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, 2001
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, 2001
----------------------------- ---------------------------
Common Stock, $0.01 par value 20,853,877 shares
IVI CHECKMATE CORP.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2001
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, 2001
and December 31, 2000 3
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements - March 31, 2001 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 3 Defaults on Senior Securities 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2001 2000
-------- ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,852 $ 8,158
Accounts receivable, net 28,845 27,561
Inventories, net 20,553 23,896
Deferred tax asset 156 309
Prepaid expenses and other assets 462 394
-------- --------
Total current assets 55,868 60,318
Property and equipment, net 7,315 7,699
Capitalized software development costs, net 13,252 13,376
Intangible assets, net 585 650
Other assets 197 208
-------- --------
Total assets $ 77,217 $ 82,251
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 13,850 $ 11,614
Notes payable 9,839 -
Accounts payable 11,402 22,738
Accrued liabilities 3,715 6,454
Deferred revenue 2,683 2,981
Other - 4
-------- --------
Total current liabilities 41,489 43,791
Deferred tax liability 1,373 1,443
-------- --------
Total liabilities 42,862 45,234
-------- --------
Stockholders' equity
Preferred stock, $0.01 par value 8 8
Common stock, $0.01 par value 182 182
Additional paid-in capital 89,495 89,495
Accumulated deficit (52,676) (50,937)
Accumulated comprehensive loss (2,654) (1,731)
-------- --------
Total stockholders' equity 34,355 37,017
-------- --------
Total liabilities and stockholders' equity $ 77,217 $ 82,251
======== ========
See notes to condensed consolidated financial statements
3
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
------- -------
Net revenues $26,847 $23,269
Cost of goods sold 18,563 14,495
Amortization of software development costs 1,004 932
------- -------
Gross profit 7,280 7,842
------- -------
Operating expenses:
Selling, general and administrative 7,015 7,471
Research and development 848 877
Depreciation and amortization 503 615
------- -------
8,366 8,963
------- -------
Operating loss (1,086) (1,121)
Interest and other income (expense) (427) 22
------- -------
Loss before income taxes (1,513) (1,099)
Income tax benefit (expense) (226) 275
------- -------
Net loss $(1,739) $ (824)
------- -------
Net loss per share - basic and diluted $ (0.10) $ (0.05)
------- -------
Weighted average number of shares outstanding (000's)
- basic and diluted 18,233 18,151
------- -------
See notes to condensed consolidated financial statements
4
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
Operating activities:
Net loss $(1,739) $ (824)
Depreciation and amortization 1,835 1,845
Deferred income taxes and other 123 (349)
Change in non-cash working capital:
Accounts receivable (1,609) 610
Inventories 3,222 (670)
Prepaid expenses and other assets (72) (520)
Accounts payable and accrued liabilities 1,075 (3,498)
Deferred revenue (285) (287)
------- -------
Net cash provided by (used in) operating activities 2,550 (3,693)
------- -------
Investing activities:
Purchases of property and equipment (478) (420)
Capitalized software development costs (1,091) (1,043)
Other 12 3
------- -------
Net cash used in investing activities (1,557) (1,460)
------- -------
Financing activities:
Net borrowings under credit facilities 2,237 4,450
Repayment of notes payable (5,097) -
Proceeds from issuance of common stock - 22
Other (3) (4)
------- -------
Net cash (used in) provided by financing activities (2,863) 4,468
------- -------
Effect of exchange rate fluctuations on cash (436) (42)
------- -------
Net decrease in cash and cash equivalents (2,306) (727)
Cash and cash equivalents at beginning of period 8,158 8,279
------- -------
Cash and cash equivalents at end of period $ 5,852 $ 7,552
------- -------
See notes to condensed consolidated financial statements
5
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
(Unaudited)
March 31, 2001
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of IVI Checkmate Corp. and its wholly 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, 2000. Operating results for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001 or any other interim period.
2. Inventories
Inventories are summarized by class as follows:
March 31, December 31,
2001 2000
--------- ------------
Finished goods $15,015 $19,610
Work in process 107 314
Raw materials and supplies 8,947 8,464
------- -------
Gross inventories 24,069 28,388
Less obsolescence reserves (3,516) (4,492)
------- -------
Total $20,553 $23,896
======= =======
3. Lines of Credit
At March 31, 2001, we were in default with one of the financial covenants
required under our U.S. credit facility. The covenant to maintain a minimum
tangible net worth was not met due to losses in the quarter and a 5% weakening
of the Canadian dollar that adversely affected the foreign translation of our
Canadian subsidiary's financial position by $923,000. However, on April 6, 2001,
we received capital injection of approximately $5.2 million from Ingenico to
bring us back into compliance with the defaulted covenant. Our lender has issued
a waiver of non-compliance for this 6-day period.
