<PAGE>
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, 1999
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 5, 1999
----- --------------------------
Common Stock, $0.01 par value 18,114,140 shares
<PAGE>
IVI CHECKMATE CORP.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1999
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1 Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets March 31, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations Three Months
Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows Three Months
Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - March 31, 1999 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 12
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX OF EXHIBITS 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars Except Per Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,140 $ 9,846
Accounts receivable, net 24,813 31,820
Inventories 21,439 15,743
Deferred tax asset 5,044 4,060
Prepaid expenses and other assets 1,092 1,581
-------- --------
Total current assets 58,528 63,050
Property and equipment, net 8,387 8,224
Deferred development costs, net 11,087 10,150
Identifiable intangible assets, net 1,258 1,320
Other assets 69 85
-------- --------
Total assets $ 79,329 $ 82,829
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 21,312 $ 24,169
Deferred revenue 3,026 2,805
Other 12 51
-------- --------
Total current liabilities 24,350 27,025
Deferred tax liability 769 769
Minority interest 14 18
-------- --------
Total liabilities 25,133 27,812
-------- --------
Stockholders' Equity
Common stock, $0.01 par value 181 178
Additional paid-in capital 81,263 80,109
Retained deficit (25,428) (23,132)
Foreign currency translation adjustments (1,820) (2,138)
-------- --------
Total stockholders' equity 54,196 55,017
-------- --------
Total liabilities and stockholders' equity $ 79,329 $ 82,829
-------- --------
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Net revenues $15,110 $24,989
Cost of goods sold 9,388 15,392
------- -------
Gross profit 5,722 9,597
------- -------
Operating expenses:
Selling, general and administrative 6,560 5,843
Research and development 1,236 1,457
Depreciation and amortization 1,155 1,053
------- -------
8,951 8,353
------- -------
Operating income (loss) (3,229) 1,244
Interest and other income (expense) (51) 40
------- -------
Income (loss) before income taxes (3,280) 1,284
Income tax benefit (expense) 984 (240)
------- -------
Net income (loss) $(2,296) $ 1,044
------- -------
Net income (loss) per share:
Basic $(0.13) $ 0.06
------- -------
Diluted $(0.13) $ 0.06
------- -------
Weighted average number
of shares outstanding (000's):
Basic 18,071 17,178
------- -------
Diluted 18,071 17,863
------- -------
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Operating activities:
Net income (loss) $(2,296) $ 1,044
Depreciation and amortization 1,398 1,263
Deferred income taxes and other (873) (18)
Change in non-cash working capital (777) (1,730)
------- -------
Net cash provided by operating activities $(2,548) $ 559
------- -------
Investing activities:
Purchases of property and equipment (833) (568)
Deferred development costs (1,481) (996)
Purchase of intangible assets (2) (314)
Other (81) (99)
------- -------
Net cash used in investing activities (2,397) (1,977)
------- -------
Financing activities:
Proceeds from issuance of common stock 1,158 2,771
Other (42) (500)
------- -------
Net cash provided by financing activities 1,116 2,271
------- -------
Effect of exchange rate fluctuations on cash 123 59
------- -------
Net decrease in cash and cash equivalents (3,706) 912
Cash and cash equivalents at beginning of period 9,846 9,390
------- -------
Cash and cash equivalents at end of period $ 6,140 $10,302
------- -------
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars, except per share data)
(Unaudited)
March 31, 1999
1. Basis of Presentation
On June 25, 1998, IVI Checkmate Corp. (the "Company") was formed through the
combination of International Verifact Inc. and Checkmate Electronics, Inc.,
which was accounted for as a pooling-of-interests. These condensed consolidated
financial statements have been restated to reflect the historical results of
both companies for all periods presented.
The accompanying unaudited condensed consolidated financial statements have been
prepared 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, 1998. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999 or any other
interim period.
2. Inventories
Inventories are summarized by class as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Finished goods $10,511 $ 6,222
Work in process 1,244 1,320
Raw materials and supplies 13,307 11,944
------- -------
Gross inventories 25,062 19,486
Less obsolescence reserves (3,623) (3,743)
------- -------
Total $21,439 $15,743
------- -------
</TABLE>
6
<PAGE>
3. 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>
Three Months Ended
March 31,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Net income (loss) $(2,296) $ 1,044
------- -------
Calculation of weighted average shares
outstanding plus assumed conversions (000's):
Weighted average basic shares outstanding 18,071 17,178
Effect of dilutive stock options - 685
------- -------
Weighted average diluted shares outstanding 18,071 17,863
------- -------
Basic net income (loss) per share $ (0.13) $ 0.06
------- -------
Diluted net income (loss) per share $ (0.13) $ 0.06
------- -------
</TABLE>
Due to our net loss for the quarter ended March 31, 1999, the amounts reported
for basic and diluted in that period are the same. Stock options in the amount
of 3,386,000 could potentially dilute basic earnings per share in the future and
were not included in the computation of diluted EPS because they would have been
anti-dilutive for the quarter ended March 31, 1999.
