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 (FEE REQUIRED)
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                       OR
        |   |  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                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 20, 1997:  $163,177,  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 20, 1997: 3,248,606.

                    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.








                                                              
                                     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. On March 25, 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.

         On September 13, 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.

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:

*        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.

*        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.

*        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.


                                      -2-



*        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.

*        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.

*        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.

*        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 its 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.

         NTN  products  include  processing  services  for certain  transactions
proprietary to the retailer.  Examples of these  transactions  include automated
gift certificates and frequent shopper transactions.  NTN's services include the
collection,  settlement, and management reporting related to these transactions.
In  some  cases,   the  NTN  processing   service  consists  of  collecting  and
re-directing these transactions to other processors.

         NTN  has  sought  to  standardize  its  product  offerings  as  much as
possible.  This product strategy has allowed for a leveraged product development
effort while maintaining  flexibility in responding to specific  requirements of
customers.


                                      -3-



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.
The  distribution  agreement  granted to the Company for a term of two years the
non-exclusive  right to market,  distribute  or sell IVI  products in the United
States.  No minimum  sales  targets  were  required.  The  agreement  expired on
December  31,  1992.  Since the  expiration  of the  agreement,  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.

         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.

         In June 1996, NTN entered into an agreement with International Business
Machines  Corporation  ("IBM")  which  allows  NTN to  act  as an  IBM  Industry
Remarketer for IBM's Advanced Payment System EPS software.  The agreement allows
NTN to modify,  market,  and license the Advanced Payment System software,  on a
non-exclusive basis, to end-user retailers. In addition, IBM Industry Remarketer
status allows NTN to purchase IBM point of sale  hardware  systems and services,
for its own  development  use  only,  at  preferential  prices.  The term of the
agreement is one year and may be renewed by mutual agreement of both parties.

Marketing
---------

         NTN has historically  focused on producing  Electronic  Payment Systems
specifically  designed for supermarkets  and similar  multi-lane  retailers.  In
seeking  expansion of the Company's  markets,  NTN has also begun marketing into
other  retail  markets  where it is felt that the  Company's  products  may have
additional applicability.

         NTN  mainly  markets  through a direct  selling  force.  The  Company's
headquarters  and regional sales offices provide the sales force with nationwide
coverage.  The sales  force  focuses  their  coverage on  supermarket  retailers
primarily,  with  additional  selling  activity  targeted at  retailers in other
industry  segments  and the  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,  advertising in
the trade press, and press coverage.

   
                                       -4-



         NTN also uses several indirect sales channels.  These indirect channels
influence the multi-lane  retailer and Electronic  Payment  Systems  industries,
including cash register vendors, supermarket wholesalers,  third party networks,
and other software developers.

         The  recent   acquisition  of   approximately   84%  of  the  Company's
outstanding  common stock by IVI makes 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 will be 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  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 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  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  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,
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 1996,
Albertsons  accounted  for  39% of the  Company's  total  revenues,  Fujitsu-ICL
accounted  for 12% of the  Company's  total  revenues,  and  Bi-Lo  Food  Stores
accounted for 10% of the Company's total revenues.


                                      -5-



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,  1994,  1995 and 1996 the Company
incurred  $1,145,838,  $1,016,521,  and $947,087  respectively,  in research and
development  expenses for software  development in connection  with its existing
and proposed  products.  During 1994, an additional  $288,198 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.  In
December  1994, the Company made a decision to write off $657,479 of capitalized
software development costs relating to a software product under development. See
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.

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, 1996,  the Company had thirty two  employees.  As of
March 20,  1997,  the  Company  had thirty  employees:  Kenneth M.  Kubler,  its
Executive  Vice  President  and General  Manager,  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, seven software engineers,  six marketing
and sales  employees,  eight  customer  service  employees  and five finance and
administrative employees.


                                       -6-




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 1997. One sales office,  located at located at 6653 Kimball Drive, Gig
Harbor, Washington,  which had a monthly rental of $385, was closed in May 1996.
Other  sales  people 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, 1996.



                                       -7-



                                     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.

                        1995                     High                      Low
                        ----                     ----                      ---

First quarter (1/1 - 3/31)...................   $1.26                     $0.13
Second quarter (4/1 - 6/30)..................   $0.88                     $0.06
Third quarter (7/1 - 9/30)...................   $0.56                     $0.13
Fourth quarter (10/1 - 12/31)................   $0.56                     $0.25

                       1996                      High                      Low
                       ----                      ----                      ---

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


         As of March 11, 1997, there were 571 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-



ITEM 6.  SELECTED FINANCIAL DATA.

STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                                       ------------------------
                                            1996           1995           1994           1993             1992
                                            ----           ----           ----           ----             ----
<S>                                    <C>            <C>            <C>            <C>              <C>    
Revenue.................................$5,013,023     $8,006,417     $7,968,148     $9,509,907       $8,609,082
Cost of Revenue......................... 2,609,901      4,593,041      4,948,350      5,903,732        5,001,159
                                         ---------      ---------      ---------      ---------        ---------
Gross Margin............................ 2,403,122      3,413,376      3,019,798      3,606,175        3,607,923
Total Operating
 Expenses............................... 3,038,245      3,518,522      4,272,107      3,418,972        3,233,826
                                         ---------      ---------      ---------      ---------        ---------
Income (Loss) from Operations...........  (635,123)      (105,146)    (1,252,309)       187,203          374,097
Other Income (Expense)..................    20,128         16,445         15,879       (177,682)        (191,769)
                                            ------         ------         ------       --------         -------- 
Income (Loss) before Income
 Taxes and Extraordinary Credit.........  (614,995)       (88,701)    (1,236,430)         9,521          182,328
Provision for Income Taxes..............                                                                  78,000
                                         ---------      ---------      ---------      ---------        ---------
Income (Loss) before Extra-
 ordinary Credit........................  (614,995)       (88,701)    (1,236,430)         9,521          104,328
Extraordinary Credit....................                                                                  71,000
                                         ---------      ---------      ---------      ---------        ---------
Net Income (Loss)....................... $(614,995)      $(88,701)   $(1,236,430)        $9,521         $175,328
Income (Loss) per Common
 Share:
    Income (Loss) before Extra-
     ordinary Credit ...................     $(.19)         $(.03)         $(.38)          $.00             $.05
    Extraordinary Credit................                                                                     .03
                                         ---------      ---------      ---------      ---------        ---------
    Net Income (Loss)...................     $(.19)         $(.03)         $(.38)          $.00             $.08
Weighted Average Number of
 Common Shares Outstanding.............. 3,248,606      3,248,606      3,248,606      2,471,161        2,205,426
</TABLE>



BALANCE SHEET DATA
<TABLE>
<CAPTION>
                                                                              As Of December 31,
                                                                              ------------------

                                             1996            1995            1994             1993              1992
                                             ----            ----            ----             ----              ----
<S>                                        <C>            <C>            <C>            <C>                <C>    
Working Capital.........................    $427,353        $997,032        $993,108       $1,873,150        $1,748,343
Total Assets............................   2,161,092       2,344,698       2,877,998        4,207,735         3,870,045
Long Term Liabilities...................      12,053               0               0                0         2,673,483
Stockholders' Equity
 (Deficiency)...........................     634,250       1,249,245       1,337,946        2,574,376          (563,964)
</TABLE>

Note:  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.


                                       -9-



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.


RESULTS OF OPERATIONS

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. With the recent acquisition of approximately 84% of the Company's
outstanding common stock by IVI (See discussion below - Acquisition of Company's
Common Stock),  management  believes that the availability of IVI's resources to
NTN will help the Company expand the  development  and marketing of its products
and services.  Lastly,  revenues for 1996 were impacted by several  customers of
the Company having  completed large roll-outs of the Company's  systems in 1995.
Uncertainties with respect to future orders from existing or potential customers
could have a material effect on net sales or earnings in the future.

         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 the continuing  trend of higher
margin software and professional  services 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.  Sales and marketing  expenses include the costs
of distribution, sales commissions, product marketing, and account management. 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.

                                      -10-



         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.

         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.  General and  administrative  expenses  primarily include the
finance and administration  costs of the Company. The increase in these expenses
for  1996  is  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  relating  to certain  uncollectible  customer  balances  totaling
$44,000  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  entirely 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.


YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

         Total revenue for the year ended December 31, 1995  increased  slightly
to $8,006,417  compared to $7,968,148  for the year ended December 31, 1994. The
increase  in  revenue  between  1994  and 1995  resulted  from  several  factors
including  the sale to an existing  customer  of the  Company's  newly  released
payment  system  product  integrated  to the NCR cash  register  system  and the
increasing need of supermarket  retailers to automate  consumer  payment options
involving  Electronic Food Stamps.  These increases were offset by a decrease in
revenue  between  1994 and 1995  resulting  from a decrease in the number of the
Company's  payment systems  installed by a significant  customer into additional
divisions.  The revenue derived from this customer  accounted for  approximately
32% of the Company's total revenue for the year ended December 31, 1995 compared
to approximately 53% of total revenue for the year ended December 31, 1994.

