SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ________
Commission File Number 0-29772
IVI CHECKMATE CORP.
(Exact name of Registrant as specified in its charter)
Delaware 58-2375201
(State of (I.R.S. Employer
Incorporation) Identification No.)
1003 Mansell Road, Roswell, Georgia 30076
(Address of principal executive offices, including zip code)
(770) 594-6000
(Registrant's telephone number, including area code)
______________
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 twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 11, 2000
----------------------------- ---------------------------
Common Stock, $0.01 par value 18,155,569 shares
IVI CHECKMATE CORP.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2000
Table of Contents
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Page
PART I. FINANCIAL INFORMATION Number
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Item 1 Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements - March 31, 2000 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosure of Market Risk 11
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX OF EXHIBITS 13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Per Share Data)
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,552 $ 8,279
Accounts receivable, net 19,546 20,050
Inventories 20,937 20,278
Deferred tax asset 1,173 848
Prepaid expenses and other assets 1,021 502
-------- --------
Total current assets 50,229 49,957
Property and equipment, net 9,233 9,654
Capitalized software development costs, net 12,908 12,822
Intangible assets, net 983 1,064
Other assets 26 28
-------- --------
Total assets $ 73,379 $ 73,525
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 4,450 $ -
Accounts payable 8,896 12,255
Accrued liabilities 11,227 11,273
Deferred revenue 3,058 3,350
Other 13 13
--------- --------
Total current liabilities 27,644 26,891
Deferred tax liability 1,493 1,500
Other - 4
--------- --------
Total liabilities 29,137 28,395
--------- --------
Stockholders' equity
Preferred stock, $0.01 par value 8 8
Common stock, $0.01 par value 182 182
Additional paid-in capital 88,984 88,962
Accumulated deficit (43,890) (43,066)
Accumulated comprehensive loss (1,042) (956)
--------- --------
Total stockholders' equity 44,242 45,130
--------- --------
Total liabilities and stockholders' equity $ 73,379 $ 73,525
======== ========
See notes to condensed consolidated financial statements
3
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars Except Share and Per Share Data)
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2000 1999
------- -------
Net revenues $23,269 $15,110
Cost of goods sold 14,495 9,388
Amortization of software development costs 932 631
------- -------
Gross profit 7,842 5,091
------- -------
Operating expenses:
Selling, general and administrative 7,156 6,560
Research and development 1,192 1,236
Depreciation and amortization 615 524
------- -------
8,963 8,320
------- -------
Operating loss (1,121) (3,229)
Interest and other income (expense) 22 (51)
------- -------
Loss before income taxes (1,099) (3,280)
Income tax benefit 275 984
------- -------
Net loss $ (824) $(2,296)
------- -------
Net loss per share
Basic $ (0.05) $ (0.13)
------- -------
Diluted $ (0.05) $ (0.13)
------- -------
Weighted average number
of shares outstanding (000's):
Basic 18,151 18,071
------- -------
Diluted 18,151 18,071
------- -------
See notes to condensed consolidated financial statements
4
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Three Months Ended
March 31,
---------------------------------
2000 1999
-------- --------
Operating activities:
Net loss $ (824) $(2,296)
Depreciation and amortization 1,845 1,398
Deferred income taxes and other (349) (873)
Change in non-cash working capital (4,365) (777)
------- -------
Net cash used in operating activities (3,693) (2,548)
------- -------
Investing activities:
Purchases of property and equipment (420) (833)
Capitalized software development costs (1,043) (1,481)
Other 3 (83)
------- -------
Net cash used in investing activities (1,460) (2,397)
------- -------
Financing activities:
Borrowings of debt 4,450 -
Repayments of debt (4) (42)
Proceeds from issuance of common stock 22 1,158
------- -------
Net cash provided by financing activities 4,468 1,116
------- -------
Effect of exchange rate fluctuations on cash (42) 123
------- -------
Net decrease in cash and cash equivalents (727) (3,706)
Cash and cash equivalents at beginning of period 8,279 9,846
------- -------
Cash and cash equivalents at end of period $ 7,552 $ 6,140
======= =======
See notes to condensed consolidated financial statements
5
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of dollars, except per share data)
(Unaudited)
March 31, 2000
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of IVI Checkmate Corp. and our majority-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
We have prepared these statements in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In our opinion, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These statements should be read in
conjunction with our audited financial statements for the year ended December
31, 1999. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000 or any other interim period.
