SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from _____________ to __________________
Commission File No. 001-15465
Intelli-Check, Inc.
(Name of small business issuer as specified in its charter)
Delaware 11-3234779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
775 Park Avenue, Suite 340, Huntington, New York 11743
(address of principal executive offices) (Zip Code)
Issuer's Telephone number, including area code: (631) 421-2011
Check whether Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at June 30, 2000
----- ----------------------------
Common Stock, $.001 par value 6,547,652
<PAGE>
Intelli-Check, Inc.
Index
Part I Financial Information Page
----
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (Unaudited)
and December 31, 1999 1
Statements of Operations for the three and
six month periods ended June 30, 2000
(Unaudited) and June 30, 1999 (Unaudited) 2
Statements of Cash Flows for the six months
ended June 30, 2000 (Unaudited) and
June 30, 1999 (Unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-8
Part II Other Information
Item 6. Exhibits and Reports on Form 8 8
Signatures 8
<PAGE>
Intelli-Check, Inc.
Balance Sheets
ASSETS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,636,628 $ 6,380,548
Accounts receivable 15,723 14,320
Inventory 195,476 186,609
Deposit 417,900 245,800
Other current assets 107,151 54,313
------------ ------------
Total current assets 5,372,878 6,881,590
PROPERTY AND EQUIPMENT, net 236,969 244,289
PATENT COSTS 70,531 73,636
OTHER ASSETS 8,766 8,766
------------ ------------
Total assets $ 5,689,144 $ 7,208,281
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 181,099 $ 430,982
Accrued Expenses 406,447 376,979
Current portion of capital
lease obligations 34,038 35,430
------------ ------------
Total current liabilities 621,584 843,391
------------ ------------
CAPITAL LEASE OBLIGATIONS 23,282 39,843
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock-$.001 par value; 20,000,000
shares authorized; 6,547,652 shares
issued and outstanding 6,548 6,515
Additional paid-in capital 10,213,613 10,121,771
Accumulated Deficit (5,175,883) (3,803,239)
------------ ------------
Total stockholders' equity 5,044,278 6,325,047
------------ ------------
Total liabilities and
stockholders' equity $ 5,689,144 $ 7,208,281
============ ============
See accompanying notes to financial statements
1
<PAGE>
Intelli-Check, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES $ 17,102 $ 118 $ 47,320 $ 221
COST OF GOODS SOLD 8,344 22 23,515 55
----------- ----------- ----------- -----------
Gross profit 8,758 96 23,805 166
OPERATING EXPENSES
Selling 111,160 79,307 221,765 98,297
General and administrative 353,494 302,702 819,183 545,929
Research and development 326,503 25,754 508,114 100,621
----------- ----------- ----------- -----------
Loss from operations (782,399) (407,667) (1,525,257) (744,681)
OTHER INCOME (EXPENSES):
Interest income 75,739 -- 161,008 --
Interest expense (2,981) (18,401) (8,395) (30,924)
----------- ----------- ----------- -----------
Net loss $ (709,641) $ (426,068) $(1,372,644) $ (775,605)
=========== =========== =========== ===========
PER SHARE INFORMATION:
Net loss per common share-
Basic and diluted $ (.11) $ (.08) $ (.21) $ (.15)
=========== =========== =========== ===========
Common shares used in
computing per share amounts-
Basic and diluted 6,538,009 5,079,807 6,526,581 5,021,152
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
Intelli-Check, Inc.
Statements of Cash Flows
(Unaudited)
Six months ended Six months ended
June 30, 2000 June 30, 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,372,644) $ (775,605)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 41,365 23,171
Changes in assets and liabilities-
(Increase) in accounts receivable (1,403) --
(Increase) Decrease in inventory (8,867) 799
(Increase) in deposits (172,100) (198,505)
(Increase) in other assets (52,838) (38,539)
(Decrease) Increase in accounts
payable and accrued expenses (220,415) 324,894
----------- -----------
Net cash used in
operating activities (1,786,902) (663,785)
----------- -----------
CASH FLOWS FROM INVESTING ACTITIVIES:
Purchases of property and equipment (30,940) (36,230)
----------- -----------
Net cash used in
investing activities (30,940) (36,230)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock 91,875 719,200
Repayment of capital lease obligation (17,953) (4,005)
----------- -----------
Net cash provided by
financing activities 73,922 715,195
----------- -----------
Net (decrease) increase
in cash (1,743,920) 15,180
CASH AND CASH EQUIVALENTS,
beginning of period 6,380,548 159,600
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 4,636,628 $ 174,780
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period
for interest $ 8,395 $ 10,000
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
Intelli-Check, Inc.