         Gross margins as a percent of total revenue  increased to 42.6% for the
year ended  December 31, 1995 compared to 37.9% for the year ended  December 31,
1994.  The  increase  in gross  margin  between  the two years was due to higher
margin  software sales  comprising a larger  percentage of total revenue for the
year ended  December  31, 1995  compared to the year ended  December  31,  1994.
Revenue  derived from sales of software  accounted  for 21% of total revenue for
the year ended December 31, 1995 compared to 10% for the year ended December 31,
1994.

         Total operating  expenses decreased by 17.6% to $3,518,522 for the year
ended  December 31, 1995 compared to $4,272,107  for the year ended December 31,
1994. The write-off of $657,479 of  capitalized  software  development  costs in
December 1994  accounted for the majority of the decrease in operating  expenses
between 1994 and 1995. These costs had previously been capitalized in accordance
with Statement of Financial  Accounting  Standards No. 86,  "Accounting  for the
Costs of  Computer  Software  to be Sold,  Leased or  Otherwise  Marketed."  The
write-off resulted from a re-prioritization of Company resources to focus on new
market  requirements.  Prior to the release of the  software  products for which
development  costs  had  been   capitalized,   market  demands  shifted  towards
integrated  payment  system  solutions away from the  stand-alone  product under
development by the Company.  Accordingly, the Company canceled the project under
development and redirected its marketing and product development efforts to meet
current market opportunities for integrated products.

         Sales and  marketing  expenses  increased by 3.6% to $1,771,800 in 1995
compared to  $1,710,885  in 1994.  An increase  in salaries  expense  ($134,000)
resulted from the hiring of a Western Region Sales Manager in the 

                                      -11-




fourth  quarter  of 1994 and a  Southeast  Region  Sales  Manager  in the second
quarter of 1995. Additionally,  salaries expense for the year ended December 31,
1995 includes  approximately  $16,000 of severance  costs incurred in the fourth
quarter  of 1995 for  personnel  changes  made at that  time.  Sales  commission
expense also increased by $63,000 between 1994 and 1995. The increase was due to
higher sales  commissions paid on higher margin software sales which comprised a
larger  percentage of total  revenue in 1995 compared to 1994.  The increases in
sales  and  marketing   expenses  were  offset  by  a  decrease  in  travel  and
entertainment   expense  ($72,000)  relating  to  travel  expenses  incurred  in
connection with the  installation of the Company's  payment systems into a large
number of divisions of a significant customer in 1994. In addition,  other sales
and  marketing  expense  decreases  were  experienced  between  1994 and 1995 in
marketing  promotion and outside services expenses  ($39,000) relating to direct
mail and telesales campaigns conducted in 1994 and recruiting expenses ($23,000)
relating to sales and marketing hires in 1994.

         Research and development  expenses decreased by 11.3% to $1,016,521 for
the year ended  December  31,  1995  compared to  $1,145,838  for the year ended
December 31, 1994.  Decreases in salaries and fringe benefit  expenses  totaling
approximately  $316,000 were the result of a reduction in the number of research
and  development  personnel which occurred at the beginning of the first quarter
of 1995. Research and development expenses in 1994 also include a $55,800 charge
for  severance  costs  incurred in  connection  with the reduction in personnel.
Other  decreases  in  travel  and  entertainment  expenses  ($17,000),   outside
consulting expenses ($18,000),  and recruiting expenses ($18,500)  contribute to
the overall decrease in research and development expenses between 1994 and 1995.
The  decreases  were  partially  offset  by  the   capitalization   of  software
development  costs totaling  approximately  $288,000 for the year ended December
31, 1994 in accordance with Statement of Financial  Accounting Standards No. 86,
"Accounting for the Costs of Computer  Software to be Sold,  Leased or Otherwise
Marketed."  For the year ended  December  31,  1995,  there were no research and
development costs incurred that required capitalization.

         General and  administrative  expenses decreased by 3.7% to $730,201 for
the year  ended  December  31,  1995  compared  to  $757,905  for the year ended
December  31, 1994.  Decreases  in outside  consulting  expenses  ($12,000)  for
management  training  and outside  service  expenses  ($21,000)  relating to the
design and printing of the Company's 1993 annual report were offset by increases
in travel and entertainment expenses ($11,600) and recruiting expenses ($6,200).
In addition, general and administrative expenses in 1994 include a $12,000 sales
tax accrual resulting from an audit of prior years.

         Other income and  expense,  consisting  entirely of interest  income in
1995,  totaled $16,445  compared to $15,879 in 1994,  which includes  $16,771 of
interest  income for that year.  The minimal  change in interest  income between
1994 and 1995 is based on a relatively  consistent  level of funds available for
investment during the two years.

         No tax provision was required in 1995 due to the loss incurred.


