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 March 31, 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 March 31, 2000
----- -----------------------------
Common Stock, $.001 par value 6,515,152
<PAGE>
Intelli-Check, Inc.
Index
Part I Financial Information Page
----
Item 1. Financial Statements
Balance Sheets - March 31, 2000 (Unaudited)
and December 31, 1999 1
Statements of Operations for the three months ended
March 31, 2000 (Unaudited) and March 31, 1999 (Unaudited) 2
Statements of Cash Flows for the three months ended
March 31, 2000 (Unaudited) and March 31, 1999 (Unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5-7
Part II Other Information
Item 6.
Exhibits and Reports on Form 8 7
Signatures 7
<PAGE>
Intelli-Check, Inc.
Balance Sheets
ASSETS
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,225,261 $ 6,380,548
Accounts receivable 12,381 14,320
Inventory 190,139 186,609
Deposit 402,300 245,800
Other current assets 67,738 54,313
------------ ------------
Total current assets 5,897,819 6,881,590
PROPERTY AND EQUIPMENT, net 251,997 244,289
PATENT COSTS 72,083 73,636
OTHER ASSETS 8,766 8,766
------------ ------------
Total assets $ 6,230,665 $ 7,208,281
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 98,332 $ 430,982
Accrued Expenses 403,780 376,979
Current portion of capital
lease obligations 34,733 35,430
------------ ------------
Total current liabilities 536,845 843,391
------------ ------------
CAPITAL LEASE OBLIGATIONS 31,776 39,843
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock-$.001 par value; 20,000,000
shares authorized; 6,515,152 shares
issued and outstanding 6,515 6,515
Additional paid-in capital 10,121,771 10,121,771
Accumulated Deficit (4,466,242) (3,803,239)
------------ ------------
Total stockholders' equity 5,662,044 6,325,047
------------ ------------
Total liabilities and stockholders'
equity $ 6,230,665 $ 7,208,281
============ ============
See accompanying notes to financial statements
1
<PAGE>
Intelli-Check, Inc.
Statements of Operations
(Unaudited)
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------ ------------------
SALES $ 30,218 $ 103
COST OF GOODS SOLD 15,171 33
----------- -----------
Gross profit 15,047 70
OPERATING EXPENSES:
Selling 110,605 18,990
General and administrative 465,689 243,227
Research and development 181,611 74,867
----------- -----------
Loss from operations (742,858) (337,014)
OTHER INCOME (EXPENSES):
Interest income 85,269
Interest expense (5,414) (12,523)
----------- -----------
(663,003) (349,537)
----------- -----------
Net loss $ (663,003) $ (349,537)
=========== ===========
PER SHARE INFORMATION:
Net loss per common share-
Basic and diluted $ (.10) $ (.08)
=========== ===========
Common shares used in computing per
share amounts-
Basic and diluted 6,515,152 4,460,723
=========== ===========
See accompanying notes to financial statements
2
<PAGE>
Intelli-Check, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (663,003) $ (372,698)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 20,255 10,924
Changes in assets and liabilities-
Decrease (Increase) in accounts
receivable 1,939 (3,441)
(Increase) Decrease in inventory (3,530) 33
(Increase) in deposit (156,500) --
(Increase) in other assets (13,425) --
(Decrease) Increase in accounts
payable and accrued expenses (305,849) 157,644
----------- -----------
Net cash used in operating
activities (1,120,113) (173,289)
----------- -----------
CASH FLOWS FROM INVESTING ACTITIVIES:
Purchases of property and equipment (26,410) (9,742)
----------- -----------
Net cash used in investing
activities (26,410) (9,742)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock -- 30,000
Repayment of capital lease obligation (8,764) (2,529)
----------- -----------
Net cash(used)provided by
financing activities (8,764) 27,471
----------- -----------
Net (decrease) in cash (1,155,287) (155,560)
CASH AND CASH EQUIVALENTS, beginning
of period 6,380,548 159,600
----------- -----------
CASH AND CASH EQUIVALENTS, end
of period $ 5,225,261 $ 4,040
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for
interest $ 5,414 $ 12,523
=========== ===========
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, statement 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.
