<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------
Date of report (Date of earliest event reported): October 1, 1998
IVI CHECKMATE CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-22370 58-2375201
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
1003 Mansell Road
Roswell, Georgia 30076
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (770) 594-6000
Not Applicable
--------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS.
On June 25, 1998, IVI Checkmate Corp., a Delaware corporation (the
"Company"), completed its previously announced combination with International
Verifact Inc., a Canadian corporation ("IVI"), and Checkmate Electronics, Inc.,
a Georgia corporation ("Checkmate"), pursuant to a Combination Agreement, dated
as of January 16, 1998 (the "Combination"), by and among the Company, IVI and
Checkmate (the "Combination Agreement"). The Company is accounting for the
Combination as a pooling of interests. This Report provides a revised
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Restated Supplemental Consolidated Financial
Statements on that basis.
<PAGE>
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. Management cautions that these
statements represent projections and estimates of future performance and involve
certain risks and uncertainties. The actual results of the Company could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including, without limitation, dependence on limited
suppliers and manufacturers of component parts of its products; rapid and
significant technological developments that could delay the introduction of
improvements in existing products or of new products; any dependencies on any
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 successful integration
of the companies.
GENERAL
The following discussion and analysis of the IVI Checkmate Corp.
consolidated financial condition and results of operations for the fiscal years
ended December 31, 1997, 1996 and 1995 should be read in conjunction with the
IVI Checkmate Corp. consolidated financial statements and accompanying notes.
The financial statements have been prepared based on U.S. generally accepted
accounting principles.
The consolidated financial statements reflect the combined historical
financial statements of IVI and Checkmate, and include the results of National
Transaction Network, Inc. ("NTN") following its acquisition by IVI in September
1996, and IVI Ingenico, Inc., a business venture between IVI and its alliance
partner, Ingenico S.A., whose operations commenced in January 1997.
OVERVIEW
On June 25, 1998, IVI and Checkmate combined their operations and became
operating subsidiaries of the Company pursuant to the Combination Agreement. The
Company has accounted for the Combination on a pooling-of-interests basis. Under
the terms of the Combination Agreement, IVI shareholders received, for each IVI
common share, either one share of common stock, par value $.01 per share, of the
Company ("Company Common Stock"), or one exchangeable share of IVI which is
exchangeable for a share of Company Common Stock. Checkmate shareholders
received 1.2775 shares of Company Common Stock for each share of Checkmate
common stock.
The Company is a full-service solutions provider in the U.S., Canada and
South America. Its automation payment solutions for the retail, financial,
hospitality, banking, healthcare and transportation industries facilitate the
processing of electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer.
The formation of the Company created the third largest company in the
electronic payment solutions industry in North America. The Company believes
that the combination of these two companies will broaden product offerings for
both companies, while providing operational synergies. However, there can be no
assurance that such results will be realized, nor can there be any assurance of
the extent to which any cost savings and efficiencies will be achieved. Failure
to successfully integrate the operations of IVI and Checkmate in a timely manner
and to realize cost savings and other operating efficiencies could have a
material effect on the financial condition and results of operations of the
Company.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items derived from the Company's
statements of operations from 1995 to 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ------------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- -------- -------- ------ --------
tabular amounts in thousands of dollars, except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
By geography
United States $54,714 65% $ 47,094 67% $40,751 56%
Canada 30,018 35 22,272 32 30,864 42
International 213 776 1 1,760 2
------- --- -------- --- ------- ---
84,945 100% 70,142 100% 73,375 100%
======= === ======== === ======= ===
By products
EFT $58,160 69% $ 43,961 63 % $45,987 63 %
Check reader 19,927 23 23,375 33 25,829 35
Professional services 6,858 8 2,806 4 1,559 2
------- --- -------- --- ------- ---
84,945 100% 70,142 100% 73,375 100%
======= === ======== === ======= ===
Cost of goods sold 54,401 64 43,956 63 46,557 63
------- --- -------- --- ------- ---
Gross profit 30,544 36 26,186 37 26,818 37
------- --- -------- --- ------- ---
Operating expenses:
Selling, general and
administrative 21,831 26 17,772 25 14,266 20
Research and development 4,459 5 3,372 5 3,729 5
Depreciation and amortization 2,736 3 2,127 3 2,762 4
Write-off of goodwill -- -- 6,806 10 -- --
Product writedown -- -- 1,217 2 -- --
------- --- -------- --- ------- ---
29,026 34 31,294 45 20,757 29
------- ------- -------- ------ ------- ------
Operating income (loss) 1,518 2 (5,108) (8) 6,061 8
Interest income 588 1 585 1 626 1
Interest expense (85) -- (65) -- (84) --
Minority interest 448 -- 20 -- -- --
Share of equity investee loss -- -- (147) -- -- --
------- --- -------- --- ------- ---
Income (loss) before income
taxes 2,469 3 (4,715) (7) 6,603 9
Income tax benefit (expense) 909 1 (5,666) (8) (2,669) (4)
------- --- -------- --- ------- ---
Net income (loss) $ 3,378 4% $(10,381) (15)% $ 3,934 5%
======= === ======== === ======= ===
</TABLE>
Any trends that may be derived from the above table are not necessarily
indicative of the Company's future operations.
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Total net revenues increased 21.1% from 1996 to 1997 due to significant
growth in sales of EFT products and professional services. This increase was
partially offset by a 14.7% decline in check reader sales. The following
paragraphs explain the changes in net revenues in each of the Company's
geographical regions.
In Canada, net revenues increased 34.8% from 1996 to 1997 as a result of
several factors including: (i) the introduction of the Flash 400, a new low cost
dial terminal, and the Scribe printer line, (ii) renewed ordering from one of
the Company's largest customers; and (iii) increased acceptance by Canadians of
debit technology which, in turn, precipitated further demands for debit
terminals.
Net revenues in the United States increased 16.2% from 1996 to 1997. The
increase was primarily due to the successful launch of new products, such as the
Flash 400 and Scribe printers and significant new contracts. This increase was
partially offset by lower check reader sales during 1997 which the Company
believes was a result of increasing saturation of the market for check readers
to large retailers. In an attempt to expand the check reader market to the
smaller retail operations, the Company launched its CheckManager 3000 late in
1997.
Net revenues from international operations decreased 72.6% from 1996 to
1997. The source of the Company's international revenue has changed in 1997.
Prior to 1997, a portion of the Company's sales and marketing resources was
directly allocated to achieving international sales. However, an alliance with
Ingenico S.A. ("Ingenico") in December 1996 gave Ingenico rights to market
selected products of the Company outside the Americas. This caused the Company
to redirect its international sales and marketing resources back to the
Americas. Furthermore, in January 1997, the Company launched a business venture
with Ingenico called IVI Ingenico Inc. for the purpose of selling both the
Company's and Ingenico's products in South America. With the change in marketing
strategy, international revenue for 1997 was minimal as a result of (i)
Ingenico's review and assessment during most of 1997 of which of the Company's
products, if any, that they will retain marketing rights to, and (ii) the time
requirements necessary to set-up a proper infrastructure in South America for
generating sales, including distribution channels and identification of
customers and their unique product and software requirements.
