<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 September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ________
Commission File Number 0-29772
IVI CHECKMATE CORP.
(Exact name of Registrant as specified in its charter)
Delaware 58-2375201
(State of (I.R.S. Employer
Incorporation) Identification No.)
1003 Mansell Road, Roswell, Georgia 30076
(Address of principal executive offices, including zip code)
(770) 594-6000
(Registrant's telephone number, including area code)
______________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at November 10, 2000
----------------------------- --------------------------------
Common Stock, $0.01 par value 18,233,334 shares
<PAGE>
IVI CHECKMATE CORP.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2000
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
-------
<S> <C> <C>
Item 1 Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - September 30, 2000
And December 31, 1999 3
Condensed Consolidated Statements of Operations - Three and Nine
Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements -
September 30, 2000 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosure of Market Risk 11
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX OF EXHIBITS 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Per Share Data)
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
------------------- -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,942 $ 8,279
Accounts receivable, net 23,531 20,050
Inventories, net 19,707 20,278
Deferred tax asset 526 848
Prepaid expenses and other assets 214 502
-------- --------
Total current assets 49,920 49,957
Property and equipment, net 8,144 9,654
Capitalized software development costs, net 13,441 12,822
Intangible assets, net 684 1,064
Other assets 129 28
-------- --------
Total assets $ 72,318 $ 73,525
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 6,923 $ -
Accounts payable 11,079 12,255
Accrued liabilities 10,288 11,273
Deferred revenue 2,866 3,350
Other 7 13
-------- --------
Total current liabilities 31,163 26,891
Deferred tax liability 1,440 1,500
Other - 4
-------- --------
Total liabilities 32,603 28,395
-------- --------
Stockholders' equity
Preferred stock, $0.01 par value 8 8
Common stock, $0.01 par value 183 182
Additional paid-in capital 89,494 88,962
Accumulated deficit (48,248) (43,066)
Accumulated comprehensive loss (1,722) (956)
-------- --------
Total stockholders' equity 39,715 45,130
-------- --------
Total liabilities and stockholders' equity $ 72,318 $ 73,525
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
Net revenues $23,082 $32,543 $71,261 $76,286
Cost of sales 16,262 21,824 46,049 53,423
Amortization of software
development costs 810 684 2,985 2,086
------- ------- ------- -------
Gross profit 6,010 10,035 22,227 20,777
------- ------- ------- -------
Operating expenses:
Selling, general and
administrative 7,518 7,154 22,586 22,262
Research and development 727 1,227 2,282 3,461
Depreciation and amortization 668 690 1,938 1,846
------- ------- ------- -------
8,913 9,071 26,806 27,569
------- ------- ------- -------
Operating income (loss) (2,903) 964 (4,579) (6,792)
Interest and other (88) (79) (79) (235)
------- ------- ------- -------
Income (loss) before taxes (2,991) 885 (4,658) (7,027)
Income tax benefit (expense) (941) (266) (524) 2,108
------- ------- ------- -------
Net income (loss) $(3,932) $ 619 $(5,182) $(4,919)
======= ======= ======= =======
Weighted average number
of shares outstanding (000's):
Basic 18,261 18,124 18,212 18,103
Diluted 18,261 18,188 18,212 18,103
Net income (loss) per share
available to common
stockholders
Basic $ (0.22) $ 0.03 $ (0.31) $ (0.29)
Diluted $ (0.22) $ 0.03 $ (0.31) $ (0.29)
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
IVI CHECKMATE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------------
<S> <C> <C>
2000 1999
------------------- -------------------
Operating activities:
Net loss $(5,182) $(4,919)
Depreciation and amortization 6,070 4,797
Deferred income taxes and other 233 (1,959)
Change in non-cash working capital:
Accounts receivable (3,716) 2,115
Inventories 444 (2,793)
Prepaid expenses and other current assets 284 371
Accounts payable and accrued liabilities (1,530) 2,417
Deferred revenue (454) 210
------- -------
Net cash provided by (used in) operating activities (3,851) 239
------- -------
Investing activities:
Purchases of property and equipment (1,473) (2,731)
Capitalized software development costs (3,445) (4,177)
Other (196) 3
------- -------
Net cash used in investing activities (5,114) (6,905)
------- -------
Financing activities:
Borrowings of bank line of credit - net 6,923 -
Proceeds from issuance of common stock 51 1,248
Other (11) (48)
------- -------
Net cash provided by financing activities 6,963 1,200
------- -------
Effect of exchange rate fluctuations on cash (335) 257
------- -------
Net decrease in cash and cash equivalents (2,337) (5,209)
Cash and cash equivalents at beginning of period 8,279 9,846
------- -------
Cash and cash equivalents at end of period $ 5,942 $ 4,637
======= =======
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
IVI CHECKMATE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of dollars, except per share data)
(Unaudited)
September 30, 2000
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of IVI Checkmate Corp. and our wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
We have prepared these statements in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In our opinion, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These statements should be read in
conjunction with our audited financial statements for the year ended December
31, 1999. Operating results for the three and nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000 or any other interim period.