4. Geographic Information
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenue:
United States $10,091 $18,913
Canada 5,019 6,076
------- -------
$15,110 $24,989
------- -------
Income (loss):
United States $(3,623) $ 478
Canada 394 766
------- -------
(3,229) 1,244
Corporate:
Taxes 984 (240)
Other (51) 40
------- -------
$(2,296) $ 1,044
------- -------
March 31, December 31,
1999 1998
------------------- ------------------
Identifiable assets:
United States $58,593 $60,341
Canada 20,736 22,488
------- -------
$79,329 $82,829
------- -------
</TABLE>
7
<PAGE>
5. Comprehensive Income
Total comprehensive income (loss), which consists of net income and foreign
currency translation adjustments, was $(2.0) million and $2.3 million for the
three months ended March 31, 1999 and 1998, respectively.
6. Subsequent Event
In April 1999, the acquisition of the net assets of the financial systems point-
of-sale business of DataCard Corporation was completed for approximately
$8,052,000. The purchase price was satisfied through the issuance of (i) 894,663
shares of Series D Preferred Stock of IVI Checkmate Corp., par value $0.01 per
share with 9% cumulative dividends, and (ii) a warrant to purchase 200,000
shares of Common Stock of IVI Checkmate Corp. at $6.00 per share on the third
anniversary date of the acquisition. The acquisition will be accounted for as a
purchase transaction.
On or about April 30, 1999, we filed a lawsuit against Samsung Display Devices,
Inc. and Samsung Display Devices Co., Ltd. ("Samsung") in the State Court of
Fulton County, Georgia, Civil Action No. 99-vs-152587J. The lawsuit seeks
damages in excess of $5 million for Samsung's failure to deliver in a timely
and/or working fashion components essential to our e/N/-Touch 1000(R) product.
Samsung's failure to deliver working components and its failure to deliver the
components in the time-frame promised has caused us substantial damages,
including lost profits, which we intend to recover through this action.
8
<PAGE>
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, 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 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, 1999 Compared to Three
Months Ended March 31, 1998 (tabular amounts in thousands of U.S. dollars)
The following table sets forth certain items derived from our consolidated
statements of operations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
Amount % Amount %
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues:
Electronic funds transfer $10,448 69 % $17,060 68 %
Check reader 2,343 16 5,486 22
Professional services 2,319 15 2,443 10
------- --- ------- ---
15,110 100 24,989 100
Cost of sales 9,388 62 15,392 62
------- --- ------- ---
Gross profit 5,722 38 9,597 38
------- --- ------- ---
Operating expenses:
Selling, general and administrative 6,560 43 5,843 23
Research and development 1,236 8 1,457 6
Depreciation and amortization 1,155 8 1,053 4
------- --- ------- ---
8,951 59 8,353 33
------- --- ------- ---
Operating income (loss) (3,229) (21) 1,244 5
Interest and other income (51) - 40 -
------- --- ------- ---
Income (loss) before income taxes (3,280) (21) 1,284 5
Income tax benefit (expense) 984 6 (240) (1)
------- --- ------- ---
Net income (loss) $(2,296) (15)% $ 1,044 4 %
------- --- ------- ---
</TABLE>
Any trends that may be derived from the above tables are not necessarily
indicative of the Company's future operations.
9
<PAGE>
Total revenues decreased 40% from $25.0 million for the three months ended
March 31, 1998 to $15.1 million for the three months ended March 31, 1999. The
decrease in total revenues was attributed to: (1) a temporary halt in shipments
of our eN-Touch 1000 terminals in order to carry out certain technical changes;
and (2) excess inventory of our products, primarily check readers, that were
owned by value-added resellers that resulted in these resellers placing fewer
orders in the quarter for our products.
Cost of sales decreased 39% from $15.4 million for the three months ended
March 31, 1998 to $9.4 million for the three months ended March 31, 1999 due to
a 40% decline in sales in 1999. As a percentage of revenues, cost of sales were
constant at 62% for the three months ended March 31, 1999 and 1998.
Selling, general and administrative expenses increased 12% from $5.8
million for the three months ended March 31, 1998 to $6.6 million for the three
months ended March 31, 1999, but were consistent with the average quarterly
expenses in the last half of fiscal 1998, which reflected the mergers made
during 1998. As a percentage of revenues, these expenses for the three months
ended March 31, 1999 and 1998 were 43% and 23%, respectively. The increase in
the percentage in 1999 was the result of a 40% decline in revenue.
Gross research and development expenditures increased 10% from $2.4 million
in the three months ended March 31, 1998 to $2.7 million in the three months
ended March 31, 1999. The increase in expenditures is reflective of our business
strategy of improving our software capabilities. With this shift in expenditures
towards software development, a higher proportion of these costs were
capitalized in accordance with generally accepted accounting principles.