LIQUIDITY AND CAPITAL RESOURCES

         Cash balances at December 31, 1996 were  $266,045  compared to $407,257
at December 31, 1995. Net cash used for operating activities was $86,244 for the
year  ended  December  31,  1996  compared  to net cash  provided  by  operating
activities  of $357,870  for the year ended  December 31, 1995 and net cash used
for operating  activities of $410,234 for the year ended  December 31, 1994. 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
the year.  The  increase  in deferred  revenue  resulted  from  billings on 1997
hardware and software 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.  The net loss for
the year ended December 31, 1994 was primarily responsible for the cash consumed
during that period.


                                      -12-




         Net cash used in investing  activities  totaled $47,845,  $24,645,  and
$423,594 for the years ended December 31, 1996,  1995,  and 1994,  respectively.
Capital  equipment  expenditures,  principally  for  computer,  test  and  sales
demonstration equipment,  accounted for $47,845,  $24,645, and $135,396 of these
amounts in 1996, 1995, and 1994,  respectively.  The  capitalization of software
development  costs  accounted  for the  balance  of net cash  used in  investing
activities  in  1994.   Capital   expenditures   in  1997  are  expected  to  be
approximately $275,000.

         On February 28, 1997, the Company  received a commitment  from its bank
for the renewal of its working  capital line of credit through  January 4, 1998.
Maximum  available  borrowings  under  the line are the  lesser of  $750,000  or
certain  levels of eligible  accounts  receivable and are subject to monthly and
quarterly financial  performance  covenants.  Borrowings bear interest at a rate
per annum equal to the bank's prime rate (8.25% at March 20, 1997) plus 1.5% and
are  secured by the  Company's  assets.  At  December  31,  1996,  there were no
borrowings  outstanding under the credit line nor have there been any borrowings
through March 20, 1997. Borrowing availability under the credit line at December
31, 1996 would have been $419,487 based on the terms of the renewal.  Borrowings
under the renewed credit line are guaranteed by IVI.

         Management  believes  that sources of liquidity for future needs can be
generated  from  existing  cash  balances,   cash  generated  from   operations,
borrowings available to the Company under its bank-financed working capital line
of credit,  and financial  resources made available to the Company from IVI, the
terms of which are pending negotiations.


ACQUISITION OF COMPANY'S COMMON STOCK

         On  September   13,  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.  While the impact of the IVI  transaction  on the  Company's
business  continues to evolve, the investment by IVI provides a renewed business
relationship  between the  companies  and makes  available to NTN the  financial
resources of IVI to help the Company expand its products, services, and markets.
In addition,  NTN believes that IVI's  investment will help the Company increase
its market  penetration by gaining access to the IVI customer base and allow 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 will to  continue  to  market  its  products  and
services on multiple hardware platforms and operating  environments necessary to
achieve  its  business  objectives.  While  there can be no  assurance  that the
benefits of IVI's  investment  as outlined  above will be  achieved,  management
believes that IVI's  investment  in NTN will not adversely  affect the Company's
business or its relationships with its customers or the  aforementioned  parties
influencing the EPS market.


                                      -13-



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 the Private Securities Litigation Reform Act
of 1995. 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-




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                  Please refer to pages F-1 through F-12.


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

                  None.

                                      -15-




                                    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-


                                     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:

                           Schedules  are  omitted  because  of the  absence  of
                  conditions  under  which  they are  required  or  because  the
                  required  information is included in the financial  statements
                  submitted.

                  (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).

<TABLE>
<CAPTION>
                                                                                            Form 10-K
Exhibit                                                                                    consecutive
Number                               Exhibit                                               page number
------                               -------                                               -----------
<S>                        <C>                                                             <C>
3(a)                       Amended and restated Certificate of
                           Incorporation filed October 22, 1993                               see note (9)

3(b)                       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)

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)



                                      -17-


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)

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



                                      -18-


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

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

23                         Consent of Deloitte & Touche LLP
</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.

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

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




                                      -19-


         (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, 1996.

         (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-


                                   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 24, 1997               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 24, 1997                        /s/  L. Barry Thomson
                                      ----------------------
                                      L. Barry Thomson, Chief Executive Officer,
                                      President and Chairman of the Board
                                      (Principal Executive Officer)



March 24, 1997                        /s/  Milton A. Alpern
                                      ----------------------
                                      Milton A. Alpern, Vice President of 
                                      Finance and Administration (Principal 
                                      Financial and Accounting Officer)



March 24, 1997                        /s/  Kenneth M. Kubler
                                      -----------------------
                                      Kenneth M. Kubler, Executive Vice 
                                      President, General Manager and Director



March 24, 1997                        /s/  Christopher F. Schellhorn
                                      -------------------------------
                                      Christopher F. Schellhorn, Director