Notes to Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The financial information provided herein was prepared from the books and
records of the Company without audit. The information furnished reflects all
normal recurring adjustments, which, in the opinion of the Company, are
necessary for a fair statement of the balance sheets, statements of operations,
and statements of cash flows, as of the dates and for the periods presented. The
Notes to Financial Statements included in the Company's 1999 Annual Report on
Form 10-KSB should be read in conjunction with these financial statements.
Note 2. Net Loss Per Common Share
Basic and diluted net loss per common share was computed by dividing the net
loss by the weighted average number of shares of Common Stock. In accordance
with the requirements of statement of Financial Accounting Standards No. 128,
common stock equivalents have been excluded from the calculation as their
inclusion would be antidilutive.
Note 3. Purchase Commitment
During 1999, the Company placed orders for a total of 2000 ID-Check units of
which they had received 500 units as of December 31, 1999. These units were
returned to the manufacturer to exchange the original scanner for a high-tech
scanner, which will allow the software to read the encoding on 48 jurisdictions
as opposed to 32 jurisdictions that could be read on the original scanner. The
Company has begun receiving product on these orders. During March 2000, the
company placed an additional order to purchase 5000 units.
Note 4. Lease Commitment
During July 2000, the Company entered into a 10-year lease agreement for its new
office. The lease provides for monthly rental payments of $17,458 beginning 2
months subsequent to the completion of construction. Payments under the lease
are expected to begin December 2000. Additionally, the lease provides for annual
increases of 4%. In connection with this lease, the company provided an
irrevocable unconditional letter of credit in the amount of $250,000 as
security, which will be reduced after 45 months to $34,916 for the balance of
the lease.
Note 5. Stockholders' Equity
In May 2000, the Company extended the expiration date of its common stock
purchase warrants, which were due to expire on June 30, 2000, until December 31,
2000. All other terms and conditions of the warrants remained unchanged.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(a) Overview
Our company was formed in 1994 to address a growing need for reliable age
and document verification systems to detect fraudulent driver licenses and other
widely accepted forms of government-issued identification documents. Our sales
to date have been minimal since through 1998 we had previously produced only a
limited pre-production run of our product for testing and market acceptance and,
in late 1999, we received a limited number of ID-Check terminals which were then
available for sale. These terminals were subsequently returned to the
manufacturer to be upgraded to contain an advanced barcode imager/scanner, which
allows our software to read the encoding on 48 jurisdictions as opposed to 32
jurisdictions on the original scanner. Since inception, we have incurred
significant losses and negative cash flow from operating activities, and as of
June 30, 2000 we had an accumulated deficit of approximately $5,200,000. We will
continue to fund operating and capital expenditures from proceeds that the
company received from its initial public offering ("IPO"). In view of the
rapidly evolving nature of our business and our limited operating history, we
believe that period-to-period comparisons of revenues and operating results are
not necessarily meaningful and should not be relied upon as indications of
future performance.
The company's initial marketing focus was targeted towards retailers of
age-restricted products such as alcohol and tobacco. Because of the company's
enhanced ability to verify the validity of military ID's, driver licenses and
State issued ID cards, containing either magnetic stripes or bar codes that
conform to AAMVA/ANSI/ISO standards, the Company has expanded its marketing
efforts to address the larger market being affected by the well publicized cost
to industry of "Identity Theft". Additionally, it has entered into a joint
marketing agreement with Sensormatic Electronics Corporation, the world's
leading supplier of electronic security systems. As a result of the Company's
ID-Check product having the ability to verify the encoded formats of the
documents described above, it has already sold to and received orders from some
of the largest companies in the gaming industry.
The foregoing contains certain forward-looking statements. Due to the fact
that the company could face intense competition in a business characterized by
rapidly changing technology and high capital requirements, actual results and
outcomes may differ materially from any such forward looking statements and, in
general are difficult to forecast.
(b) Results of Operations
Comparison of the six months ended June 30, 2000 to the six months ended June
30, 1999.
Sales increased from $221 for the six months ended June 30, 1999 to
$47,320 recorded for the six months ended June 30, 2000. Sales for the period
ended June 30, 1999 consisted of sales of only terminal accessories as we did
not have any product available for sale since we had prior withdrawn from the
marketplace so that we could devote our resources to expand the capability of
our product by converting our software to operate on programmable terminals.