Cost of goods sold as a percentage of net revenues increased to 64.0%
in 1997 from 62.7% in 1996. This increase was primarily a result of an
unfavorable product and customer mix and was partially offset by manufacturing
efficiencies and cost reduction programs implemented by the Company in 1997. The
Company anticipates that cost of goods sold as a percentage of net revenues will
be continue to be affected by changes in product mix, selling prices and unit
costs among other factors.
Selling, general and administrative expenses increased 22.8% from 1996 to
1997. As a percentage of net revenues, selling, general and administrative
expenses in 1997 were consistent with 1996 at 25.4%. The increase was primarily
due to an increase in personnel and related costs required to support the
anticipated growth in new products and net revenues, a full year inclusion of
these expenses from NTN which was acquired in September 1996, and the costs
incurred to set-up the infrastructure of the Company's business venture with
Ingenico.
<PAGE>
Gross product development expenditures include research and development
expense and capitalized and purchased software development costs and consist
primarily of labor costs. A summary of product development expenses and costs is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
(in thousands of dollars)
Gross product development expenditures $8,645 $5,825 $5,652
Less capitalized software development costs 4,186 2,453 1,923
------ ------ ------
Net research and development expense 4,459 3,372 3,729
Amortization of previously capitalized cost 1,041 780 573
------ ------ ------
Total expense $5,500 $4,152 $4,302
====== ====== ======
Product development as a percent of net revenues:
Gross expenditures 10% 8% 8%
Net expense 5% 5% 5%
Total expense 6% 6% 6%
</TABLE>
Gross product development expenditures increased 48.4% from 1996 to 1997
primarily as a result of the Company's continuing efforts in the product
development area and introduction of several new products during 1997. The
Company focused its product development efforts in 1997 on improving software
solutions, resulting in higher capitalized software development costs.
As a result of the above factors, the Company had net income of $3.4
million in 1997 and net loss of $10.4 million in 1996.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net revenues decreased 4.4% from 1995 to 1996 primarily as a result of
decreased sales of EFT products in Canada. The following paragraphs explain
the changes in net revenues in each of the Company's geographical regions.
In Canada, net revenues decreased 27.8% from 1995 to 1996 due to a
significant delay in orders from one of the Company's largest customers. The
delay began in the first quarter of 1996 and lasted until late September 1996
when shipments to this customer resumed. The decrease in Canadian sales in 1996
as a result of this delay was partially offset by renewed sales of terminal
printers to an existing customer and revenues derived as a result of the Company
becoming the national debit payment solutions supplier for a Canadian tire
company.
Net revenues in the United States increased 15.6% from 1995 to 1996. The
growth was primarily generated through sales of newer debit/credit card
terminals, and increased sales of signature capture devices and professional
services. Net revenues from check readers decreased 10% from 1995 to 1996 due
primarily to the completion in 1995 of a large sale to a single significant
customer.
Net revenues from international operations decreased 56.0% from 1995 to
1996 due to the lack of smart card compatible products, and loss of focus on
international sales by the Company as a result of pending international
commitments with Ingenico.
Cost of goods sold as a percentage of net revenues was 62.7% in 1996 and
63.5% in 1995. Various factors combined to result in a slight improvement from
1995 to 1996, none of which individually was significant.
Selling, general and administrative expenses increased 24.6% from 1995 to
1996. As a percentage of net revenues, selling, general and administrative
expenses were 25.3% in 1996 compared to 19.4% in 1995. The increase in selling,
general and administrative expense as a percentage of net revenues in 1996 was
primarily a result of a United States lower revenue base in 1996, increased
expense for additional sales personnel in the U.S. and the inclusion of NTN
expenses.
<PAGE>
A summary of product development expenditures is included in the
comparison of 1997 and 1996 results of operations above. The change in the
gross, net and total product development expenditures between 1995 and 1996 was
minimal.
In the first quarter of 1996, the Company reviewed the recoverability of
unamortized goodwill which arose from an acquisition in December 1994. The
financial results of the acquired entity subsequent to the December 1994
acquisition were below anticipated results upon which management based the
purchase price. This entity did not meet sales targets for its check reader and
costs were much higher than anticipated. As a result, in accordance with the
Company's accounting policy, management compared the unamortized goodwill
against an estimate of the undiscounted cash flows from the business to which
the goodwill related, over the remaining amortization period. On the basis of
this, management determined that there was a permanent impairment in the
carrying value of the goodwill, and wrote off the entire unamortized balance of
$6.8 million which remained at December 31, 1995 in the first quarter of 1996.
The incorporation of Ingenico's smart card technology into the Company's
product line resulted in certain of the Company's products becoming
unmarketable, and deferred development costs related to these products becoming
unrecoverable. Consequently, a charge of $1.2 million was recorded by the
Company in 1996.
As a result of the above factors, the Company incurred a net loss of $10.4
million in 1996 and had net income of $3.9 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $(82,000) in 1997,
$3.9 million in 1996 and $2.2 million in 1995. The fluctuations in each year
were the result of the timing of sales which affected the levels of accounts
receivable, inventory and accounts payable balances.
Net cash used in investing activities was $7.0 million in 1997, $5.9
million in 1996 and $1.8 million in 1995. Purchases of property and equipment
and additions to deferred development costs and other noncurrent assets were
$8.2 million, $5.4 million and $4.8 million in 1997, 1996 and 1995,
respectively. These uses of net cash were offset by net proceeds from the sale
of investments of $1.2 million in 1997 and $3.0 million in 1995, and cash of
$662,000 acquired in connection with the acquisition of NTN in 1996.
Net cash provided by financing activities were $4.2 million in 1997, $9.3
million in 1996 and $1.3 million in 1995, primarily the result of issuance of
common stock from the exercise of stock options and an equity interest acquired
by Ingenico in 1996.
The Company's working capital position was $40.0 million at December 31,
1997 and $39.2 million at December 31, 1996. While the Company had no
commitments for material capital expenditures as of December 31, 1997, the
combination between IVI and Checkmate will result in a significant cash outlay
sometime during 1998 for financial advisors, legal and accounting fees. However,
the Company believes that its working capital position at December 31, 1997,
together with anticipated future cash flows from operations and the borrowing
available under its revolving credit agreement, will be sufficient to meet the
Company's operating needs, including possible increases in accounts receivable
and inventories, along with planned capital expenditures and costs associated
with the combination of IVI and Checkmate.
IMPACT OF YEAR 2000
The Company's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other networks, and the failure of any of these
programs, systems or networks to successfully address the Year 2000 data
rollover problem could have a material adverse effect on the Company's business,
financial condition and results of operations. Many installed computer software
and network processing systems currently accept only two-digit entries in the
date code field and may need to be upgraded or replaced in order to accurately
record and process information and transactions on and after January 1, 2000.
