<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 June 30, 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 August 5, 1999
- ----------------------------------- -----------------------------
Common Stock, $0.01 par value 18,114,233 shares
<PAGE>
IVI CHECKMATE CORP.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 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 - June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations - Three and
Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - June 30, 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 1 Legal Proceedings 13
Item 2 Changes in Securities and Use of Proceeds 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 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>
June 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,101 $ 9,846
Accounts receivable, net 28,104 31,820
Inventories 23,355 15,743
Deferred tax asset 6,434 4,060
Prepaid expenses and other assets 1,716 1,581
--------------- ---------------
Total current assets 67,710 63,050
Property and equipment, net 10,049 8,224
Deferred development costs, net 11,889 10,150
Identifiable intangible assets, net 1,202 1,320
Other assets 152 85
--------------- ---------------
Total assets $ 91,002 $ 82,829
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 28,572 $ 24,169
Deferred revenue 2,582 2,805
Other 12 51
--------------- ---------------
Total current liabilities 31,166 27,025
Deferred tax liability 769 769
Minority interest 11 18
--------------- ---------------
Total liabilities 31,946 27,812
--------------- ---------------
Stockholders' Equity
Common stock, $0.01 par value 181 178
Preferred stock, Convertible Series D, $0.01 par value 9 -
Additional paid-in capital 88,915 80,109
Retained deficit (28,670) (23,132)
Foreign currency translation adjustments (1,379) (2,138)
--------------- ---------------
Total stockholders' equity 59,056 55,017
--------------- ---------------
Total liabilities and stockholders' equity $ 91,002 $ 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 Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $ 28,633 $ 25,748 $ 43,743 $ 50,737
Cost of sales 22,212 15,599 31,599 30,991
----------------- ----------------- ----------------- -----------------
Gross margin 6,421 10,149 12,144 19,746
----------------- ----------------- ----------------- -----------------
Operating expenses:
Selling, general and
administrative 8,547 6,037 15,108 11,880
Research and development 998 1,286 2,234 2,744
Depreciation and amortization 1,403 1,091 2,558 2,143
Merger and restructuring costs - 9,895 - 9,895
----------------- ----------------- ----------------- -----------------
10,948 18,309 19,900 26,662
----------------- ----------------- ----------------- -----------------
Operating loss (4,527) (8,160) (7,756) (6,916)
Interest and other (105) (33) (156) 7
----------------- ----------------- ----------------- -----------------
Loss before taxes (4,632) (8,193) (7,912) (6,909)
Income tax benefit 1,390 983 2,374 743
----------------- ----------------- ----------------- -----------------
Net loss $ (3,242) $ (7,210) $ (5,538) $ (6,166)
----------------- ----------------- ----------------- -----------------
Weighted average number
of shares outstanding (000's):
Basic 18,114 17,560 18,093 17,370
Diluted 18,114 17,560 18,093 17,370
Loss Per Share:
Basic $ (0.18) $ (0.41) $ (0.31) $ (0.35)
----------------- ----------------- ----------------- -----------------
Diluted $ (0.18) $ (0.41) $ (0.31) $ (0.35)
----------------- ----------------- ----------------- -----------------
</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>
Six Months Ended
June 30,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Operating activities:
Net loss $ (5,538) $ (6,166)
Depreciation and amortization 3,112 2,965
Deferred income taxes and other (2,279) (44)
Change in non-cash working capital 6,761 3,422
------------------- -------------------
Net cash provided by operating activities 2,056 177
------------------- -------------------
Investing activities:
Purchases of property and equipment (2,147) (957)
Deferred development costs (2,920) (2,273)
Purchase of intangible assets (2) (510)
Other (125) (130)
------------------- -------------------
Net cash used in investing activities (5,194) (3,870)
------------------- -------------------
Financing activities:
Proceeds from issuance of common stock 1,158 3,135
Other (43) (196)
------------------- -------------------
Net cash provided by financing activities 1,115 2,939
------------------- -------------------
Effect of exchange rate fluctuations on cash 278 (520)
------------------- -------------------
Net decrease in cash and cash equivalents (1,745) (1,274)
Cash and cash equivalents at beginning of period 9,846 9,390
------------------- -------------------
Cash and cash equivalents at end of period $ 8,101 $ 8,116
------------------- -------------------
</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 share amounts)
(Unaudited)
June 30, 1999
1. Basis of Presentation
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 and six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999 or any
other interim period.