Consequently, net research and development expenses were $1.2 million for the
three months ended March 31, 1999, as compared to $1.4 million in the same
period in 1998. A summary of our research and development efforts is as follows:
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Gross research and development expenditures $2,717 $2,453
Capitalized software development costs 1,481 996
------ ------
Net research and development expense 1,236 1,457
Amortization of previously capitalized costs 631 469
------ ------
Total expense $1,867 $1,926
------ ------
Research and development, as a percent of revenues:
Gross expenditures 18.0% 9.8%
Net expense 8.2% 5.8%
Total expense 12.4% 7.7%
Our effective tax rates for the three months ended March 31, 1999 and 1998
were 30% and 19%, respectively, which were below the statutory rate due to
utilization of tax losses from previous years.
As a result of the above factors, we recorded a net loss for the three
months ended March 31, 1999 of $2.3 million compared to a net profit of $1.0
million for the three months ended March 31, 1998.
10
<PAGE>
Liquidity and Capital Resources
Our primary operating cash needs include the payment of salaries, payment
to suppliers, office rent and travel expenses, other general and administrative
expenses, as well as capital expenditures and research and development. We have
historically financed these expenditures, as well as acquisitions, with cash
flow from operations and issuances of equity securities.
We had working capital of $34.2 million (including $6.1 million in cash and
cash equivalents) at March 31, 1999 as compared to working capital of $36.0
million (including $9.8 million in cash and cash equivalents) at December 31,
1998.
During the three months ended March 31, 1999, net cash of $2.5 million was
used in operating activities, primarily due to a significant decline in revenue,
which resulted in (1) profit margins that failed to cover operating expenses,
and (2) an increase in inventory.
Net cash used in investing activities of $2.4 million for the three months
ended March 31, 1999 consisted primarily of purchases of equipment and software
development expenditures. At March 31, 1999, we did not have any commitment for
material capital expenditures in the remainder of the year.
Net cash provided by financing activities of $1.1 million for the three
months ended March 31, 1999 consisted primarily of issuances of capital stock in
connection with exercises of stock options.
Cash at our Canadian division, which is held in local currency for normal
operating needs, is subject to currency fluctuation. During the three months
ended March 31, 1999, the Canadian dollar strengthened against the U.S. dollar.
Consequently, the translation of cash held by our Canadian division into U.S.
dollar equivalence, generated an economic benefit of $123,000.
At March 31, 1999, we have a total of $5 million available under lines of
credit under which there were no borrowings outstanding. An additional $5
million unsecured line of credit was arranged in April 1999.
We believe that our working capital position at March 31, 1999, together
with anticipated future cash flows from operations and the borrowings available
under our revolving credit lines, will be sufficient to meet our cash operating
needs for the remainder of the year. Nevertheless, as a result of timing of cash
receipts and cash payments, it may be necessary to temporarily borrow against
our lines of credit.
Year 2000
We have developed a Year 2000 Readiness Plan. This plan addresses three
main areas: (1) our hardware and software products; (2) third party technology
systems; and (3) internal operating systems (including our accounting, payables
and invoicing operations). We believe that the taskforce that we have created to
oversee this process and report periodically to our Board of Directors has
appropriate plans in place to ensure our timely Year 2000 readiness.
Our Year 2000 efforts have not materially changed during the quarter ended
March 31, 1999, from the disclosures provided in our Annual Report on Form 10-K
for the year ended December 31, 1998, and are ongoing. Our overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While we anticipate continuity of our business
activities, that continuity will be dependent upon our ability, as well as the
ability of third parties with whom we rely on directly or indirectly, to be Year
2000 compliant.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
------------------------------------------------------
There has been no material change during the quarter ended March 31, 1999,
from the disclosures about market risk provided in our Annual Report on Form 10-
K for the year ended December 31, 1998.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. The following exhibits are filed as part of this report:
---------
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
We filed a Form 8-K on March 17, 1999 to report that our forecast showed
that earnings for the three months ended March 31, 1999 will be below
expectations.
13
<PAGE>
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 5, 1999 /s/ L. Barry Thomson
--------------------
L. Barry Thomson
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 5, 1999 /s/ John J. Neubert
-------------------
John J. Neubert
Chief Financial Officer and
Senior Vice President
(Principal Financial Officer)
14
<PAGE>
INDEX OF EXHIBITS
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,140
<SECURITIES> 0
<RECEIVABLES> 25,643
<ALLOWANCES> (830)
<INVENTORY> 21,439
<CURRENT-ASSETS> 58,528
<PP&E> 20,757
<DEPRECIATION> (12,370)
<TOTAL-ASSETS> 79,329
<CURRENT-LIABILITIES> 24,350
<BONDS> 0
0
0
<COMMON> 181
<OTHER-SE> 54,015
<TOTAL-LIABILITY-AND-EQUITY> 79,329
<SALES> 15,110
<TOTAL-REVENUES> 15,110
<CGS> 9,388
<TOTAL-COSTS> 9,388
<OTHER-EXPENSES> 8,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,280)
<INCOME-TAX> (984)
<INCOME-CONTINUING> (2,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,296)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