The Company believes that it has completed substantially all modifications.
However,
the Company is not certain as to whether the computer software and business
systems of its customers and suppliers are Year 2000 compliant. There can be no
assurance that the failure or delay of the Company's customers and suppliers in
successfully addressing the Year 2000 issue or the costs involved in such
process will not have a material adverse effect on the Company's business,
financial condition and results of operations.
-2-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IVI Checkmate Corp.
We have audited the consolidated balance sheets of IVI Checkmate Corp.
(formed as a result of the combination of Checkmate Electronics, Inc. and
International Verifact Inc.) as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. The consolidated
financial statements give retroactive effect to the combination of Checkmate
Electronics, Inc. and International Verifact Inc. on June 25, 1998, which has
been accounted for using the pooling-of-interests method as described in the
notes to the consolidated financial statements. These financial statements are
the responsibility of the management of IVI Checkmate Corp. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the financial statements of International Verifact Inc. which
statements reflect total assets constituting 49% at December 31, 1997 and 50% at
December 31, 1996 of the related consolidated financial statement totals, and
which reflect net revenues constituting approximately 61%, 50% and 60% of the
related consolidated financial statement totals for each of the three years in
the period ended December 31, 1997. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for International Verifact Inc., is based solely on the
report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of IVI Checkmate Corp. at December 31, 1997
and 1996, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, after giving
retroactive effect to the combination of Checkmate Electronics, Inc. and
International Verifact Inc., as described in the notes to the consolidated
financial statements, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
September 29, 1998
Atlanta, Georgia
<PAGE>
February 12, 1998
AUDITORS' REPORT
To the Directors of
International Verifact Inc.
We have audited the consolidated balance sheets of International Verifact
Inc. as at December 31, 1997 and 1996 and the consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997, 1996 and 1995. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the company
as at December 31, 1997 and 1996, and the consolidated results of its operations
and cash flows for the years ended December 31, 1997, 1996 and 1995 in
accordance with generally accepted accounting principles in the United States.
/s/ COOPERS & LYBRAND
Chartered Accountants
Toronto, Ontario
-3-
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,372 $ 12,749
Investments 3,572 6,970
Accounts receivable, less allowance of $466 and $484
at December 31, 1997 and 1996, respectively 19,515 15,362
Inventories 17,156 14,827
Deferred tax asset 2,916 1,377
Refundable income taxes 809 340
Prepaid expenses and other assets 559 1,261
------- --------
Total current assets 53,899 52,886
Property and equipment, net 8,334 6,597
Deferred development costs, net of accumulated amortization of $2,900 and
$1,900 at December 31, 1997 and 1996, respectively 8,235 5,289
Identifiable intangible assets, net of accumulated amortization of $994 and
$783 at December 31, 1997 and 1996, respectively 1,142 1,386
Goodwill, net of accumulated amortization of $91 and $19 at
December 31, 1997 and 1996, respectively 642 745
Other assets 51 66
------- --------
$72,303 $ 66,969
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,715 $ 8,700
Accrued liabilities 2,678 2,968
Deferred revenue 1,397 1,875
Current portion of long-term debt due to related party 162 146
Current portion of capital lease obligations 38 40
------- --------
Total current liabilities 13,990 13,729
Long-term debt due to related party, less current portion 41 203
Long-term capital lease obligations 23 19
Deferred income taxes 1,872 810
Minority interest 52 92
Shareholders' equity:
Common stock, $0.01 par value:
Issued and outstanding shares - 16,056,135 and 15,320,320
at December 31, 1997 and 1996, respectively 161 153
Additional paid-in capital 66,301 62,147
Accumulated deficit (7,251) (10,629)
Foreign currency translation adjustment (727) 445
------- --------
58,484 52,116
Less treasury stock, at cost - 332,150 shares at December 31, 1997 (2,159) --
------- --------
Total shareholders' equity 56,325 52,116
------- --------
$72,303 $ 66,969
======= ========
</TABLE>
See accompanying notes.
-4-
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Net revenues $84,945 $ 70,142 $73,375
Cost of goods sold 54,401 43,956 46,557
------- -------- -------
Gross profit 30,544 26,186 26,818
------- -------- -------
Operating expenses:
Selling, general and administrative 21,831 17,772 14,266
Research and development 4,459 3,372 3,729
Depreciation and amortization 2,736 2,127 2,762
Write-off of goodwill -- 6,806 --
Product writedown -- 1,217 --
------- -------- -------
29,026 31,294 20,757
------- -------- -------
Operating income (loss) 1,518 (5,108) 6,061
Other:
Minority interest 448 20 --
Share of equity investee loss -- (147) --
Interest income 588 585 626
Interest expense (85) (65) (84)
------- -------- -------
Income (loss) before income taxes 2,469 (4,715) 6,603
Income tax benefit (expense) 909 (5,666) (2,669)
------- -------- -------
Net income (loss) $ 3,378 $(10,381) $ 3,934
======= ======== =======
Net income (loss) per share:
Basic $ 0.22 $ (0.76) $ 0.30
Diluted $ 0.21 $ (0.76) $ 0.30
Weighted average shares outstanding:
Basic 15,499 13,704 13,037
Diluted 15,810 13,704 13,187
</TABLE>
See accompanying notes.
-5-
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
$0.01 PAR VALUE ADDITIONAL CURRENCY TOTAL
----------------- PAID-IN ACCUMULATED TRANSLATION TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK EQUITY
------- ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 12,969 $130 $49,491 $ (4,182) $ (151) $ -- $ 45,288
Exercise of stock options 301 3 1,493 -- -- -- 1,496
Exercise of warrants 1 -- 5 -- -- -- 5
Net income -- -- -- 3,934 -- -- 3,934
Foreign currency
translation -- -- -- -- 665 -- 665
------ ---- ------- -------- ------- ------- --------
Balance at December 31, 1995 13,271 133 50,989 (248) 514 -- 51,388
Exercise of stock options 380 4 2,588 -- -- -- 2,592
Issuance of common stock 1,439 14 6,915 -- -- -- 6,929
Issuance of common stock
on acquisition of
subsidiary 230 2 1,259 -- -- -- 1,261
Exercise of warrants -- -- 4 -- -- -- 4
Tax benefit related to
employee stock options -- -- 392 -- -- -- 392
Net loss -- -- -- (10,381) -- -- (10,381)
Foreign currency
translation -- -- -- -- (69) -- (69)
------ ---- ------- -------- ------- ------- --------
Balance at December 31, 1996 15,320 153 62,147 (10,629) 445 -- 52,116
Exercise of stock options 715 7 3,806 -- -- -- 3,813
Issuance of common stock 21 1 128 -- -- -- 129
Purchase of treasury stock -- -- -- -- -- (2,159) (2,159)
Exercise of warrants -- -- 4 -- -- -- 4
Tax benefit related to
employee stock options -- -- 216 -- -- -- 216
Net income -- -- -- 3,378 -- -- 3,378
Foreign currency
translation -- -- -- -- (1,172) -- (1,172)
------ ---- ------- -------- ------- ------- --------
Balance at December 31, 1997 16,056 $161 $66,301 $ (7,251) $ (727) $(2,159) $ 56,325
====== ==== ======= ======== ======= ======= ========
See accompanying notes.