2. Inventories
Inventories are summarized by class as follows:
March 31, December 31,
2000 1999
--------- ------------
Finished goods $11,633 $12,578
Consignment 7,454 2,040
Work in process 1,450 2,798
Raw materials and supplies 6,934 9,873
------- -------
Gross inventories 27,471 27,289
Less obsolescence reserves (6,534) (7,011)
------- -------
Total $20,937 $20,278
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6
3. Net Loss Per Share
Net loss per share on a basic and diluted basis as required by Statement No. 128
is calculated as follows:
Three Months Ended
March 31,
--------------------------------
2000 1999
------- -------
Net loss $ (824) $(2,296)
Less: Preferred dividends (163) -
------- -------
Net loss available to common stockholders $ (987) $(2,296)
======= =======
Calculation of weighted average shares outstanding
plus assumed exercises and conversions (000's):
Weighted average basic shares outstanding 18,151 18,071
Effect of dilutive securities - -
------- -------
Weighted average diluted shares outstanding 18,151 18,071
======= =======
Basic net loss per share $ (0.05) $ (0.13)
======= =======
Diluted net loss per share $ (0.05) $ (0.13)
======= =======
The effect of dilutive securities excludes those stock options and convertible
preferred shares for which the impact of exercise or conversion would have been
anti-dilutive. All of the options and convertible preferred stock outstanding at
March 31, 2000 and 1999 were anti-dilutive.
4. Segment Disclosures
Selected Financial Results
- --------------------------
Operating Depreciation/
Revenues Income(Loss) Amortization
-------- ------------ --------------
Three Months Ended March 31, 2000:
Domestic $17,610 $(1,452) $1,347
International 5,660 331 498
------- ------- ------
Segmented total 23,270 (1,121) 1,845
Intersegment sales (1) - -
------- ------- ------
Consolidated total $23,269 $(1,121) $1,845
======= ======= ======
Three Months Ended March 31, 1999:
Domestic $10,091 $(3,623) $ 951
International 5,019 394 447
------- ------- ------
Segmented total 15,110 (3,229) 1,398
Intersegment sales - - -
------- ------- ------
Consolidated total $15,110 $(3,229) $1,398
======= ======= ======
7
4. Segment Disclosures (continued)
Identifiable Assets
- -------------------
At At
March 30, December 31,
2000 1999
--------- ------------
Domestic $50,658 $48,372
International 22,258 25,153
------- -------
Segment total 72,916 73,525
Tax adjustment 463 -
------- -------
Consolidated total $73,379 $73,525
======= =======
5. Comprehensive Loss
Total comprehensive loss, which consists of net loss and foreign currency
translation adjustments, was approximately $910,000 and $2.0 million for the
three months ended March 31, 2000 and 1999, respectively.
6. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101. SAB
101 summarizes certain of the SEC Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. Although
we are currently evaluating the impact of SAB 101, we believe that our current
practices comply with SAB 101. However, should we determine that a change in
accounting policy is necessary, such a change will be made prospectively in the
second quarter of 2000 and would result in a charge to results of operations for
the cumulative effect of the change. This amount, if recognized, would be
recorded as deferred revenue and recognized as revenue in future periods.
Financial statements for prior periods would not be restated.