March 24, 1997                        /s/  George C. Whitton
                                      -----------------------
                                      George C. Whitton, Director




                                      -21-




                          INDEX TO FINANCIAL STATEMENTS

                                                    
                                                                    Page
                                                                    ----

Independent Auditors' Report .....................................   F-1

Balance Sheets as of December 31, 1996 and 1995 ..................   F-2

Statements of Operations for the Years Ended .....................   F-3
         December 31, 1996, 1995, and 1994

Statements of Stockholders' Equity for the Years .................   F-4
         Ended December 31, 1996, 1995, and 1994

Statements of Cash Flows for the Years Ended .....................   F-5
         December 31, 1996, 1995 and 1994

Notes to Financial Statements ....................................   F-6-12




                                      -22-



INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE LLP
---------------------         --------------------------------------------------
                              125 Summer Street         Telephone:(617) 261-8000
                              Boston, Massachusetts     Facsimile:(617) 261-8111
                              02110-1617


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. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1996. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements 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, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended  December 31, 1996 in  conformity  with  generally  accepted
accounting principles.

                                              /s/ Deloitte & Touche LLP

March 3, 1997



---------------
Deloitte Touche
Tohmatsu
International
---------------


                                      F-1








NATIONAL TRANSACTION NETWORK, INC.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
--------------------------------------------------------------------------------

ASSETS                                            1996           1995           

CURRENT ASSETS:                                                                 
  Cash and equivalents                         $    266,045  $  407,257 
  Accounts receivable (less allowance for                               
    doubtful accounts of $100,000                                       
    in 1996 and 1995)                             1,406,113   1,384,222 
  Inventory                                         233,590     274,159 
  Prepaid expenses                                   36,394      26,847
                                               ------------  ---------- 

           Total current assets                   1,942,142   2,092,485 
                                               ------------  ---------- 

PROPERTY AND EQUIPMENT:                                                 
                                                                        
  Furniture and fixtures                            114,657     113,923
  Machinery and equipment                           670,394     595,216
                                               ------------  ----------
                                                                        
                                                                        
           Total                                    785,051     709,139
                                                                        
  Less accumulated depreciation and amortization   (578,032)   (460,605
                                                                        
           Property and equipment - net             207,019     248,534 
                                               ------------  ----------
                                                                             
 DEPOSITS AND OTHER                                  11,931      3,679 
                                                                             
                                                                                

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

TOTAL                                           $ 2,161,092  $ 2,344,698   
                                               ============= ===========  



                                                                                
                                                                                
   LIABILITIES AND STOCKHOLDERS' EQUITY                1996            1995     
                                                                                
   CURRENT LIABILITIES:                                                         
     Accounts payable                               $    497,569 $  445,200   
     Accounts payable to stockholder                      95,287    247,402   
     Customer deposits                                     2,166     25,265  
     Accrued liabilities                                 346,620    331,509   
     Deferred revenue                                    563,923     46,077  
     Short-term portion of capital lease                   9,224         - 
                                                    ------------ ----------     
                                                                                
              Total current liabilities                1,514,789  1,095,453   
                                                    ------------ ----------     
                                                                                
   LONG-TERM PORTION OF CAPITAL LEASE                     12,053          -
                                                    ------------ ----------     
                                                                                
                                                                                
                                                                                
               Total liabilities                       1,526,842  1,095,453   
                                                    ------------ ----------     
                                                                                
   COMMITMENTS                                                                  
                                                                                
   STOCKHOLDERS' EQUITY                                                         
     Preferred stock, $.10 par value; authorized,                               
                                                                                
       5,000,000 shares; none outstanding                   -            -     
     Common stock, $.15 par value; authorized,                                  
      6,666,667 shares; issued and outstanding,                                 
      3,248,606 shares                                    487,291      487,291  
     Additional paid-in capital                        12,589,255   12,589,255  
     Accumulated deficit                              (12,442,296) (11,827,301) 
                                                    -------------- ------------ 
                                                                                
              Total stockholders' equity                  634,250    1,249,245  
                                                     -------------- -----------
                                                                                
   TOTAL                                             $  2,161,092 $  2,344,698  
                                                    ============= ============  
                                                                             


See notes to financial statements.