</TABLE>
-6-
<PAGE>
IVI CHECKMATE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1997 1996 1995
---------------- --------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 3,378 $(10,381) $ 3,934
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,544 2,619 3,014
Minority interest (448) (20) --
Share of equity investee loss -- 147 --
Accretion of marketable securities discount 30 74 (53)
Deferred income taxes (554) 4,214 1,482
Write-off of goodwill -- 6,806 --
Product writedown -- 1,217 --
Changes in operating assets and liabilities:
Accounts receivable (4,498) 2,897 (8,194)
Inventories (2,593) (4,088) 1,754
Refundable income taxes (469) 99 (439)
Prepaid and other assets 692 (943) 126
Accounts payable and accrued liabilities 1,299 332 448
Deferred revenue (463) 976 170
-------- -------- --------
Net cash provided by (used in) operating activities (82) 3,949 2,242
-------- -------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (4,054) (2,922) (2,838)
Deferred development costs (4,186) (2,455) (1,917)
Purchases of investments (11,673) (21,483) (11,101)
Proceeds from sale of investments 12,882 21,293 14,112
Purchase of technology licensing rights -- (990) --
Cash acquired on acquisition of subsidiary -- 662 --
Other (8) (28) (37)
-------- -------- --------
Net cash used in investing activities (7,039) (5,923) (1,781)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,946 9,525 1,500
Payments of debt and capital leases (141) (196) (228)
Received from minority shareholders 411 -- --
-------- -------- --------
Net cash provided by financing activities 4,216 9,329 1,272
-------- -------- --------
Effect of exchange rate fluctuations on cash (472) (37) 82
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,377) 7,318 1,815
Cash and cash equivalents at beginning of year 12,749 5,431 3,616
-------- -------- --------
Cash and cash equivalents at end of year $ 9,372 $ 12,749 $ 5,431
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 61 $ 65 $ 84
Cash paid for income taxes $ 270 $ 1,026 $ 1,058
</TABLE>
See accompanying notes.
-7-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IVI Checkmate Corp. (the "Company") designs, manufactures and markets
point-of-sale payment systems in North and South America. Its automated payment
solutions handle electronic payment transactions such as check, debit, credit,
smart card and electronic benefits transfer, serving the retail, financial,
hospitality, banking, healthcare and transportation industries. The industry in
which the Company operates is subject to rapid change due to the development of
new competing technologies and products.
BASIS OF CONSOLIDATION
On June 25, 1998, International Verifact Inc. ("IVI") and Checkmate
Electronics, Inc. ("Checkmate") completed their combination. Under the terms of
the Combination Agreement, IVI shareholders received, for each IVI common share,
either one share of common stock of the Company, or one exchangeable share of
IVI common stock which can be exchanged at any time for the Company's common
stock. Checkmate shareholders received 1.2775 shares of the Company common
stock for each Checkmate common stock and, accordingly, approximately 5,140,000
shares were converted. These consolidated financial statements have been
restated to effect such share conversions, and to reflect the historical results
of both companies for all periods presented.
The combination has been accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements of IVI and Checkmate have
been combined and all prior periods have been restated to give effect to the
combination. On a separate company basis in 1997, IVI recorded revenues of
$51.4 million and net income of $3.5 million, and Checkmate recorded revenues of
$33.5 million and net loss of $100,000. Information concerning common stock and
per share data has been restated on an equivalent share basis and assumes the
exchange of all exchangeable shares.
The consolidated financial statements include the accounts of the Company
and its subsidiaries: IVI Checkmate Ltd. (formerly International Verifact Inc.),
IVI Checkmate Inc. (formerly Checkmate Electronics, Inc.), 83.3%-owned National
Transaction Network, Inc. ("NTN") and 51%-owned IVI Ingenico Inc. All
intercompany balances and transactions are eliminated in consolidation. These
consolidated financial statements will become the historical financial
statements upon issuance of these financial statements for the period that
includes the combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates, and such differences may be material to the consolidated
financial statements.
-8-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company's Canadian subsidiary considers the Canadian dollar to be its
functional currency. The Company considers its functional currency to be the
U.S. dollar. The foreign subsidiary's assets and liabilities are translated at
year-end rates of exchange and revenues and expenses are translated at the
average rates of exchange during the year.
Gains and losses resulting from currency translation are accumulated as a
separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in the determination of net income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, bank deposits and highly liquid
investments with maturities of three months or less when purchased and are
stated at cost plus accrued interest which approximates market value.
INVESTMENTS
Investments are stated at cost plus accrued interest which approximates
market value. Approximately $3.6 million and $7.0 million was invested in U.S.
Treasury bills at December 31, 1997 and 1996, respectively. These U.S. Treasury
bills had initial maturities of six months and are classified as held-to-
maturity.
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method. Market is defined as net realizable value. Inventories
comprise the following:
YEAR ENDED DECEMBER 31
1997 1996
---------------------------
Finished goods $ 7,873 $ 7,309
Work in process 830 107
Raw materials and supplies 10,287 10,430
---------------------------
18,990 17,846
Less obsolescence reserve (1,834) (3,019)
---------------------------
$17,156 $14,827
===========================
-9-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets (three to five years) using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Property and equipment comprises the following:
YEAR ENDED DECEMBER 31
1997 1996
---------------------------
Equipment $14,280 $11,279
Furniture and fixtures 2,305 2,088
---------------------------
16,585 13,367
Less accumulated depreciation (8,251) (6,770)
---------------------------
$ 8,334 $ 6,597
===========================
Depreciation expense approximated $2.2 million, $1.7 million and $1.3
million for the years ended December 31, 1997, 1996 and 1995, respectively.
DEFERRED DEVELOPMENT COSTS
Costs related to internally developed software for new products and
subsequent enhancements are capitalized only after the establishment of
technological feasibility. Software development costs incurred prior to
achieving technological feasibility are considered research and development
expenditures and are expensed as incurred. Capitalized costs are amortized over
the greater of the amount computed using (a) the ratio that current gross
revenues for a product bear to the total of current anticipated future gross
revenues for that product or (b) the straight-line method over the estimated
economic life of the related product (currently five years). Amortization
expense was approximately $1.0 million, $780,000 and $573,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consists of amounts assigned to copyrights,
patents, trademarks, technology property and licensing rights and non-compete
agreements. Such assets are being amortized on a straight-line basis from five
to eleven years, with amortization expense of approximately $214,000, $129,000
and $101,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
-10-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is amortized on a straight-line basis over its useful life, not to
exceed 10 years. Amortization expense was approximately $75,000, $19,000 and
$1.1 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Goodwill is written down to its estimated net recoverable amount when it is
determined that a permanent impairment in ongoing value has occurred. The
Company assesses the recoverability of unamortized goodwill based on an estimate
of undiscounted cash flows over the remaining period of amortization for each
business to which the goodwill relates.