2. Inventories
Inventories are summarized by classes as follows:
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
---------------- ----------------
Finished goods $13,480 $12,578
Consignment 2,621 2,040
Work in process 3,301 2,798
Raw materials and supplies 5,821 9,873
------- -------
Gross inventories 25,223 27,289
Less obsolescence reserves (5,516) (7,011)
------- -------
Total $19,707 $20,278
======= =======
</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 Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $(3,932) $ 619 $(5,182) $(4,919)
Less: Preferred dividends (163) (163) (489) (326)
------- ------- ------- -------
Net income (loss) available to common stockholders $(4,095) $ 456 $(5,671) $(5,245)
======= ======= ======= =======
Calculation of weighted average shares
outstanding plus assumed conversions (000's):
Weighted average basic shares outstanding 18,261 18,124 18,212 18,103
Effect of dilutive stock options - 64 - -
------- ------- ------- -------
Weight average diluted shares outstanding 18,261 18,188 18,212 18,103
======= ======= ======= =======
Basic and diluted net income (loss) per share
available to common stockholders $ (0.22) $ 0.03 $ (0.31) $ (0.29)
======= ======= ======= =======
</TABLE>
The effect of dilutive securities excludes those stock options and convertible
preferred shares for which the impact of exercise or conversion would have been
anti-dilutive.
4. Segment Disclosures
Selected Financial Results
--------------------------
<TABLE>
<CAPTION>
Operating Depreciation/
Revenues Income(Loss) Amortization
------------------- -------------------- --------------------
<S> <C> <C> <C>
Three Months Ended September 30, 2000:
Domestic $17,699 $(3,134) $1,713
International 5,547 231 491
------- ------- ------
Segmented total 23,246 (2,903) 2,204
Intersegment sales (164) - -
------- ------- ------
Consolidated total $23,082 $(2,903) $2,204
======= ======= ======
Three Months Ended September 30, 1999:
Domestic $25,853 $ 201 $1,190
International 6,802 763 495
------- ------- ------
Segmented total 32,655 964 1,685
Intersegment sales (112) - -
------- ------- ------
Consolidated total $32,543 $ 964 $1,685
======= ======= ======
Nine Months Ended September 30, 2000:
Domestic $54,444 $(5,437) $4,605
International 17,040 858 1,465
------- ------- ------
Segmented total 71,484 (4,579) 6,070
Intersegment sales (223) - -
------- ------- ------
Consolidated total $71,261 $(4,579) $6,070
======= ======= ======
Nine Months Ended September 30, 1999:
Domestic $59,925 $(8,003) $3,389
International 16,662 1,201 1,408
------- ------- ------
Segmented total 76,587 (6,792) 4,797
Intersegment sales (301) - -
------- ------- ------
Consolidated total $76,286 $(6,792) $4,797
======= ======= ======
</TABLE>
7
<PAGE>
4. Segment Disclosures (continued)
Identifiable Assets
-------------------
<TABLE>
<CAPTION>
At At
September 30, December 31,
2000 1999
-------------- ------------
<S> <C> <C>
Domestic $50,177 $48,372
International 22,141 25,153
------- -------
Consolidated total $72,318 $73,525
======= =======
</TABLE>
5. Comprehensive Income (Loss)
Total comprehensive income (loss), which consists of net income (loss) and
foreign currency translation adjustments, is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------- ------- ------- -------
Net income (loss) $(3,932) $ 619 $(5,182) $(4,919)
Foreign currency translation gain (326) 60 (766) 819
(loss) ------- ----- ------- -------
Comprehensive income (loss) $(4,258) $ 679 $(5,948) $(4,100)
======= ===== ======= =======
</TABLE>
6. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101. SAB
101 summarizes certain of the SEC Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. Although
we are currently evaluating the impact of SAB 101, we believe that our current
practices comply with SAB 101. However, should we determine that a change in
accounting policy is necessary, such a change will be made in the fourth quarter
of 2000.