                                      F-2


<TABLE>
<CAPTION>


NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
---------------------------------------------------------------------------------------------------------------


                                                                1996           1995          1994

<S>                                                      <C>             <C>          <C>
REVENUE:
  Systems and equipment                                      $  2,823,236 $  5,136,778 $    5,926,088
  Software and services                                         2,189,787    2,869,639      2,042,060
                                                                ---------    ---------      ---------

          Total revenue                                         5,013,023    8,006,417      7,968,148
                                                                ---------    ---------      ---------
COSTS AND EXPENSES:
  Cost of revenue                                               2,609,901    4,593,041      4,948,350
  Sales and marketing                                           1,111,665    1,771,800      1,710,885
  Research and development                                        947,087    1,016,521      1,145,838
  General and administrative                                      979,493      730,201        757,905
  Write-off of capitalized software costs                            -              -         657,479
                                                                ---------    ---------      ---------

          Total costs and expenses                              5,648,146    8,111,563      9,220,457
                                                                ---------    ---------      ---------

LOSS FROM OPERATIONS                                             (635,123)    (105,146)    (1,252,309)

OTHER INCOME AND EXPENSE, Net                                      20,128       16,445         15,879
                                                                ---------    ---------      ---------

NET LOSS                                                    $    (614,995)  $  (88,701)  $ (1,236,430)
                                                            =============   ==========   ============ 

LOSS PER COMMON SHARE                                       $       ($.19)  $    (0.03)  $      (0.38)
                                                            =============   ==========   ============ 

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

See notes to financial statements.

</TABLE>



                                      F-3



<TABLE>
<CAPTION>

NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------------------------------------------------------------------------------


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

<S>                   <C>            <C>               <C>                <C>                 <C>
BALANCE,
  JANUARY 1, 1994         3,248,606    $   487,291        $  12,589,255     $  (10,502,170)     $      2,574,376

  Net loss                    -              -                  -               (1,236,430)           (1,236,430)
                        -------------------------------------------------------------------------------------------

BALANCE,
  DECEMBER 31, 1994       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
                        ===========================================================================================


See notes to financial statements.

</TABLE>

                                      F-4



<TABLE>
<CAPTION>


NATIONAL TRANSACTION NETWORK, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------------------------------------------------------------------


                                                                                1996         1995         1994

<S>                                                                     <C>             <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                $   (614,955)  $ (88,701) $ (1,236,430)
  Adjustments to reconcile net loss to net cash (used for) provided by
    operating activities:
      Depreciation and amortization                                            117,720     116,470       109,945
      Write-off of capitalized software costs                                     -             -        657,479
      Loss on disposal of equipment                                               -             -          7,985
      Increase (decrease) in cash from:
        Accounts receivable                                                    (21,891)   (119,305)       42,061
        Inventory                                                               40,569     854,960        85,472
        Prepaid expenses                                                        (9,547)     38,245        11,988
        Deposits and other                                                      (8,252)        800         4,573
        Accounts payable to stockholder                                       (152,115)     84,732      (209,949)
        Customer deposits                                                      (23,099)        638        24,627
        Accounts payable and accrued  liabilities                               67,480    (485,622)      106,233
        Deferred revenue                                                       517,846     (44,347)      (14,218)
                                                                          ------------   ---------  ------------ 

           Net cash (used for) provided by operating activities                (86,244)    357,870      (410,234)
                                                                          ------------   ---------  ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                          (47,845)    (24,645)     (135,396)
  Capitalization of software costs                                                 -            -       (288,198)
                                                                          ------------   ---------  ------------ 

           Net cash used in investing activities                               (47,845)    (24,645)     (423,594)
                                                                          ------------   ---------  ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES - Repayment
  of capital lease                                                              (7,123)         -             -
                                                                          ------------   ---------  ------------ 

NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS                               (141,212)    333,225      (833,828)

CASH AND EQUIVALENTS, BEGINNING OF YEAR                                        407,257      74,032       907,860
                                                                          ------------   ---------  ------------ 

CASH AND EQUIVALENTS, END OF YEAR                                        $     266,045  $  407,257    $   74,032
                                                                        ==============  ==========  ============ 

SUPPLEMENTAL INFORMATION - Cash paid for:
  Interest                                                              $        4,168  $       -     $      892
                                                                        ==============  ==========  ============ 

  Income and excise taxes                                               $        4,170  $    5,467    $    4,749
                                                                        ==============  ==========  ============ 

NONCASH TRANSACTIONS - Capital lease additions                          $       28,400  $       -     $     -
                                                                        ==============  ==========  ============ 



See notes to financial statements.

</TABLE>

                                      F-5







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,
      $.15 par value of the Company.

      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.

      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 non-employees is
      measured using a fair value method.

      Revenue   Recognition  -  Revenue  from  sales  of  product  is  generally
      recognized  upon  shipment.   Revenue  from   maintenance   agreements  is
      recognized ratably over the term of the agreements.

      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 two to five
      years.  Depreciation  expense was  approximately  $118,000,  $116,000  and
      $110,000  for  the  years  ended   December  31,  1996,   1995  and  1994,
      respectively.  The Company regularly reviews its property and equipment to
      determine that the carrying values have not been impaired.