REVENUE RECOGNITION
Revenues are derived from sales of products and related service agreements.
Revenues from product sales are recognized at the time of shipment, and revenues
from maintenance agreements are deferred and recognized ratably over the life of
the related service agreements.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995 the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("Statement 121") which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement 121 as of January 1, 1996. The effect of such
adoption was not material to the accompanying consolidated financial statements.
-11-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK OPTIONS
In October 1995 the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation ("Statement 123"). Under Statement 123, the Company could
continue following previously existing accounting rules or adopt a new fair
value method of valuing stock-based awards to employees. The Company elected to
continue following the existing accounting rules under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and
related Interpretations in accounting for its employee stock options. The pro
forma effect on the accompanying consolidated statements of operations of
reporting under Statement 123 is presented in Note 6.
NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
In February 1997 the FASB issued Statement No. 128, Earnings Per Share
("Statement 128") which establishes standards for computing and presenting
earnings per share for entities with publicly held common stock or potential
common stock. Statement 128 replaced the calculation of primary and fully
diluted earnings (loss) per share with basic and diluted earnings (loss) per
share. Unlike primary earnings (loss) per share, basic earnings (loss) per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings (loss) per share is very similar to the previously reported
fully diluted earnings (loss) per share. Potential common stock is not included
in the per share calculations where the effect of its inclusion would be anti-
dilutive. Statement 128 requires the presentation of basic and diluted earnings
(loss) per share on the face of the income statement for all entities with
complex capital structures. The Company adopted Statement 128 in 1997. All
earnings (loss) per share amounts for all periods have been presented and, where
appropriate, restated to conform to the provisions of Statement 128.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the FASB issued Statement No. 130, Reporting Comprehensive
Income ("Statement 130") which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt Statement 130 in 1998
and does not expect the effect of such adoption to be material to its
consolidated financial statements.
-12-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In June 1997 the FASB also issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("Statement 131") which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will adopt Statement 131
in 1998 and does not expect the effect of adoption to be material to its
consolidated financial statements.
RECLASSIFICATIONS AND RESTATEMENTS
Certain reclassifications were made in the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation. In addition, share
information and amounts have been restated to reflect the effect of the
conversion of common stock of IVI and Checkmate as a result of the Combination
Agreement between the two companies becoming effective on June 25, 1998.
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Company policy is designed to
limit exposure at any one institution. The Company performs periodic
evaluations of the relative credit standing of those financial institutions
which are considered in the Company's investment strategy.
Company net revenues are derived from a variety of customers including the
following major customers:
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
Company A -- 15% 11%
Company B -- -- 18%
-----------------------------------------------
-- 15% 29%
===============================================
-13-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS (CONTINUED)
The Company performs ongoing credit approvals of its customers. Trade
receivables are unsecured, and the Company is at risk to the extent such amounts
become uncollectible. The Company does not anticipate any non-performance by
customers in excess of the allowance for doubtful accounts. Accounts receivable
from one customer amounted to 10% of accounts receivable at December 31, 1997.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximate their estimated fair values. The fair value of the notes payable is
estimated using discounted cash flow analyses based on current market rates, and
at December 31, 1997 and 1996, these amounts were not materially different from
their carrying value.
3. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
1997 1996
----------------
Note payable to a major shareholder and director $ 203 $ 349
Less current portion (162) (146)
----------------
$ 41 $ 203
================
An unsecured note payable in the amount of $203,000 at December 31, 1997,
originated from an agreement executed between the Company and a major
shareholder and director in 1989. Under the terms of the agreement, the Company
perfected its rights to certain MICR technology, including all worldwide
copyrights, patent rights, trademarks, service marks, trade names and other
proprietary rights, and obtained a non-compete agreement with the shareholder
(for a period of 11 years following his removal or resignation from the
Company's Board of Directors) in exchange for this note payable. The Company is
required to make minimum monthly principal and interest payments of $15,000 per
month (of which $10,000 is adjusted semi-annually for inflation) or at the
Company's option, 5% of monthly sales, if this amount exceeds the minimum
monthly payment through March 31, 1999. Payments under the terms of the
agreement are not to exceed $1.8 million (plus adjustments for inflation). The
inflation adjustments are charged to expense as incurred and amounted to
approximately $36,000, $41,000 and $35,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
As of the effective date of the agreement, the Company recorded the net
present value of the minimum monthly payments of $15,000, assuming an effective
interest rate of 12%, in identifiable intangible assets and long-term debt in
the amount of $1.0 million. During 1997, 1996 and 1995, the Company made total
payments of $216,000, $221,000 and $215,000, respectively, to the shareholder
under this agreement.
-14-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
3. LONG-TERM DEBT (CONTINUED)
On March 31, 1997, the Company renewed its $1.0 million revolving line of
credit with a bank. The line of credit bears interest at the prime rate (8.5%
at December 31, 1997) with the principal payable in a single installment on May
31, 1998 and interest payable monthly in arrears. The line is secured by
certain assets of the Company. The Company had no outstanding borrowings under
the line at December 31, 1997.
On March 11, 1997, NTN, a subsidiary of the Company, entered into an
agreement with the bank to amend and restate the terms of its working capital
line of credit (the "agreement"). The agreement, which expires on January 4,
1999, provides for borrowings up to a maximum of the lesser 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 NTN's assets. At
December 31, 1997, there were no borrowings outstanding under the line and
availability under the line approximated $229,000.
In addition, IVI Checkmate Ltd., another subsidiary of the Company,
established the following lines of credit with two banks:
A line in the amount of the lesser of $3.1 million and 75% of IVI Checkmate
Ltd. accounts receivable. The line of credit bears interest at the prime
rate plus 0.5% and expires in July 1999. No borrowings under this line of
credit were outstanding at December 31, 1997 and;
A line in the amount of the lesser of $1.0 million and 60% of IVI Checkmate
Ltd. accounts receivable. The line of credit bears interest at the prime
rate plus 1.5% and expires on January 15, 1998. No borrowings under this
line of credit were outstanding at December 31, 1997.
4. CAPITALIZED LEASE OBLIGATIONS
Property and equipment includes the following amounts for assets under
capital leases:
DECEMBER 31
1997 1996
-------------------------
Equipment $ 382 $ 365
Furniture and fixtures 45 45
-------------------------
427 410
Less accumulated amortization (349) (334)
-------------------------
$ 78 $ 76
=========================
Amortization of leased assets is included in depreciation and amortization
expense.