6
4. Notes Payable
On February 5, 2001, approximately $14.8 million in accounts payable that were
owing at December 31, 2000, were converted into notes payable in order to effect
extended payment terms. The notes provide for weekly payments over a 25-week
period ending July 30, 2001. At March 31, 2001, approximately $9.8 million of
these notes remained outstanding and payable.
5. Net Loss Per Share
Net loss per share on a basic and diluted basis as required by SFAS 128 is
calculated as follows:
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
Net loss $(1,739) $ (824)
Less: Preferred dividends (163) (163)
------- -------
Net loss available to common stockholders $(1,902) $ (987)
======= =======
Calculation of weighted average shares outstanding
plus assumed exercises and conversions (000's):
Weighted average basic shares outstanding 18,233 18,151
Effect of dilutive securities - -
------- -------
Weighted average diluted shares outstanding 18,233 18,151
======= =======
Basic and diluted net loss per share $ (0.10) $ (0.05)
======= =======
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, 2001 and 2000 were anti-dilutive.
6. Segment Disclosures
Selected Financial Results
- --------------------------
Operating Depreciation/
Revenues Income(Loss) Amortization
-------- ------------ -------------
Three Months Ended March 31, 2001:
Domestic $21,620 $(1,409) $1,327
Foreign 5,820 323 508
------- ------- ------
Segmented total 27,440 (1,086) 1,835
Intersegment sales (593) - -
------- ------- ------
Consolidated total $26,847 $(1,086) $1,835
======= ======= ======
Three Months Ended March 31, 2000:
Domestic $17,610 $(1,452) $1,347
Foreign 5,660 331 498
------- ------- ------
Segmented total 23,270 (1,121) 1,845
Intersegment sales (1) - -
------- ------- ------
Consolidated total $23,269 $(1,121) $1,845
======= ======= ======
7
Identifiable Assets
- -------------------
At At
March 30, December 31,
2001 2000
--------- ------------
Domestic $57,995 $58,824
Foreign 19,222 23,427
------- -------
Consolidated total $77,217 $82,251
======= =======
7. Comprehensive Loss
Total comprehensive loss, which consists of net loss and foreign currency
translation adjustments, is calculated as follows:
Three Months Ended
March 31,
--------------------
2001 2000
------- ------
Domestic $(1,739) $(824)
Foreign (923) (86)
------- -----
Consolidated total $(2,662) $(910)
======= =====
8. Subsequent Event
On April 6, 2001, we entered into a merger agreement with Ingenico S.A. of
Paris, France, our largest stockholder, in which Ingenico has agreed to acquire
all of our outstanding shares which it does not already own. This cash
acquisition, which is valued at approximately $55.3 million or $3.30 per share,
is subject to stockholder approval, but has already been approved by a special
committee of the IVI Checkmate's board established to consider proposals from
Ingenico and the board of directors of both companies.
Simultaneously with the execution of the merger agreement, Ingenico has also
made a direct investment in us by purchasing 2,620,543 shares of newly issued
IVI Checkmate common stock for an aggregate purchase price of approximately $5.2
million. The investment increased Ingenico's ownership in IVI Checkmate from
approximately 8.5% to approximately 19.9% on a fully diluted basis. The proceeds
from this investment, which have not been reflected in our financial results for
the quarter ended March 31, 2001, will be used for working capital and other
general corporate purposes.
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, 2001 Compared to Three
Months Ended March 31, 2000
The following table sets forth certain items derived from our condensed
consolidated statements of operations:
Three Months Ended
March 31,
----------------------------------
2001 2000
--------------- ---------------
Amount % Amount %
---------------- ---------------
(In thousands)
Net revenues:
Domestic $21,027 78 % $17,609 76 %
Foreign 5,820 22 5,660 24
--------------- --------------
26,847 100 23,269 100
Cost of sales 18,563 69 14,495 63
Amortization of software development costs 1,004 4 932 3
--------------- --------------
Gross profit 7,280 27 7,842 34
--------------- --------------
Operating expenses:
Selling, general and administrative 7,015 26 7,471 32
Research and development 848 3 877 4
Depreciation and amortization 503 2 615 3
--------------- --------------
8,366 31 8,963 39
--------------- --------------
Operating loss (1,086) (4) (1,121) (5)
Interest and other income (expense) (427) (2) 22 -
--------------- --------------
Loss before income taxes (1,513) (6) (1,099) (5)
Income tax benefit (expense) (226) (1) 275 1
--------------- --------------
Net loss $(1,739) (7)% $ (824) (4)%
--------------- --------------
Any trends that may be derived from the above tables are not necessarily
indicative of our future operations.