      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  over the  related  product's  estimated
      economic life. Research and development costs are expensed as incurred.

      Loss Per Common Share - Loss per common share has been computed based upon
      the weighted average number of common shares outstanding during each year.
      Shares  issuable upon exercise of  outstanding  options have been excluded
      from the computations since their effect is antidilutive.

      Cash and Equivalents - The Company considers all highly liquid investments
      purchased  with a remaining  maturity  of three  months or less to be cash
      equivalents.


                                      F-6



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

      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.

      Impairment of Long-Lived  Assets - In 1996, the Company adopted  Statement
      of Financial  Accounting Standards No. 121, "Accounting for the Impairment
      of Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of" ("SFAS
      121"). SFAS 121 requires that long-lived  assets and certain  identifiable
      intangibles  to be held and used by an entity be reviewed  for  impairment
      whenever  events or changes in  circumstances  indicate  that the carrying
      amount of an asset may not be recoverable.

      The Company has reviewed its long-lived  assets and has determined that no
      events or changes in  circumstances  have  occurred  that would  cause the
      carrying value of any of its assets to not be recoverable.

      Reclassification - Certain items in the 1995 and 1994 financial statements
      have been reclassified to conform to the 1996 presentation.

2.    LINE OF CREDIT

      The Company had a working  capital  line of credit  agreement  with a bank
      that provided for borrowings up to a maximum of $400,000. Borrowings under
      the line of credit  were based on certain  accounts  receivable  balances,
      bore interest at the bank's prime rate plus 4%, were collateralized by the
      Company's  assets and were  subject to monthly and  quarterly  performance
      covenants. At December 31,1996 and at other times during 1996, the Company
      was not in compliance with certain covenants and had obtained a compliance
      waiver  from the bank.  At December  31,  1996,  there were no  borrowings
      outstanding under the line.

      On February 28, 1997, the Company  received a commitment from its bank for
      the renewal of its working  capital line of credit through January 4, 1998
      that 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.  IVI guarantees the Company's line of credit and, to the
      extent that the Company's cash requirements  exceed the availability under
      the  line of  credit,  IVI  will  provide  further  financing  to meet the
      Company's cash requirements.

3.    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
      933,000  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,
      1996, 402,289 shares were available for grant under the Plans.


                                      F-7


3.    STOCK OPTIONS (CONTINUED)

      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 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 of Directors but may not exceed ten years.
      As of December 31, 1996, 228,333 shares were available for grant under the
      Director Plans.

      The following is a summary of all option activity under all Plans:


<TABLE>
<CAPTION>

                                                                                 Weighted    Weighted
                                                                      Number     Average      Average
                                                                        of       Exercise     Fair
                                                                      Shares      Price       Value
                                                           
<S>                                                                 <C>           <C>        <C> 
Outstanding at January 1, 1994                                      318,447    $4.06
Granted                                                              79,363     2.80
Expired  or Canceled                                                (99,685)    3.81
                                                                   --------

Outstanding at December 31, 1994                                    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        $ 0.43
Expired  or Canceled                                               (220,605)   0.88
                                                                  ---------

Outstanding at December 31, 1996                                    622,380    0.50
                                                                   ========

</TABLE>



      Options  exercisable under all stock option plans at December 31, 1996 and
      1995 were 270,601 and 240,613, respectively.

      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:




                                                         1996            1995

Average risk-free interest rate                          6.4 %          5.9 %
Expected life of option grants                        7.5 years       7.5 years
Expected volatility of underlying stock                  174%           174%
Expected dividend payment rate, as a
    percentage of the stock price on the
   date of grant                                          -               -





                                      F-8


3.    STOCK OPTIONS (CONTINUED)

      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
      31,1996:

<TABLE>
<CAPTION>
    

                                                                                             Weighted
                                                                               Weighted       Average
                                                               Weighted        Average        Exercise
                           Range of           Number           Average        Remaining      Price for
          Number           Exercise          Currently         Exercise          Life        Currently
        of Options          Prices          Exercisable         Price         (in years)    Exercisable

        <S>              <C>                <C>                <C>             <C>            <C>  
         605,380         $0.22 - $0.46       253,601            $0.40           8.23           $0.40
          17,000         $3.00 - $22.50       17,000            $3.38           5.56          $3.38


</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% for both 1996 and 1995, would have been
      as follows:



                                        1996            1995

Net loss as reported              $  (614,995)    $    (88,701)
Pro forma net loss                $  (653,876)    $   (110,942)
Loss per common share             $     (0.19)    $      (0.03)
Pro forma loss per share          $     (0.20)    $      (0.03)