In these consolidated financial statements, comparative amounts shown for 1998
have been restated to retroactively reflect the business combinations of Plourde
Computer Services in September 1998 and Debitek Holdings Ltd. in December 1998,
which have been accounted for as pooling-of-interests.
2. Mergers and Acquisitions
Effective April 1, 1999, the Company purchased the assets of the Financial
Systems division of DataCard Corporation. These acquired assets consisted of
$3.5 million in accounts receivable, $2.6 million in inventories and $1.2
million in property and equipment. In consideration for these assets, the
Company issued approximately $7.3 million in convertible preferred stock (see
also Note 4). These assets have been reflected in the Company's financial
position as at June 30, 1999.
3. Inventories
Inventories are summarized by class as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Finished goods $11,516 $ 6,222
Work in process 3,157 1,320
Raw materials and supplies 14,403 11,944
-------------- --------------
Gross inventories 29,076 19,486
Less obsolescence reserves (5,721) (3,743)
-------------- --------------
Total $23,355 $15,743
============== ==============
</TABLE>
6
<PAGE>
4. Preferred Stock
In April 1999, the Company issued 894,663 shares of Series D, par value $0.01,
preferred stock to DataCard Corporation in consideration for the assets of the
Financial Systems division of DataCard. Terms of the preferred stock includes
dividends, which will accrue annually at a rate of nine percent (9%) per annum,
and a convertability clause that would provide for the conversion of preferred
stock into common stock on a one-for-one basis beginning on the third
anniversary of April 1, 1999 and continuing until the fifth anniversary of April
1, 1999. If the holder of the Series D preferred stock does not elect to convert
to common stock by the fifth anniversary of April 1, 1999, then, beginning on
the first day after the fifth anniversary of April 1, 1999 and continuing sixty
days thereafter, the Company must either (a) convert the Series D preferred
stock to common stock, on the basis of one (1) share of common stock for one (1)
share of Series D preferred stock and one (1) share of common stock for each
nine dollars ($9.00) of dividends accrued and unpaid through the date of
conversion or (b) redeem the principal amount of the Series D preferred stock
($9.00 per share) and all dividends accrued and unpaid through the date of
payment, in cash.
5. 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 Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $ (3,242) $ (7,210) $ (5,538) $ (6,166)
---------- ---------- ---------- ----------
Calculation of weighted average shares
outstanding plus assumed conversions (000's):
Weighted average basic shares outstanding 18,114 17,560 18,093 17,370
Effect of dilutive stock options - - - -
---------- ---------- ---------- ----------
Weight average diluted shares outstanding 18,114 17,560 18,093 17,370
---------- ---------- ---------- ----------
Basic net loss per share $ (0.18) $ (0.41) $ (0.31) $ (0.35)
---------- ---------- ---------- ----------
Diluted net loss per share $ (0.18) $ (0.41) $ (0.31) $ (0.35)
---------- ---------- ---------- ----------
</TABLE>
Due to our net loss for the quarter and six months ended June 30, 1999 and 1998,
the amounts reported for basic and diluted in that period are the same. Stock
options in the amount of 3,363,000 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 and six months ended
June 30, 1999 and 1998.