-15-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
4. CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
Future minimum lease payments under capital leases at December 31, 1997 are
as follows:
CAPITAL
LEASES
--------
1998 $ 42
1999 25
----
Total minimum lease payments 67
Less amounts representing interest (6)
----
Present value of net minimum lease payments 61
Less current portion (38)
----
$ 23
====
5. COMMITMENTS
The Company has contractual obligations with a turnkey manufacturer for
finished goods purchases. Based upon purchase orders and forecasts provided to
the manufacturer at December 31, 1997, the value of committed purchases is $2.7
million.
6. EQUITY
STOCK OPTION PLANS
On the Effective Date of the Combination Agreement, the Company assumed the
obligations of IVI and Checkmate under their respective option plans, and all
options issued thereunder, whether vested or unvested, have been assumed by the
Company and, on such assumption, the outstanding rights to acquire IVI Common
Shares or shares of Checkmate Common Stock under such plans have been exchanged
for rights to acquire Common Stock of IVI Checkmate Corp. under such plans.
IVI established the 1997 Stock Option Plan (the "1997 Plan"), which its
shareholders approved on May 8, 1996 to replace the then existing Amended and
Restated Stock Option Plan (the "Old Plan"). The 1997 Plan took effect on
January 14, 1997. One condition of the 1997 Plan was that options to purchase
IVI Common Shares could no longer be granted under the Old Plan, and that all
options issued and outstanding under the Old Plan would expire on January 13,
1997 if unexercised.
Between January 1 and January 13, 1997, options to purchase 56,700 common
shares under the Old Plan were exercised. The remaining 542,500 options that
were granted under the Old Plan and were outstanding as of December 31, 1996
expired.
All options outstanding on December 31, 1997 under the 1997 Plan are fully
vested, and will expire on January 13, 1999 if unexercised.
-16-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
Checkmate had established two employee stock option plans, the 1988 Stock
Option Plan (the "1988 Plan") and the 1993 Stock Option Plan (the "1993 Plan"),
as well as a Directors' Stock Option Plan. Under the Plans, options to purchase
shares of Checkmate's common stock have been and may be granted to certain
directors, officers and key employees at prices not less than market value at
the date of the grant.
The 1988 Plan has been amended to cease granting new options. Options
outstanding under the 1988 Plan as of July 23, 1993 may be exercised according
to the terms of the option agreements pursuant to which they were granted. Under
the 1988 Plan and 1993 Plan, options vest as determined by the Board of
Directors on the date of grant, generally over three years.
In July 1997, certain holders of options under the 1993 Plan who were not
executive officers or directors of Checkmate were given the opportunity to
exchange their options for options having an exercise price at the then average
fair market value. As a result, options to purchase 433,000 shares of common
stock were repriced through the cancellation of existing options and granting of
new options at $6.81 per share.
Subsequent to the June 25, 1998 combination between IVI and Checkmate, no
further options will be granted under the stock option plans of both IVI and
Checkmate.
-17-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
Option activity which would result in issuance of common stock of IVI
Checkmate Corp. under the above-described stock option plans of IVI and
Checkmate is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Outstanding at January 1, 1995 1,808 $ 7.81
Granted 1,377 6.78
Exercised (301) 4.86
Canceled (269) 9.98
------ ------
Outstanding at December 31, 1995 2,615 7.45
Granted 513 9.18
Exercised (380) 6.84
Canceled (201) 14.01
------ ------
Outstanding at December 31, 1996 2,547 7.36
Granted 1,862 5.95
Exercised (715) 5.34
Canceled (1,498) 7.75
------ ------
Outstanding at December 31, 1997 2,196 $ 6.51
====== ======
Options exercisable:
At December 31, 1995 1,580 7.23
At December 31, 1996 1,648 6.59
At December 31, 1997 1,279 6.15
-18-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information concerning options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------- ------------------ ------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.91 - $ 6.65 1,014 3.88 $5.52 958 $5.47
$ 6.81 812 8.67 6.81 77 6.81
$ 6.85 - $11.55 370 7.53 8.55 244 8.62
----- -----
2,196 1,279
===== =====
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No.123, Accounting for Stock-Based Compensation requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by Statement No. 123, which also requires that the information
be determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rates of approximately
4.5% - 8.6%; no dividend yields; volatility factor of the expected market price
of the Company's common stock of 35% - 60%; and a weighted-average expected life
of the options of 1-4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
-19-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
6. EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information, assuming Statement 123 had been adopted, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $1,551 $(11,998) $2,225
Pro forma net income (loss) per share:
Basic $ .10 $ (.88) $ .17
Diluted $ .10 $ (.88) $ .17
Weighted average fair value of options granted $ 3.83 $ 5.87 $ 4.51
</TABLE>
Since Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
WARRANTS
On December 30, 1997, all of the Company's outstanding stock purchase
warrants expired. The warrants, which were originally issued as part of IVI's
acquisition of Soricon Corporation in December 1994, entitled the holder to
purchase one common share per warrant at a price of $15.00 Cdn.
During 1997, 1996 and 1995, warrants to purchase 375, 375 and 450 common
shares, respectively, were exercised.
7. OPERATING LEASES
The Company leases certain property and equipment under certain
noncancellable lease agreements. Rental expense under operating leases was
approximately $948,000, $820,000 and $798,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
-20-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
7. OPERATING LEASES (CONTINUED)
Future minimum payments under noncancellable operating leases with terms of
one year or more consisted of the following at December 31, 1997:
1998 $ 913
1999 756
2000 397
2001 396
2002 135
------
Total future minimum lease payments $2,597
======
8. INCOME TAXES
At December 31, 1997, the Company had approximately $2.6 million of
Canadian capital cost allowances and development costs available for deduction
in future years with no time limits. In addition, the Company has unutilized
Canadian scientific research and development income tax credits of approximately
$2.1 million at December 31, 1997, originating from fiscal years 1988 to 1997.
Under Canadian tax laws, the utilization of these tax credits are subject to a
ten year limitation from the date of original claim and these credits begin to
expire in 1998. Furthermore, the Company has a Canadian capital loss
carryforward of $534,000 at December 31, 1997 available to offset capital gains
in future years with no time limits on its expiration.
For U.S. federal income tax purposes, the Company has at December 31, 1997
approximately $8.2 million of net operating loss carryforwards available to
offset future taxable income. These loss carryforwards begin to expire in 2001.
Utilization of these net operating loss carryforwards for income tax purposes is
subject to certain limitations. Further, the utilization of net operating loss
carryforwards to offset future taxable income may be further limited by any
future changes in ownership of the Company.
The valuation allowance consists primarily of the deferred tax benefit of
the Company's net operating loss carryforwards in the U.S., which has not been
recognized due to the uncertainty regarding the utilization of these loss
carryforwards in future years.