                                      F-9




4.    INCOME TAXES

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

<TABLE>
<CAPTION>


                                                                      1996            1995

<S>                                                              <C>              <C>         
Deferred tax liabilities - Property and equipment                $   (12,000)     $   (91,000)
                                                                 -----------      -----------

Deferred tax assets:
  Compensated absences                                                27,000           28,000
  Accounts receivable                                                 40,000           44,000
  Inventory                                                           20,000               -
  Net operating loss carryforwards                                 4,857,000        5,072,000
                                                                 -----------      -----------
                                                                   4,944,000        5,144,000
                                                                 -----------      -----------
Valuation allowance                                               (4,932,000)      (5,053,000)
                                                                 -----------      -----------
Deferred taxes, net                                               $       -         $     -
                                                                 ===========      ===========  


</TABLE>



      For the years ended  December  31,  1996 and 1995,  the net changes in the
      valuation  allowance are  primarily  related to the change in net deferred
      tax  assets  as  such  assets  are  fully   reversed   in  each  year.   A
      reconciliation  between the U.S.  statutory tax rate and the effective tax
      rate for the years ended December 31, 1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>



                                                                     1996          1995           1994

<S>                                                                 <C>           <C>            <C>  
Statutory tax rate                                                  (34)%         (34)%          (34)%
State rate, net of federal benefit                                   (6)           (7)            (7)
Write-off of capitalized software costs                               -             -             10
Change in valuation allowance due to the uncertainty
  of future realization of currently generated net
  operating loss carryforwards                                        39           34             30
Nondeductible expenses                                                 1            7              1
                                                                 -------        -------        -------

Effective tax rate                                                   - %            - %            - %
                                                                 =======        =======        =======

</TABLE>






      At December 31, 1996, the Company has net operating loss carryforwards for
      tax purposes of approximately $20,862,000, which expire in varying amounts
      through  2011.  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 $1,300,000 in the aggregate.



                                      F-10


5.    COMMITMENTS

      Office  Lease - In November of 1996,  the Company  signed a  noncancelable
      lease for new office  space,  which  commenced  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,  1996,  1995 and 1994 was
      approximately $87,000, $109,000 and $119,000, respectively. Future minimum
      lease  payments,  as  of  December  31,  1996,  under  this  noncancelable
      operating lease approximate the following:



                   1997               $ 107,000
                   1998                 109,000
                   1999                 113,000
                   2000                 113,000
                   2001                 117,000
                                        -------
                   
                   Total              $ 559,000
                                      =========





6.    CAPITAL LEASE

      In 1996, the Company  entered into a capital lease for certain  equipment.
      The  agreement  has been  capitalized  at the present  value of the future
      minimum  rental  payments  and is  included  in the  equipment  balance at
      December 31,1996 at a value of $28,400,  less accumulated  amortization of
      $7,123.  Future  minimum  payments,  by year and in the  aggregate,  under
      capitalized  lease  obligations  at December  31,  1996,  consisted of the
      following:



1997                                                           $ 12,317
1998                                                             12,317
1999                                                              1,026
                                                               --------

Total minimum lease payment                                      25,660

Amount representing interest at 12% per annum                    (4,383)
                                                               --------

Present value of net minimum lease payments                      21,277
Less current portion                                             (9,224)
                                                               --------
Long-term portion of net minimum lease payments                $ 12,053
                                                               ========





                                      F-11


7.    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:



                 Customers            1996       1995       1994            
                 
                     A                 39 %       32 %       53 %
                     B                 12         13         12
                     C                 10         11          -




8.    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  $453,000,  $1,190,000 and $751,000
      for the years ended December 31, 1996, 1995 and 1994, respectively.

9.    WRITE-OFF OF CAPITALIZED SOFTWARE COSTS

      In December 1994,  the Company wrote off $657,479 of capitalized  software
      development costs relating to a software product under development.  These
      costs had  previously  been  capitalized  in accordance  with Statement of
      Financial  Accounting  Standards  No.  86,  "Accounting  for the  Costs of
      Computer  Software  to  be  Sold,  Leased,  or  Otherwise  Marketed."  The
      write-off resulted from the reprioritization of Company resources to focus
      on new market  requirements.  Prior to the release of the software product
      for which development  costs had been capitalized,  market demands shifted
      towards  integrated  payment system  solutions  away from the  stand-alone
      product  under  development  by  the  Company.  Accordingly,  the  Company
      canceled the project under  development  and  redirected its marketing and
      product  development  efforts to meet  current  market  opportunities  for
      integrated products. An additional $55,846 of severance costs was incurred
      in  connection  with the  decision to write off the  capitalized  software
      costs and was included in research and  development  expenses for the year
      ended December 31, 1994.

                                   * * * * * *





                                      F-12