7
<PAGE>
6. Geographic Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
United States $ 23,792 $ 18,591 $ 33,883 $ 37,505
Canada 4,841 7,157 9,860 13,232
----------------- ----------------- ----------------- -----------------
$ 28,633 $ 25,748 $ 43,743 $ 50,737
================= ================= ================= =================
Income (loss):
United States $ (4,580) $ 623 $ (8,263) $ 1,100
Canada 44 1,111 438 1,877
----------------- ----------------- ----------------- -----------------
(4,536) 1,734 (7,825) 2,977
Corporate:
Merger and restructuring charges - (9,895) - (9,895)
Taxes 1,390 983 2,374 743
Other (96) (32) (87) 9
----------------- ----------------- ----------------- -----------------
$ (3,242) $ (7,210) $ (5,538) $ (6,166)
================= ================= ================= =================
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Identifiable assets:
United States $ 69,064 $ 60,341
Canada 21,938 22,488
----------------- -----------------
$ 91,002 $ 82,829
================= =================
</TABLE>
7. Comprehensive Loss
Total comprehensive loss, which consists of net loss and foreign currency
translation adjustments, are as follows for the three and six months ended June
30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $ (3,242) $ (7,210) $ (5,538) $ (6,166)
Foreign currency translation gain
(loss) 309 (1,463) 531 (302)
--------------- --------------- --------------- ---------------
Comprehensive loss $ (2,933) $ (8,673) $ (5,007) $ (6,468)
=============== =============== =============== ===============
</TABLE>
8. Subsequent Event
On July 20, 1999, the Company entered into an agreement with National
Transaction Network, Inc. ("NTN") that will potentially result in the
acquisition by the Company, through its wholly owned subsidiary IVI Checkmate
Inc., of all of the shares of common stock of NTN that it does not presently
own. The Company, through IVI Checkmate Inc., currently owns 2,726,440, or
approximately 82.0%, of NTN's 3,325,468 shares of common stock outstanding. The
agreement provides for the exchange of $0.30 worth of common stock of IVI
Checkmate Corp. for each share of NTN common stock. It is anticipated that this
transaction should be completed in the next one to three months, subject to
approval by regulatory authorities and NTN's stockholders.
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 and Six Months Ended June 30, 1999 Compared to
Three and Six Months Ended June 30, 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 June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
EFT $24,017 84 $15,771 61 $34,465 79 $32,831 65
Check readers 2,185 8 7,020 27 4,528 10 12,506 25
Professional services 2,431 8 2,957 12 4,750 11 5,400 10
------------- ------------- ------------- -------------
28,633 100 25,748 100 43,743 100 50,737 100
Cost of sales 22,212 78 15,599 61 31,599 72 30,991 61
------------- ------------- ------------- -------------
Gross margin 6,421 22 10,149 39 12,144 28 19,746 39
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and
administrative 8,547 30 6,037 23 15,108 35 11,880 24
Research and
development 998 4 1,286 5 2,234 5 2,744 5
Depreciation and
amortization 1,403 4 1,091 4 2,558 6 2,143 4
Merger and restructuring
costs - - 9,895 39 - - 9,895 20
------------- ------------- ------------- -------------
10,948 38 18,309 71 19,900 46 26,662 53
------------- ------------- ------------- -------------
Operating loss (4,527) (16) (8,160) (32) (7,756) (18) (6,916) (14)
Interest and other (105) - (33) - (156) - 7 -
------------- ------------- ------------- -------------
Loss before taxes (4,632) (16) (8,193) (32) (7,912) (18) (6,909) (14)
Income tax benefit 1,390 5 983 4 2,374 5 743 2
------------- ------------- ------------- -------------
Net loss $(3,242) (11) $(7,210) (28) $(5,538) (13) $(6,166) (12)
============= ============= ============= =============
</TABLE>
Any trends that may be derived from the above tables are not necessarily
indicative of the Company's future operations.
9
<PAGE>
Revenues for the three months ended June 30, 1999 grew 11% to $28.6 million
from the $25.7 million recorded in the three months ended June 30, 1998.
Revenues for the six months ended June 30, 1999 decreased 14% to $43.7 million
from the $50.7million recorded in the same period one year ago. Following is a
discussion of the change in revenue in electronic funds transfer ("EFT"), check
readers and professional services.
EFT revenue grew 52% in the three months ended June 30, 1999 over the same
period in 1998, which resulted in growth of 5% in the first six months of 1999
over the same period in 1998. In 1999, the Company's revenues were affected by
eN-Touch 1000 production delays while technical changes were being implemented.
However, IVI Checkmate was able to offset some of the revenue loss from these
production delays with revenues generated through its Financial Systems
division, which the Company acquired from DataCard Corporation in April 1999.
Check reader sales decreased 69% and 64% in the three and six months ended
June 30, 1999, respectively, compared with the same periods in 1998. In the
first quarter of 1999, the Company indicated that sales to value-added resellers
of these products were less than anticipated due to excess inventory carried by
these resellers, and that resellers would begin re-ordering when they have
deployed their stock. This overstocking position carried over into the second
quarter and affected revenues to a lesser degree. A decline in check reader
shipments also resulted from timing of sales of check readers to financial
institutions to combat fraud at the teller window. In 1998, most of these
shipments occurred in the second quarter of 1998. However, corresponding sales
in 1999 have not yet occurred as financial institutions are awaiting shipments
of a new generation check reader which recently went into production.
