<TABLE>
<CAPTION>

<S>                       <C>                                                                <C>
10(p)                      Joint Marketing Agreement between the Company
                           and Card Establishment Services, Inc. dated
                           December 7, 1993                                                   see note (9)

10(q)                      Severance Agreement between the Company and
                           Milton Alpern dated March 17, 1994                                 see note (9)

10(r)                      Form of the Director Stock Option Agreement
                           for the 1993 Director Stock Option Plan                           see note (10)

10(s)                      Form of the Director Stock Option Agreement
                           for the 1995 Director Stock Option Plan                           see note (11)

10(t)                      Industry Remarketer Agreement between the
                           Company and International Business Machines
                           Corporation dated June 3, 1996                                    see note (12)

10(u)                      Lease Agreement between the Company and
                           Aetna Real Estate Associates, L.P. dated
                           November 8, 1996                                                  see note (12)

23                         Consent of Deloitte & Touche LLP

27                         Financial Data Schedule

----------------------------------
</TABLE>

(1)      Exhibit is incorporated by reference to the Exhibits to the Form S-1
         Registration Statement No. 2-91030.

(2)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1987.

(3)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1988.

(4)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1989.

(5)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1990.

(6)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1992.

(7)      Exhibit is incorporated by reference to the Exhibits to the Form 8
         dated May 4, 1993.

(8)      Exhibit is incorporated by reference to the Exhibits to the Form S-8
         Registration Statement No. 33-66732 dated July 29, 1993.

(9)      Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1993.

(10)     Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1994.








<PAGE>   40


(11)     Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1995.

(12)     Exhibit is incorporated by reference to the Exhibits to the Form 10-K
         for the fiscal year ended December 31, 1996.

(13)     Exhibit is incorporated by reference to the Exhibits to the Form 10-Q
         for the fiscal quarter ended September 30, 1997.



                         SCHEDULES OMITTED IN ACCORDANCE
                      WITH ITEM 601(b)(2) OF REGULATION S-K

         Pursuant to the Asset Purchase Agreement (the "Agreement") dated
January 10, 1998 by and between BancTec USA, Inc. ("BancTec") and the Company,
BancTec and the Company executed various disclosure schedules which formed part
of the Agreement but are not required to be, and are not, filed as part of this
Annual Report of Form 10-K. Such omitted disclosure schedules include the
following items: (a) a list of the source control inventory listings identifying
the software application program/module content of the product lines transferred
from BancTec to the Company; (b) diminimis personal property transferred from
BancTec to the Company; (c) copies of various license agreements entered into by
and between BancTec and various third parties; and (d) BancTec's current form of
licensing agreement. The Company will furnish supplementally a copy of any
omitted schedule to the Securities and Exchange Commission (the "Commission")
upon the Commission's request; provided, however that the Company may request
confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act, as
amended, for any schedule so furnished.