Sales for the period ended June 30, 2000 included initial sales of a limited
number of ID-Check terminals prior to the early return of our inventory of these
terminals to the manufacturer for upgrading.
Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 108% from $744,847 for the six
months ended June 30,1999 to $1,549,062 for the six months ended June 30, 2000.
Selling expenses, which consist primarily of salaries and related costs for
marketing, increased substantially from $98,297 for the six months ended June
30, 1999 to $221,765 for the six months ended June 30, 2000 primarily due to the
hiring of both a vice president and a director of national sales and their
related travel
5
<PAGE>
expenses. General and administrative expenses, which consist primarily of
salaries and related costs for general corporate functions, including executive,
accounting, facilities and fees for legal and professional services, increased
50% from $545,929 for the six months ended June 30, 1999 to $819,183 for the six
months ended June 30, 2000, primarily as a result of an increase in salaries and
related benefits because of additional hiring of executive and administrative
personnel and increased professional and legal fees, resulting from the defense
of our patent law suit. Research and development expenses, which consist
primarily of salaries and related costs for the development of our products,
increased substantially from $100,621 for the six months ended June 30, 1999 to
$508,114 for the six months ended June 30, 2000. This increase is primarily
attributable to increases in salaries and related expenses in hiring a staff of
programmers and increase in fees paid to software consultants as we accelerated
software development. We believe that we require additional significant
investments in development and operating infrastructure, including the hiring of
additional sales and marketing personnel. Therefore, we expect that expenses
will continue to increase for the foreseeable future as we increase expenditures
for advertising, brand promotion, public relations and other marketing
activities. We expect that we will incur additional general and administrative
expenses as we continue to hire personnel and incur incremental costs related to
the growth of the business. Research and development expenses will also increase
as we complete and introduce additional products based upon our patented
ID-Check technology.
Interest expense decreased from $30,924 for the six months ended June 30,
1999 to $8,395 for the six months ended June 30, 2000 as a result of lower
interest expense from the settlement of deferred compensation liability in 1999.
Interest income amounted to $161,008 for the six months ended June 30,
2000 resulting from investing the proceeds received from our IPO in short term
investments.
We have incurred net losses to date, therefore we have paid nominal income
taxes.
As a result of the factors noted above, our net loss increased from
$775,605 for the six months ended June 30, 1999 to $1,372,644 for the six months
ended June 30, 2000.
Comparison of the three months ended June 30, 2000 to the three months ended
June 30, 1999.
Sales increased from $118 for the three months ended June 30, 1999 to
$17,102 recorded for the three months ended June 30, 2000. Sales for the period
ended June 30, 1999 consisted of sales of only terminal accessories as we did
not have any product available for sale since we had earlier withdrawn from the
marketplace so that we could devote our resources to expand the capability of
our product by converting our software to operate on programmable terminals.
Sales for the period ended June 30, 2000 included initial sales of a limited
number of ID-Check terminals prior to the early return of our inventory of these
terminals to the manufacturer for upgrading.
Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 94% from $407,763 for the three
months ended June 30,1999 to $791,157 for the three months ended June 30, 2000.
Selling expenses, which consist primarily of salaries and related costs for
marketing, increased 40% from $79,307 for the three months ended June 30, 1999
to $111,160 for the three months ended June 30, 2000 primarily due to the hiring
of both a vice president and a director of national sales and their related
travel expenses. General and administrative expenses, which consist primarily of
salaries and related costs for general corporate functions, including executive,
accounting, facilities and fees for legal and professional services, increased
17% from $302,702 for the three months ended June 30, 1999 to $353,494 for the
three months ended June 2000, primarily as a result of an increase in salaries
and related benefits because of additional hiring of executive and
administrative personnel and increased professional and legal fees, resulting
from the defense of our patent law suit. Research and development expenses,
which consist primarily of salaries and related costs for the development of our
products, increased substantially from $25,754 for the three months ended June
30, 1999 to $326,503 for the three months ended June 30, 2000. This increase is
primarily attributable to increases in salaries and related expenses in hiring a
staff of programmers and increase in fees paid to software consultants.
6
<PAGE>
Interest expense decreased from $18,401 for the three months ended June
30, 1999 to $2,981 for the three months ended June 30, 2000 as a result of lower
interest expense from the settlement of deferred compensation liability in 1999.
Interest income amounted to $75,739 for the three months ended June 30,
2000 resulting from investing the proceeds received from our IPO in short term
investments.
We have incurred net losses to date, therefore we have paid nominal income
taxes.