Professional services revenues decreased in the three and six months ended
June 30, 1999 by 18% and 12%, respectively, over the same periods in 1998.
Revenue from professional services consists of recurring transactions such as
hardware and software maintenance and help desk facilities, and non-recurring
activities such as software development. The decrease in 1999 revenues resulted
from the completion in 1998 of several maintenance agreements and fewer software
development projects contracted for in 1999 by customers as a precaution against
potential Year 2000 issues.
Cost of sales increased 42% in the three months ended June 30, 1999 to
$22.2 million from $15.6 million for the three months ended June 30, 1998. This
significant increase was primarily a result of an 11% increase in sales during
this period, and a charge that was recorded to implement technical changes to
the Company's eN-Touch 1000 terminal. It is also because of this charge that
cost of sales for the six months ended June 30, 1999 increased by 2% over the
same period in 1998, despite the fact that corresponding sales over this period
fell 14%. As a percentage of revenues, cost of sales for the three and six
months ended June 30, 1999 were 78% and 72%, respectively, compared with 61% and
61%, respectively, for the same periods in 1998. The increase in cost of sales
as a percentage of revenues was primarily due to the charge related to the en-
Touch 1000 terminal, a large sale to a major U.S. retailer at discounted prices
and the lower selling prices on product sales by the recently acquired Financial
Systems division.
Selling, general and administrative expenditures increased 42% in the three
months ended June 30, 1999 to $8.5 million from $6.0 million for the three
months ended June 30, 1998. A significant portion of this increase was a result
of the addition of Financial Systems, which was acquired in April 1999.
Furthermore, during the second quarter of 1999, as a result of acquiring several
business in 1998 and 1999, management has begun to streamline the inefficiencies
in our operating infrastructure, which resulted in severance costs of $400,000
to terminated employees. These factors were also primary reasons why the
expenses for the six months ended June 30, 1999 were 27% higher than expenses in
the same period one year ago.
10
<PAGE>
Research and development expense decreased 22% in the three months
ended June 30, 1999 to $1.0 million from $1.3 million in the three months ended
June 30, 1998. Gross research and development expenditures for the three and six
months ended June 30, 1999 were consistent with expenditures in the same periods
one year ago. However, there has been a shift in these expenditures toward
software development, which is in keeping with our business strategy of
improving our software capabilities. Consequently, a higher proportion of these
expenditures were capitalized in accordance with generally accepted accounting
principles. A summary of our research and development efforts is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Gross product development expenditures $ 2,437 $ 2,563 $ 5,154 $ 5,017
Capitalized software development costs (1,439) (1,277) (2,920) (2,273)
-------------- -------------- --------------- --------------
Research and development expense 998 1,286 2,234 2,744
Amortization of previously capitalized costs 771 501 1,402 970
-------------- -------------- --------------- --------------
Total expense $ 1,769 $ 1,787 $ 3,636 $ 3,714
============== ============== =============== ==============
Product development as a percent of net revenues:
Gross expenditures 8.5% 10.0% 11.8% 9.9%
Research and development expense 3.5% 5.0% 5.1% 5.4%
Total expense 6.2% 6.9% 8.3% 7.3%
</TABLE>
Our effective tax rates for the three and six months ended June 30,
1999 and 1998 were 30% and 12%, 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
and six months ended June 30, 1999 of $3.2 million and $5.5 million,
respectively, compared to a net loss of $7.2 million and $6.2 million for the
similar periods ended June 30, 1998.
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 $36.5 million (including $8.1 million in
cash and cash equivalents) at June 30, 1999 as compared to working capital of
$36.0 million (including $9.8 million in cash and cash equivalents) at December
31, 1998. At June 30, 1999, we also had a total of $11 million available under
lines of credit under which there were no borrowings outstanding.
During the six months ended June 30, 1999, net cash of $2.1 million
was generated through operating activities due primarily to a net reduction of
non-cash working capital, which more than offset profit margins that failed to
cover operating expenses.