-21-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
8. INCOME TAXES (CONTINUED)
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -------
<S> <C> <C> <C>
Current income tax benefit (expense):
Federal $ 304 $(1,301) $(1,073)
State 51 (151) (114)
----- ------- -------
Total current tax benefit (expense) 355 (1,452) (1,187)
Deferred income tax benefit (expense):
Federal (243) (1) (312)
State (43) -- (59)
Foreign 840 (4,213) (1,111)
----- ------- -------
Total deferred income tax benefit (expense) 554 (4,214) (1,482)
----- ------- -------
Provision for income tax benefit (expense) $ 909 $(5,666) $(2,669)
===== ======= =======
</TABLE>
A reconciliation of the provision of income taxes to the U.S. Federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax benefit (expense) at statutory rate $ 67 $(1,363) $(1,394)
State taxes, net of Federal tax benefit
(expense) 34 (100) (114)
Research and development costs -- 51 --
Foreign:
Change in valuation allowance 2,899 (4,703) 55
Tax carryforward items (2,059) 490 (1,166)
------- ------- -------
840 (4,213) (1,111)
Other (32) (41) (50)
------- ------- -------
Provision for income tax benefit (expense) $ 909 $(5,666) $(2,669)
======= ======= =======
</TABLE>
-22-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
8. INCOME TAXES (CONTINUED)
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets (liabilities) consist of the
following:
1997 1996
------- --------
Deferred tax assets:
Asset valuation allowances $ 267 $ 186
Deferred revenue 452 406
R&D expenditures 1,020 2,915
Investment tax credits 1,209 1,484
Capital loss carryforwards 224 234
Net operating loss carryforwards 2,887 2,420
Other 270 44
------- -------
Total deferred tax assets 6,329 7,689
Deferred tax liabilities:
Depreciation (756) (150)
Amortization (1,116) (660)
------- -------
Total deferred tax liabilities (1,872) (810)
------- -------
4,457 6,879
Valuation Allowance (3,413) (6,312)
------- -------
Net deferred tax assets $ 1,044 $ 567
======= =======
9. DEFINED CONTRIBUTION BENEFIT PLAN
Effective January 1, 1992, IVI Checkmate Inc. adopted the Checkmate
Electronics, Inc. 401(k) Plan (the "Plan"), a defined contribution benefit plan
which qualifies under Section 401(k) of the Internal Revenue Code. All employees
of Checkmate Electronics, Inc. are eligible to participate in the Plan.
Participants may contribute up to 15% of their annual compensation to the Plan
and receive a 50% matching employer contribution on up to 5% of their annual
compensation. Contributions charged to expense were approximately $157,000,
$112,000 and $82,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
-23-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
10. NET INCOME (LOSS) PER SHARE
Net income (loss) per share on a basic and diluted basis as required by
Statement No. 128 is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Net income (loss) $ 3,378 $(10,381) $ 3,934
======= ======== =======
Calculation of weighted average shares outstanding
plus assumed conversions:
Weighted average basic shares outstanding 15,499 13,704 13,037
Effect of dilutive employee stock options 311 150
------- -------- -------
Weighted average diluted shares outstanding 15,810 13,704 13,187
======= ======== =======
Basic net income (loss) per share $ .22 $ (.76) $ .30
======= ======== =======
Diluted net income (loss) per share $ .21 $ (.76) $ .30
======= ======== =======
</TABLE>
11. ALLIANCES AND ACQUISITIONS
In September 1996, the Company acquired approximately 84% of the
outstanding shares of NTN, which was satisfied by the issuance of 230,850 common
shares. The cost of the acquisition, which was accounted for as a purchase
transaction, was valued at $1.3 million comprising $1.9 million in total assets
(including cash of $662,000), less $1.2 million in liabilities and $146,000 in
minority interest. The resulting $746,000 in goodwill is being amortized on a
straight-line basis over 10 years.
In December 1996, the Company formed a global strategic alliance with
Ingenico S.A. ("Ingenico") of Paris, France to provide its customers with a full
range of products, including proven smart card technology. Under the terms of
the alliance, each company has cross-licensed its technologies to the other,
entered into a mutual marketing and distribution agreement for the other
company's products, and agreed to establish a business venture to become the
exclusive distributor of IVI Checkmate Corp. and Ingenico products in Latin
America.
As part of the alliance, Ingenico acquired 1,439,000 common shares from the
Company for a purchase price of $7.2 million less issuance costs of $339,000.
Furthermore, as part of the alliance, in consideration for a payment of
$1.0 million, the Company received an irrevocable, royalty-free, exclusive
license to use and incorporate the UNICAPT technology and related intellectual
property of Ingenico into the Company's products.
-24-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
12. RESTRUCTURING AND OTHER ONE-TIME CHARGES
In the first quarter of 1996, management reviewed the recoverability of
unamortized goodwill which arose from IVI Checkmate Ltd.'s acquisition of
Soricon Corporation in December 1994. The financial results of Soricon
subsequent to the acquisition were below anticipated results upon which
management based the Soricon purchase price. Soricon did not meet sales targets
for its check reader and costs were much higher than anticipated. As a result,
in accordance with the Company's accounting policy, management compared the
unamortized goodwill against an estimate of the undiscounted cash flows arising
from the business to which the goodwill related, over the remaining amortization
period. On the basis of this, management determined that there was a permanent
impairment in the carrying value of the goodwill, and wrote off in the first
quarter of 1996 the entire unamortized balance of $6.8 million which remained at
December 31, 1995 as the estimated net recoverable amount and fair value of this
goodwill was zero. These undiscounted cash flows were only sufficient to recover
the value of the fixed assets of approximately $655,000 which approximated fair
value.
The alliance agreement entered into with Ingenico in December 1996 required
the Company to incorporate the UNICAPT technology into its products. As a
result, in management's opinion, certain inventory products became unmarketable
and deferred development costs related to these products became unrecoverable.
This resulted in a charge of $1.2 million against 1996 earnings.
In 1996, the Company held approximately 20% of the outstanding common
shares of Internet Payment Processing, Inc. ("IPP"), and accounted for its
investment on an equity basis. The Company's investment included loans advanced
to IPP and receivables for services rendered. The Company's share of IPP's 1996
losses would have been $392,000. However, the Company's loss was limited to a
maximum of its investment in IPP. As a result, after recording an equity loss of
$147,000 in 1996, the Company's carrying value of its investment in IPP as at
December 31, 1996 was zero. There have been no further charges or liabilities
incurred by the Company in 1997, nor is any further investment anticipated or
required going forward.
13. RELATED PARTY TRANSACTION
In a marketing and distribution agreement that the Company entered into in
December 1996 with Ingenico, the Company became the exclusive distributor of
Ingenico's products in North America. Consequently, during 1997, the Company
purchased Elite smart card terminals and Scribe printers from Ingenico totaling
$1.7 million to satisfy customer demands, of which $910,000 was still payable at
December 31, 1997.