9
Net revenues increased 15% to $26.8 million for the three months ended
March 31, 2001 from $23.3 million for the same quarter one year ago. The
improvement in revenue was the result of strong demand from U.S. retailers for
our point-of-sale terminals. Led by our new state-of-the-art e/N/-Touch 1000(TM)
customer-interactive terminal, which we began marketing in the third quarter of
2000, terminal sales in the U.S. increased by 23% in the first quarter of 2001
compared to the same period in 2000.
Cost of sales (excluding amortization of software development costs) in the
three months ended March 31, 2001 increased to $18.6 million or 69% of sales
compared to $14.5 million or 63% of sales for the same quarter one year ago.
Cost of sales in this quarter was affected by product mix and material costs
that were comparatively higher than in the first quarter of 2000 due to
component part shortages that prevailed through most of 2000.
Amortization of software development costs increased to $1.0 million in the
three months ended March 31, 2001 from $932,000 for the same quarter one year
ago as we continue to amortize previously capitalized software development
project costs that have reached commercial production stage.
Selling, general and administrative expenses decreased to $7.0 million for
the three months ended March 31, 2001 from $7.5 million for the same quarter one
year ago. The reduction in expenses is attributable to cost efficiency that
resulted from reorganizing in late 2000 our business units in the U.S. from 6
business units to 3.
Net research and development expenditures declined to $848,000 for the
three months ended March 31, 2001 from $877,000 for the same quarter one year
ago. The reduction in expenditures is a result of ongoing efforts to leverage
our relationship with Ingenico S.A. and their development resources to bring new
point-of-sale terminals faster and cheaper to the North American market.
We incurred net interest expense of $427,000 for the three months ended
March 31, 2001 from borrowings against our credit facilities. During the
quarter, our borrowings increased from $11.6 million at December 31, 2000 to
$13.9 million at March 31, 2001. In comparison, we generated net interest income
of $22,000 for the three months ended March 31, 2000, because we were debt-free
through most of that quarter.
We recorded a tax expense of $226,000 for the three months ended March 31,
2001 to reflect taxes payable on profits earned by our Canadian division. We
have not accrued nor reflected in our financial results any tax benefit that may
be recoverable in the future on first quarter losses incurred by our U.S.
operations. In comparison, we recorded a tax benefit of $275,000 for the three
months ended March 31, 2000 on consolidated losses at an effective tax rate of
25%.
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
finance 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 $14.4 million at March 31, 2001 compared to $16.5
million at December 31, 2000. Furthermore, during the quarter, we increased the
maximum borrowings under our credit facilities from $20.0 million to $23.5
million, of which $13.9 million in borrowings remained outstanding at March 31,
2001.
10
During the three months ended March 31, 2000, we invested $1.5 million in
capital assets and software development, and reduced our notes payable by $5.1
million. These cash outflows were financed by approximately $2.5 million in cash
generated from operations and non-cash working capital, additional borrowings of
$2.2 million, and a reduction of cash on hand by $1.9 million. Cash on hand was
further reduced by $435,000 due to fluctuations in the exchange rate between the
Canadian and U.S. dollar.
We received additional capital on April 6, 2001 when Ingenico invested
approximately $5.2 million in consideration for 2,620,543 newly issued shares of
IVI Checkmate common stock.
We believe that our current financial resources, the proceeds from the
issuance of new shares to Ingenico, together with anticipated future cash flows
from operations, 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, 2001
from the disclosures about market risk provided in Item 7A of our Annual Report
on Form 10-K for the year ended December 31, 2000.
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities
-----------------------------
See disclosure in Note 3 to our condensed consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
---------
None.
(b) Reports on Form 8-K.
--------------------
On February 5, 2001, we filed a Form 8-K to report that we were in
negotiations with Ingenico S.A. of Paris, France in regards to a
possible business combination.
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, 2001 /s/ L. Barry Thomson
-------------------------
L. Barry Thomson
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 11, 2001 /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