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, rapid and significant technological
developments that could delay the introduction of improvements in existing
products or of new products; dependence on limited suppliers and manufacturers
of component parts of our products; dependence on our proprietary technologies
(which may be independently developed by competitors); dependence on a small
number of large retail and bank customers; potential fluctuation in financial
results as a result of any inability to make sales to large customers as well as
the volume and timing of bookings received during a quarter and variations in
sales mix; competition from existing companies as well as new market entrants;
dependence on key personnel; and other risk factors that are contained in
documents that we file with the U.S. Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net Revenues
------------
Net revenues decreased 29% to $23.1 million for the quarter ended September
30, 2000 from $32.5 million for the comparable period in 1999, and decreased 7%
to $71.3 million for the nine months ended September 30, 2000 from $76.3 million
for the comparable period in 1999. The decreases in net revenues for the quarter
and nine-month periods resulted from shortages in component parts, which
adversely affected our manufacturing production schedules. Shortages in
component parts have been an industry-wide problem since early this year.
Specifically, the revenue shortfall in this quarter resulted from a delay
in shipment of wireless terminals until the fourth quarter, and manufacturing of
the e/N/-Touch 1000 customer interactive touch screen terminal not being at full
capacity.
Cost of Sales
-------------
Cost of sales (excluding amortization of software development costs)
decreased 25% to $16.3 million for the quarter ended September 30, 2000 from
$21.8 million for the comparable period in 1999, and decreased 14% to $46.0
million for the nine months ended September 30, 2000 from $53.4 million for the
comparable period in 1999. The decreases in cost of sales for the quarter and
nine-month periods were due primarily to corresponding decreases in net revenues
over the same periods. Cost of sales for the nine months ended September 30,
1999 also reflected an inventory write-down of approximately $2.7 million, which
was recorded in the quarter ended June 30, 1999 for product issues related to
our e/N/-Touch payment terminal.
Amortization of Software Development Costs
------------------------------------------
Amortization of software development costs increased 18% to $810,000 for
the quarter ended September 30, 2000 from the $684,000 for the comparable period
in 1999, and increased 43% to $3.0 million for the nine months ended September
30, 2000 from $2.1 million for the comparable period in 1999. The increases were
caused by our beginning to amortize previously capitalized software development
project costs that have reached commercial production.
9
<PAGE>
Operating Expenses
------------------
Total operating expenses decreased 2% to $8.9 million for the quarter ended
September 30, 2000 from $9.1 million for the comparable period in 1999, and
decreased 3% to $26.8 million for the nine months ended September 30, 2000 from
$27.6 million for the comparable period in 1999.
For the quarter ended September 30, 2000, selling, general and
administrative expenses increased 5% to $7.5 million from $7.2 million in the
comparable period in 1999, while research and expenditures decreased 40% to
$727,000 from $1.2 million in the same time period. The changes in such expenses
primarily resulted from a slight shift in our engineering resources away from
research and development towards engineering support, which we include as part
of selling, general and administrative expenses.
The shift in our engineering resources is consistent with an increasing
proportion of our revenues being derived from resales of Ingenico products for
printing, smart card and wireless applications. Consequently, a higher
proportion of engineering resources are used, not in the development of new
hardware products, but rather in supporting and adapting Ingenico products to
the North American marketplace.
For the nine months ended September 30, 2000, selling, general and
administrative expenses increased 2% to $22.6 million from $22.3 million in the
comparable period in 1999, while research and development expenditures decreased
34% to $2.3 million from $3.5 million in the same time period. The changes
resulted primarily due to the shift in engineering resources as discussed above,
while selling, general administrative expenses also benefited from savings in
compensation costs due to employee attrition in 1999.
Income Taxes
------------
We recorded tax expense of $159,000 and $524,000 for the quarter and nine
months ended September 30, 2000, respectively, to reflect foreign taxes payable
as our Canadian operations has taxable income in 2000. In addition, during the
quarter, we also reversed a tax benefit of $782,000, which was previously
recognized on losses incurred by our U.S. operations in the first half of 2000.