7. Subsequent Event
On April 5, 2000, we entered into a financing agreement with Congress Financial
Corporation (Southern) for a new revolving credit line facility of up to $15
million based on the value of certain assets held by our operations in the
United States. Borrowings under this credit facility will be subject to interest
charges at a per annum rate equal to the lender's Prime Rate or the prime rate
as published in the Wall Street Journal. The term of the credit facility is for
an initial three-year period with annual renewal terms thereafter. On April 5,
2000, borrowings that were outstanding under our prior lines of credit in the
United States were paid in full with funds advanced under the Congress Financial
credit facility.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion contains forward-looking statements subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995. The
words "may," "would," "could," "will," "expect," "estimate," "anticipate,"
"believe," "intends," "plans" and similar expressions and variations thereof are
intended to identify forward-looking statements. We caution that these
statements represent projections and estimates of future performance and involve
certain risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors including, without limitation, rapid and significant technological
developments that could delay the introduction of improvements in existing
products or of new products; dependence on limited suppliers and manufacturers
of component parts of our products; dependence on our proprietary technologies
(which may be independently developed by competitors); dependence on a small
number of large retail and bank customers; potential fluctuation in financial
results as a result of any inability to make sales to large customers as well as
the volume and timing of bookings received during a quarter and variations in
sales mix; competition from existing companies as well as new market entrants;
dependence on key personnel; and other risk factors that are contained in
documents that we file with the U.S. Securities and Exchange Commission.
Results of Operations - Three Months Ended March 31, 2000 Compared to Three
Months Ended March 31, 1999
The following table sets forth certain items derived from our consolidated
statements of operations:
Three Months Ended
March 31,
------------------------------------------------------------
2000 1999
--------------------------- ---------------------------
Amount % Amount %
--------------------------- ---------------------------
(Dollar amounts in thousands of dollars)
Net revenues:
Domestic $17,609 76 % $10,091 67 %
International 5,660 24 5,019 33
--------------------------- ---------------------------
23,269 100 15,110 100
Cost of sales 14,495 63 9,388 62
Amortization of software development costs 932 3 631 4
--------------------------- ---------------------------
Gross profit 7,842 34 5,091 34
--------------------------- ---------------------------
Operating expenses:
Selling, general and administrative 7,156 31 6,560 44
Research and development 1,192 5 1,236 8
Depreciation and amortization 615 3 524 3
--------------------------- ---------------------------
8,963 39 8,320 55
--------------------------- ---------------------------
Operating loss (1,121) (5) (3,229) (21)
Interest and other income (expense) 22 - (51) -
--------------------------- ---------------------------
Loss before income taxes (1,099) (5) (3,280) (21)
Income tax benefit 275 1 984 6
--------------------------- ---------------------------
Net loss $ (824) (4)% $(2,296) (15)%
--------------------------- ---------------------------
Any trends that may be derived from the above tables are not necessarily
indicative of our future operations.
9
Net revenues increased 54% to $23.3 million for the three months ended
March 31, 2000 from $15.1 million for the three months ended March 31, 1999. The
improvement in revenue was the result of a turnaround quarter for our U.S.
operations that produced an 85% increase in sales of payment terminals and
peripherals to $14.9 million from $8.0 million, and a 32% increase in software
and professional services revenue to $2.7 million from $2.1 million. The overall
increase in revenue was also positively affected by a 13% revenue growth from
our Canadian operations to $5.7 million from $5.0 million as a result of
increased product shipments.
Cost of sales (excluding amortization of software development costs)
increased 54% to $14.5 million for the three months ended March 31, 2000 from
$9.4 million for the three months ended March 31, 1999. This increase was
primarily as a result of the 54% growth in revenues over the same period. As a
percentage of net revenues, costs of sales for the three months ended March 31,
2000 and 1999 were approximately 63% for both periods.
Amortization of software development costs increased 48% to $932,000 for
the three months ended March 31, 2000 from $631,000 for the three months ended
March 31, 1999, as we began to amortize previously capitalized software
development project costs that have reached commercial production stage.
Selling, general and administrative expenses increased 9% to $7.2 million
for the three months ended March 31, 2000 from $6.6 million for the three months
ended March 31, 1999. The increase in expenses was primarily the result of
operating costs incurred in the first quarter of 2000 for our Financial Systems
division. We acquired the Financial Systems division from DataCard Corporation
in April 1999, and included these operating costs within our consolidated
results only since acquisition.