During March 2000, the company placed an additional order to purchase 5000 units
subject to certain conditions.
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
March 31, 2000 we had an accumulated deficit of approximately $4,500,000. 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 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 three months ended March 31, 2000 to the three months
ended March 31, 1999.
Sales increased from $103 for the three months ended March 31, 1999 to
$30,218 recorded for the three months ended March 31, 2000. Sales for the period
ended March 31, 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 March 31, 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 125% from $337,084 for the
three months ended March 31,1999 to $757,905 for the three months ended March
31, 2000. Selling expenses, which consist primarily of salaries and related
costs for marketing, increased substantially from $18,990 for the three months
ended March 31, 1999 to $110,605 for the three months ended March 31, 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 91% from $243,227 for the three months ended
March 31, 1999 to $465,689 for the three months ended March 31, 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 143% from $74,867
for the three months ended March 31, 1999 to $181,611 for the three months ended
March 31, 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. 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.
5
<PAGE>
Interest expense decreased from $12,523 for the three months ended March
31, 1999 to $5,414 for the three months ended March 31, 2000 as a result of
lower interest expense from the settlement of deferred compensation liability in
1999.
Interest income amounted to $85,269 for the three months ended March 31,
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
$349,537 for the three months ended March 31, 1999 to $663,003 for the three
months ended March 31, 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
use these proceeds to purchase hardware terminals for resale and for working
capital.
Cash used in operating activities for the three months ended March 31,
2000 of $1,120,113 was primarily attributable to the net loss of $663,003,
deposits on hardware purchases of $156,500 and a decrease in accounts payable
and accrued expenses of $305,849. Cash used in operating activities for the
three months ended March 31, 1999 of $173,289 resulted primarily from the net
loss of $372,698 offset by an increase in accounts payable and accrued expenses
of $157,644. This increase in accounts payable and accrued expenses was
attributable to our diminished working capital. Cash used in investing
activities was $26,410 for the three months ended March 31, 2000 and $9,742 for
the three months ended March 31, 1999. Net cash used in investing activities for
both periods consisted primarily of capital expenditures for computer equipment
and furniture and fixtures. Cash used in financing activities was $8,764 for the
three months ended March 31, 2000 and was related to the repayment of capital
lease obligations. Cash provided by financing activities was $27,471 for the
three months ended March 31, 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 March 31, 2000, there were warrants
outstanding to purchase 1,671,000 shares of our common stock at an exercise
price of $3.00, except for the underwriter's 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. 17,500 of these warrants were exercised during April 2000 and 811,000
of these warrants expire on June 30, 2000. The balance of the warrants expires
on various dates up to November 2004. As of May 10, 2000, except for the
Underwriter's 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
combined with either the exercise of the expiring warrants by our warrant
holders before expiration or the exercise of the warrants 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.
6
<PAGE>
(d) Net Operating Loss Carry forwards
As of March 31, 2000, we had a net operating loss carry forward of
approximately $3,900,000, 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 he signed on its behalf by the
undersigned thereunto duly authorized.
Date - May 15, 2000
Intelli-Check, Inc.
(Registrant)
By: ____________________________
Frank Mandelbaum
Chairman/CEO
By: ____________________________
Edwin Winiarz
Executive Vice President/CFO
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's balance sheets and statements of operations and is qualified on its
entirety by references to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,225,261
<SECURITIES> 0
<RECEIVABLES> 12,381
<ALLOWANCES> 0
<INVENTORY> 190,139
<CURRENT-ASSETS> 5,897,819
<PP&E> 470,038
<DEPRECIATION> 218,041
<TOTAL-ASSETS> 6,230,665
<CURRENT-LIABILITIES> 536,845
<BONDS> 0
0
0
<COMMON> 6,515
<OTHER-SE> 5,655,529
<TOTAL-LIABILITY-AND-EQUITY> 6,230,665
<SALES> 30,218
<TOTAL-REVENUES> 30,218
<CGS> 15,171
<TOTAL-COSTS> 15,171
<OTHER-EXPENSES> 742,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,414
<INCOME-PRETAX> (663,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (663,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (663,003)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