The tax benefit accrual was earlier recognized in expectation that profits by
our U.S. operations in the second half of 2000 would exceed corresponding losses
in the first six months. However, in light of third quarter results, we forecast
U.S. earnings for the second half of 2000 to be less than initial expectations.
Consequently, neither our year-to-date financial results in 2000 nor our
financial position at September 30, 2000 reflect any deferred tax benefit
accrued on net operating loss carryforwards in the U.S. For U.S. federal income
tax purposes, utilization of net operating loss carryforwards to offset future
taxable income is subject to certain limitations, and may be further limited by
any future changes in ownership in IVI Checkmate.
Liquidity and Capital Resources
-------------------------------
Our primary operating cash needs include the payment of salaries, payments
to suppliers, office rent, travel expenses, and other general and administrative
expenses, as well as capital expenditures and research and development. We
finance these expenditures with cash flow from operations and the issuance of
equity securities, as well as borrowings from time to time under lines of
credit.
For the nine months ended September 30, 2000, cash on hand was reduced by
$2.3 million from December 1999 and net borrowings of $6.9 million in 2000
against our line of credit were required in order to fund operating activities
and finance purchases of property and equipment and software development costs.
Approximately $5.1 million of our cash requirement was used in the purchases of
property and equipment and software development. The remaining cash usage was
the result of unfavorable timing of trade receivable collections and payment of
outstanding invoices.
10
<PAGE>
Based upon the current level of operations, we believe that cash from
operating activities, available cash and amounts available under our lines of
credit will be adequate to meet our cash requirements for capital expenditures
and working capital needs in the foreseeable future. However, there can be no
assurance given in this regard that our business will generate sufficient cash
flow from operations or that future borrowings will be available.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There has been no material change during the quarter ended September 30,
2000 from the disclosures about market risk provided in Item 7A of our Annual
Report on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) Litigation with former director and officer
Gregory A. Lewis v. IVI Checkmate Corp., IVI Checkmate Inc., and L. Barry
Thomson, Civil Action No. 2000CV27678. This lawsuit was filed on September 1,
2000 and is currently pending in the Superior Court of Fulton County, Georgia.
Plaintiff, a former officer of IVI Checkmate Inc., brought this lawsuit alleging
breach of employment contract, tortious interference with contract, breach of
good faith and fair dealing, defamation and entitlement to attorneys' fees and
litigation expenses arising from the cessation of his employment. Answers and
counterclaims have been filed. The case is presently in the early stages of
discovery. Because of the early stage of this litigation, we are unable at this
time to predict the range or likelihood of success or the amount of potential
exposure in this matter.
(ii) Litigation with Samsung Display Devices
On or about April 30, 1999, we filed a complaint against Samsung Display
Devices, Ltd. And Samsung Display Devices, Inc. in the United States District
Court for the Northern District of Georgia, Atlanta Division, seeking in excess
of $5,000,000 in damages. We alleged that Samsung Display Devices failed to
honor an agreement to provide us with a component part for our e/N/-Touch
1000(R) product. We also alleged that Samsung Display Devices made negligent
misrepresentations that induced us to enter into contractual relations with
Samsung Display Devices. Our specific claims were for breach of contract, breach
of warranty, negligent misrepresentation, promissory estoppel and breach of
implied promise.
On August 6, 1999, Samsung Display Devices answered and counter-claimed against
us, stating claims for breach of contract and seeking approximately $500,000 in
damages from us. Thereafter, the parties engaged in substantial discovery, and
on March 28, 2000, we amended our complaint to add a claim for fraud against
Samsung Display Devices.
On November 2 and 3, 2000, the parties participated in a mediation. As a result,
on November 3, 2000, the case settled, with Samsung Display Devices agreeing to
pay us specified damages, the amount of which is confidential pursuant to the
settlement terms. As a part of the settlement, we agreed to dismiss our fraud
claim against Samsung Display Devices. Thereafter, all parties will dismiss all
remaining claims and counterclaims and provide full releases in connection with
all pending, threatened or previously dismissed claims.
11
<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 did not filed any report on Form 8-K during the quarter ended September
30, 2000.
12
<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: November 10, 2000 /s/ L. Barry Thomson
--------------------------------------
L. Barry Thomson
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 10, 2000 /s/ John J. Neubert
--------------------------------------
John J. Neubert
Executive Vice President - Finance
and Administration, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
13
<PAGE>
INDEX OF EXHIBITS
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
14