As a result of the factors noted above, our net loss increased from
$426,068 for the three months ended June 30, 1999 to $709,641 for the three
months ended June 30, 2000.
(c) Liquidity and Capital Resources
Prior to our IPO, which became effective on November 18, 1999, we financed
our operations primarily through several private placements of stock and debt
financings. We used the net proceeds of these financings for the primary purpose
of funding working capital and general corporate purposes and for the purchase
of hardware terminals. As a result of our IPO and the underwriters exercise of
their over allotment option, we received approximately $6,907,000 in net
proceeds after deducting underwriters commissions and offering expenses. We will
continue to use these proceeds to purchase hardware terminals for resale and for
working capital.
Cash used in operating activities for the six months ended June 30, 2000
of $1,786,902 was primarily attributable to the net loss of $1,372,644, an
increase in deposits on hardware purchases of $172,100 and a decrease in
accounts payable and accrued expenses of $220,415. Cash used in operating
activities for the six months ended June 30, 1999 of $663,785 resulted primarily
from the net loss of $775,605, deposits on hardware purchases of $198,505 which
was partially offset by an increase in accounts payable and accrued expenses of
$324,894. This increase in accounts payable and accrued expenses was
attributable to our diminished working capital. Cash used in investing
activities was $30,940 for the six months ended June 30, 2000 and $36,230 for
the six months ended June 30, 1999. Net cash used in investing activities for
both periods consisted primarily of capital expenditures for computer equipment
and furniture and fixtures. Cash provided by financing activities was $73,922
for the six months ended June 30, 2000 and was primarily related to the exercise
of outstanding warrants. Cash provided by financing activities was $715,195 for
the six months ended June 30, 1999 and was primarily related to the private
sales of common stock.
Because of our limited cash resources before our IPO, our senior officers
deferred the receipt of their compensation, in whole or in part, prior to June
1, 1999. This obligation was eliminated through the issuance of stock, warrants
and stock options in the second quarter of 1999. There is no deferred
compensation currently outstanding. As of June 30, 2000, there were warrants
outstanding to purchase 1,653,600 shares of our common stock at an exercise
price of $3.00, except for 100,000 of underwriters' warrants that carry an
exercise price of $8.40. If certain conditions occur, we have the right to
redeem the outstanding warrants on not less than 20 days written notice for
$0.01 per warrant. 15,000 of these warrants were exercised during July 2000 and
904,000 of these warrants expire at various times until December 31, 2000.
859,000 of these warrants originally were due to expire at June 30, 2000 but the
expiration date was extended by the Company to December 31, 2000. The balance of
the warrants expire on various dates up to November 2004. As of May 10, 2000,
except for the Underwriters' warrants, the conditions for redeeming the warrants
have been met and we may elect to redeem the warrants before their expiration.
However, there is no guarantee that the conditions for redemption will be
satisfied in the future.
We currently anticipate that our available cash resources from the IPO and
expected revenues combined with either the exercise of the expiring warrants by
our warrant holders before expiration or the exercise of the warrants
7
<PAGE>
by our warrant holders should we elect to redeem them, will be sufficient to
meet our anticipated working capital and capital expenditure requirements for at
least the next twelve months. These requirements are expected to include the
purchase of 7,000 terminals to run our patented software, product development,
sales and marketing, working capital requirements and other general corporate
purposes. We may need to raise additional funds, however, to respond to business
contingencies which may include the need to fund more rapid expansion, fund
additional marketing expenditures, develop new markets for our ID-Check
technology, enhance our operating infrastructure, respond to competitive
pressures, or acquire complementary businesses or necessary technologies.
(d) Net Operating Loss Carry forwards
As of June 30, 2000, we had a net operating loss carry forward of
approximately $4,600,000, which expires beginning in the year 2013. The issuance
of equity securities in the future, together with our recent financings and our
IPO, could result in an ownership change and, thus could limit our use of our
prior net operating losses. If we achieve profitable operations, any significant
limitation on the utilization of our net operating losses would have the effect
of increasing our tax liability and reducing net income and available cash
reserves. We are unable to determine the availability of these net-operating
losses since this availability is dependent upon profitable operations, which we
have not achieved in prior periods.
Part II Other Information
Item 6. Exhibits and Reports on Form 8
None
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.
Date - August 14, 2000
Intelli-Check, Inc.
(Registrant)
By: /s/ Frank Mandelbaum
-----------------------------
Frank Mandelbaum
Chairman/CEO
By: /s/ Edwin Winiarz
-----------------------------
Edwin Winiarz
Executive Vice President/CFO
8