Research and development expenditures were constant at approximately $1.2
million for the three months ended March 31, 2000 and 1999.
Our effective tax rates for the three months ended March 31, 2000 and 1999
were 25% and 30%, respectively. The effective tax rate in each year is below the
federal statutory tax rate in the U.S. of 34%, as a result of utilizing non-
operating loss carryovers in the U.S.
Liquidity and Capital Resources
Our primary operating cash needs include the payment of salaries, payments
to suppliers, office rent, travel expenses, and other general and administrative
expenses, as well as capital expenditures and research and development. We have
financed these expenditures, as well as acquisitions, with cash flow from
operations and the issuance of equity securities, as well as borrowings from
time to time under lines of credit.
We had working capital of approximately $23 million at March 31, 2000,
which was consistent with working capital at December 31, 1999. While our cash
balance at March 31, 2000 remained healthy at $7.6 million, most of which is
held in our Canadian subsidiary, we borrowed approximately $4.5 million under
our lines of credit in the first quarter of 2000 to temporarily fund operating
cash requirements in the U.S. At March 31, 2000, the amount borrowed still
remained outstanding.
During the three months ended March 31, 2000, the borrowed funds were used
for operating activities, which had a $3.7 million cash outflow, approximately
$420,000 in purchases of property and equipment and approximately $1.0 million
in capitalized software development costs. The most significant usage of funds
in operating activities was the payment of invoices to our trade creditors,
which was reduced in the three months ended March 31, 2000 by $3.4 million.
On April 5, 2000, we entered into a financing agreement with Congress
Financial Corporation (Southern) for a new revolving credit line facility of up
to $15 million based on the value of certain assets held by our operations in
the United States. Borrowings under this credit facility will be subject to
interest charges at a per annum rate equal to the lender's Prime Rate or the
prime rate as published in the Wall
10
Street Journal. The term of the credit facility is for an initial three-year
period with annual renewal terms thereafter. The credit facility with Congress
Financial replaces our existing credit facilities in the United States that
provided for an aggregate borrowing of $6 million. On April 5, 2000, borrowings
that were outstanding under our prior lines of credit in the United States were
paid in full with funds advanced under the Congress Financial credit facility.
Our existing unsecured Canadian credit facility for borrowings of up to $5
million, which is held with a Canadian financial institution and renews annually
in June of each year, still remains.
We believe that our working capital position at March 31, 2000, together
with anticipated future cash flows from operations and the borrowings available
under our revolving credit lines, will be sufficient to meet our cash operating
needs for the remainder of the year.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
------------------------------------------------------
There has been no material change during the quarter ended March 31, 2000
from the disclosures about market risk provided in Item 7A of our Annual Report
on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. The following exhibits are filed as part of this report:
---------
Exhibit Number Description
- -------------- -----------
10 Loan and Security Agreement dated April 5, 2000 by and among
Congress Financial Corporation (Southern), IVI Checkmate
Corp., IVI Checkmate Inc., Plourde Computer Services, Inc.,
Debitek, Inc., National Transaction Network, Inc. and
EnConcert Solutions, LLC
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
On March 1, 2000, we filed a Form 8-K to report the resignation of Gregory
A. Lewis as President and Chief Executive Officer of our United States
operations and the appointment of L. Barry Thomson to the positions vacated
by Mr. Lewis.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVI CHECKMATE CORP.
(Registrant)
Date: May 11, 2000 /s/ L. Barry Thomson
-------------------------------------
L. Barry Thomson
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 11, 2000 /s/ John J. Neubert
-------------------------------------
John J. Neubert
Executive Vice President - Finance
and Administration, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
12
INDEX OF EXHIBITS
Exhibit
No. Description
- --------- -----------
10 Loan and Security Agreement dated April 5, 2000 by and among
Congress Financial Corporation (Southern), IVI Checkmate Corp., IVI
Checkmate Inc., Plourde Computer Services, Inc., Debitek, Inc.,
National Transaction Network, Inc. and EnConcert Solutions, LLC
27 Financial Data Schedule
13