-25-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
14. INFORMATION BY REGION
Revenue, net income (loss) and identifiable assets, classified by the major
geographic areas in which the Company operates are as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
Revenue:
United States $54,714 $ 47,094 $40,751
Canada 30,018 22,272 30,864
Other 213 776 1,760
------- -------- -------
Total $84,945 $ 70,142 $73,375
======= ======== =======
Net income (loss):
United States $ 854 $ (2,610) $ 2,881
Canada 2,928 (6,398) 599
Other (404) (1,373) 454
------- -------- -------
Total $ 3,378 $(10,381) $ 3,934
======= ======== =======
Identifiable assets:
United States $49,611 $ 42,155
Canada 22,408 24,790
Other 284 24
------- --------
Total $72,303 $ 66,969
======= ========
-26-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly consolidated financial data for 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
1997:
Net revenues $20,685 $18,306 $23,042 $22,912
Gross profit 7,904 6,154 8,210 8,276
Net income (loss) 954 (509) 1,166 1,767
Basic net income per share $ 0.06 ($0.03) $ 0.08 $ 0.11
Diluted net income per share $ 0.06 ($0.03) $ 0.08 $ 0.11
</TABLE>
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
1996:
Net revenues $14,542 $18,550 $15,947 $21,103
Gross profit 5,290 7,114 5,938 7,844
Net income (loss) (7,169) 1,201 307 (4,720)
Basic net income per share ($0.52) $ 0.09 $ 0.02 $ (0.34)
Diluted net income per share ($0.52) $ 0.09 $ 0.02 $ (0.34)
</TABLE>
16. SUBSEQUENT EVENTS
On December 9, 1997, the Company entered into an agreement for the purchase
of Total Retail Solutions, Inc., a software development and consulting
organization specializing in electronic payments and transaction handling
solutions for supermarkets and retail businesses. The acquisition was completed
in January 1998 for approximately $160,000 in common stock and $75,000 in cash.
Effective January 1, 1998, the Company entered into employment agreements
with the CEO and CFO of IVI Checkmate Inc. The terms of the agreements provide
for a base salary and bonus. The agreements provide for specified salary and
bonus increases each year. The term of each agreement is for the third
anniversary of the agreement with certain automatic renewal provisions. If
termination of employment occurs within two years after a change in control, the
executives' stock options vest immediately and the minimum severance benefit is
two times the annual base salary and annual bonus.
The Company and its Chairman have also entered into a five year consulting
agreement which became effective on the date of the combination between IVI and
Checkmate. The terms of the agreement provide for annual total specified
payments adjusted annually for inflation. In addition, the agreement provides
that in the event the Company terminates the agreement other than for the
Chairman's death or disability, or the Chairman terminates his consulting
agreement for good reason, then the Chairman is to receive a consulting fee of
$150,000 per annum for the length of the remainder of the agreement.
-27-
<PAGE>
IVI Checkmate Corp.
Notes to Consolidated Financial Statements (continued)
December 31, 1997
(tabular amounts in thousands of U.S. dollars,
except for percentages and per share amounts)
16. SUBSEQUENT EVENTS (CONTINUED)
On September 16, 1998, the Board of Directors of IVI Checkmate Corp.
adopted a Stockholder Protection Rights Plan and approved the issuance of
preferred stock purchase rights in connection with this plan. The Board declared
a dividend of one stock purchase Right on each outstanding share of common stock
and approved the distribution of rights to IVI Checkmate Ltd. In an amount
sufficient for IVI Checkmate Ltd. to distribute one Right per exchangeable share
of IVI Checkmate Ltd. The Right will be exercisable only if a person or group
acquires 15% or more of the Company's common stock or announces a tender offer.
Each Right will entitle shareholders to buy one one-thousandth of a share of a
new series of junior participating preferred stock of the Company at an exercise
price of $30.00. Prior to the time they become exercisable, the Rights are
redeemable for one cent per Right at the option of the Board.
Subsequent to December 31, 1997, and through September 30, 1998, the
Company granted options to purchase 1,149,279 shares of its common stock at an
exercise price of $6.81.
On September 29, 1998, the Company completed a business combination with
Plourde Computer Services, Inc. ("Plourde") and certain shareholders of Plourde.
Under the terms of the combination agreement, the Company issued 538,232 shares
of its common stock in exchange for all the outstanding shares of Plourde and
assumed options to purchase 370,065 shares of the Company's common stock. The
Company intends to account for this insignificant business combination as a
pooling of interests.
-28-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
No financial statements are required to be filed as part of this Report.
The following exhibits are filed as part of this Report:
-29-
<PAGE>
EXHIBIT NO. DESCRIPTION
- - ----------- ----------------------------------------------------------------
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand
27.1 Restated Financial Data Schedule
-30-
<PAGE>
SIGNATURE
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 hereunto duly authorized.
IVI CHECKMATE CORP.
Date: September 30, 1998 By: /s/ J. Stanford Spence
----------------------
J. Stanford Spence
Chairman of the Board
-31-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated September 29, 1998, with respect to
the restated consolidated financial statements of IVI Checkmate Corp. included
in this Current Report on Form 8-K of IVI Checkmate Corp.
ERNST & YOUNG LLP
Atlanta, Georgia
September 29, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Current Report on Form 8-K dated October 1,
1998 of IVI Checkmate Corp. of our report dated February 12, 1998, on our audits
of the consolidated financial statements of International Verifact Inc. as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and
1995, filed with the Securities and Exchange Commission.
/s/ Coopers & Lybrand
----------------------
Coopers & Lybrand
Chartered Accountants
Toronto, Ontario
September 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 9,372 12,749 0
<SECURITIES> 3,572 6,970 0
<RECEIVABLES> 19,981 15,846 0
<ALLOWANCES> (466) (484) 0
<INVENTORY> 17,156 14,827 0
<CURRENT-ASSETS> 53,899 52,886 0
<PP&E> 16,585 13,367 0
<DEPRECIATION> (8,251) (6,770) 0
<TOTAL-ASSETS> 72,303 66,969 0
<CURRENT-LIABILITIES> 13,990 13,729 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 161 153 0
<OTHER-SE> 56,164 51,963 0
<TOTAL-LIABILITY-AND-EQUITY> 72,303 52,116 0
<SALES> 84,945 70,142 73,375
<TOTAL-REVENUES> 84,945 70,142 73,375
<CGS> 54,401 43,956 46,557
<TOTAL-COSTS> 54,401 43,956 46,557
<OTHER-EXPENSES> 29,026 31,294 20,757
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (85) (65) (84)
<INCOME-PRETAX> 2,469 (4,715) 6,603
<INCOME-TAX> 909 (5,666) (2,669)
<INCOME-CONTINUING> 3,378 (10,381) 3,934
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,378 (10,381) 3,934
<EPS-PRIMARY> 0.22 (0.76) 0.30
<EPS-DILUTED> 0.21 (0.76) 0.30
</TABLE>