Net cash used in investing activities of $5.2 million for the six
months ended June 30, 1999 consisted primarily of purchases of equipment and
software development expenditures. At June 30, 1999, we did not have any
commitment for material capital expenditures in the remainder of the year.
11
<PAGE>
Net cash provided by financing activities of $1.1 million for the
three months ended June 30, 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 six
months ended June 30, 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 $278,000.
We believe that our working capital position at June 30, 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.
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 six
months ended June 30, 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.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
------------------------------------------------------
There has been no material change during the quarter ended June 30,
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 1. Legal Proceedings
-----------------
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 Country, Georgia, Civil Action No. 99-vs-15287J. 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.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
In April 1999, the Company issued 894,663 shares of Series D, par value $0.01,
preferred stock to DataCard Corporation in consideration for the assets of the
Financial Systems division of DataCard. Terms of the preferred stock includes
dividends, which will accrue annually at a rate of nine percent (9%) per annum,
and a convertability clause that would provide for the conversion of preferred
stock into common stock on a one-for-one basis beginning on the third
anniversary of April 1, 1999 and continuing until the fifth anniversary of April
1, 1999. If the holder of the Series D preferred stock does not elect to convert
to common stock by the fifth anniversary of April 1, 1999, then, beginning on
the first day after the fifth anniversary of April 1, 1999 and continuing sixty
days thereafter, the Company must either (a) convert the Series D preferred
stock to common stock, on the basis of one (1) share of common stock for one (1)
share of Series D preferred stock and one (1) share of common stock for each
nine dollars ($9.00) of dividends accrued and unpaid through the date of
conversion or (b) redeem the principal amount of the Series D preferred stock
($9.00 per share) and all dividends accrued and unpaid through the date of
payment, in cash.
The issuance of the Series D preferred stock was exempt from registration under
Rule 506 promulgated under the Securities Act of 1933, as amended because there
were no more than 35 purchasers of such securities and IVI Checkmate Corp.
reasonably believed that, immediately prior to making any sale, all purchasers
were either accredited investors or, either alone or with his, her or its
purchaser representative, had such knowledge and experience in financial and
business matters that they were capable of evaluating the merits and risks of
the prospective investment.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual meeting of stockholders on May 20, 1999. There were
a total of 13,919,012 shares of Common Stock of the Company and Exchangeable
Shares of IVI Checkmate Ltd. outstanding and eligible to be voted at the annual
meeting, as of the record date of April 1, 1999.
The following directors were elected at and continued in office after the
meeting:
<TABLE>
<CAPTION>
Number of Shares
-------------------
Director For Withheld
------------------ --------- --------
<S> <C> <C>
Gerard Compain 8,896,134 65,955
Gregory A. Lewis 8,887,485 74,604
Paul W. Noblett 8,886,862 75,227
Bertil D. Nordin 8,890,146 71,943
Gareth Owen 8,887,944 74,145
Peter E. Roode 8,893,645 68,444
J. Stanford Spence 8,892,945 69,144
L. Barry Thomson 8,887,485 74,604
George Whitton 8,887,353 74,736
</TABLE>
13
<PAGE>
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 April 27, 1999 related to the Company's
acquisition of the assets of the Financial Systems division of DataCard
Corporation.
14
<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: August 6, 1999 /s/ L. Barry Thomson
-------------------------------------
L. Barry Thomson
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 6, 1999 /s/ John J. Neubert
-------------------------------------
John J. Neubert
Chief Financial Officer and
Senior Vice President
(Principal Financial Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,101
<SECURITIES> 0
<RECEIVABLES> 29,447
<ALLOWANCES> (1,343)
<INVENTORY> 23,355
<CURRENT-ASSETS> 67,710
<PP&E> 14,821
<DEPRECIATION> 4,772
<TOTAL-ASSETS> 91,002
<CURRENT-LIABILITIES> 31,166
<BONDS> 0
0
9
<COMMON> 181
<OTHER-SE> 58,866
<TOTAL-LIABILITY-AND-EQUITY> 91,002
<SALES> 43,743
<TOTAL-REVENUES> 43,743
<CGS> 31,599
<TOTAL-COSTS> 31,599
<OTHER-EXPENSES> 19,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> (7,912)
<INCOME-TAX> (2,374)
<INCOME-CONTINUING> (5,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,538)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
