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 September 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.)
246 Crossways Park West, Woodbury, New York 11797
(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 September 30, 2000
----- ---------------------------------
Common Stock, $.001 par value 6,680,152
<PAGE>
Intelli-Check, Inc.
Index
Part I Financial Information Page
----
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 1
Statements of Operations for the three and
nine month periods ended September 30, 2000
(Unaudited) and September 30, 1999 (Unaudited) 2
Statements of Cash Flows for the nine months ended
September 30, 2000 (Unaudited) and September 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-K 8
Signatures 8
<PAGE>
Intelli-Check, Inc.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,159,867 $ 6,380,548
Accounts receivable 67,589 14,320
Inventory 1,898,885 186,609
Deposit 647,500 245,800
Other current assets 112,394 54,313
------------ ------------
Total current assets 5,886,235 6,881,590
PROPERTY AND EQUIPMENT, net 262,409 244,289
PATENT COSTS 68,979 73,636
OTHER ASSETS -- 8,766
------------ ------------
Total assets $ 6,217,623 $ 7,208,281
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 193,671 $ 430,982
Accrued expenses 1,232,511 376,979
Current portion of capital lease obligations 33,348 35,430
------------ ------------
Total current liabilities 1,459,530 843,391
------------ ------------
CAPITAL LEASE OBLIGATIONS 14,338 39,843
------------ ------------
DEFERRED REVENUE 18,121 --
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock-$.001 par value; 20,000,000 shares
authorized; 6,680,152 shares issued and outstanding 6,680 6,515
Additional paid-in capital 10,610,981 10,121,771
Accumulated deficit (5,892,027) (3,803,239)
------------ ------------
Total stockholders' equity 4,725,634 6,325,047
------------ ------------
Total liabilities and stockholders' equity $ 6,217,623 $ 7,208,281
============ ============
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
Intelli-Check, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 109,676 $ 106 $ 156,996 $ 327
COST OF GOODS SOLD 63,452 -- 86,967 55
----------- ----------- ----------- -----------
Gross profit 46,224 106 70,029 272
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 158,176 73,611 379,941 171,908
General and administrative 403,231 268,310 1,222,414 814,239
Research and development 253,923 127,378 762,037 227,999
----------- ----------- ----------- -----------
Total operating expenses 815,330 469,299 2,364,392 1,214,146
----------- ----------- ----------- -----------
Loss from operations (769,106) (469,193) (2,294,363) (1,213,874)
OTHER INCOME (EXPENSES):
Interest income 55,645 -- 216,653 --
Interest expense (2,683) (4,660) (11,078) (35,584)
----------- ----------- ----------- -----------
Net loss $ (716,144) $ (473,853) $(2,088,788) $(1,249,458)
=========== =========== =========== ===========
PER SHARE INFORMATION:
Net loss per common share-
Basic and diluted $ (0.11) $ (0.09) $ (0.32) $ (0.26)
=========== =========== =========== ===========
Common shares used
in computing per share amounts-
Basic and diluted 6,635,560 5,233,109 6,563,172 4,841,483
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
Intelli-Check, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,088,788) $(1,249,458)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 62,693 74,752
Changes in assets and liabilities-
(Increase) in accounts receivable (53,269) --
(Increase) Decrease in inventory (1,712,276) 99
(Increase) in deposits (401,700) (423,905)
(Increase) in other current assets (58,081) (10,326)
Decrease (Increase) in other assets 8,766 (148,320)
Increase in accounts payable and accrued expenses 618,221 503,370
Increase in deferred revenue 18,121 --
----------- -----------
Net cash used in operating activities (3,606,313) (1,253,088)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (76,156) (85,409)
----------- -----------
Net cash used in investing activities (76,156) (85,409)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 489,375 749,200
Repayment of capital lease obligation (27,587) (8,064)
Proceeds from promissory notes -- 1,200,000
----------- -----------
Net cash provided by financing activities 461,788 1,941,136
----------- -----------
Net (decrease) increase in cash (3,220,681) 602,639
CASH AND CASH EQUIVALENTS, beginning of period 6,380,548 159,600
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,159,867 $ 762,639
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 11,087 $ 1,660
=========== ===========
</TABLE>
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 {"SFAS"}
No. 128, "Earnings Per Share", common stock equivalents have been excluded from
the calculation as their inclusion would be antidilutive.
Note 3. Revenue Recognition
Revenue on sales of the Company's product is recognized upon shipment to the
customer. Revenue on sales of hardware and software warranty programs is
recognized ratably over the period the warranty program covers. As of September
30, 2000, deferred revenue represents sales of software warranty programs
covering a 3 year period beginning in 2001.
Note 4. 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 allowed the software to read the encoding on 51 jurisdictions as
opposed to 32 jurisdictions that could be read on the original scanner. The
Company received all of its product on these orders. During March 2000, the
company placed an additional order to purchase 5000 units and has recently begun
receiving product on this order.
Note 5. 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
December 15, 2000. Additionally, the lease provides for immaterial annual
increases. 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. The Company
has invested $250,000 in a restricted certificate of deposit collateralizing the
letter of credit.
Note 6. 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 51 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
September 30, 2000 we had an accumulated deficit of approximately $5,900,000. We
will continue to fund operating and capital expenditures from proceeds that the
company received from its initial public offering ("IPO") as well as the
exercising of warrants and stock options. 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 nine months ended September 30, 2000 to the nine months ended
September 30, 1999.
Sales increased from $327 for the nine months ended September 30, 1999 to
$156,996 recorded for the nine months ended September 30, 2000. Sales for the
period ended September 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 September 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, as well as sales
from the initial release of our enhanced product during the later part of the
third quarter of 2000.
5
<PAGE>
Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 95% from $1,214,146 for the
nine months ended September 30,1999 to $2,364,392 for the nine months ended
September 30, 2000. Selling expenses, which consist primarily of salaries and
related costs for marketing, increased substantially from $171,908 for the nine
months ended September 30, 1999 to $379,941 for the nine months ended September
30, 2000 primarily due to the hiring of both a vice president and a director of
national sales and their related travel expenses as well as increases in
advertising and marketing expenses resulting from the initial role out of our
advertising campaign. 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 $814,239 for the nine months ended September 30,
1999 to $1,222,414 for the nine months ended September 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 $227,999 for the
nine months ended September 30, 1999 to $762,037 for the nine months ended
September 30, 2000. This increase is primarily attributable to increases in
salaries and related expenses from hiring additional programmers and the
increase in fees paid to software consultants as we accelerated software
development. We believe that we will require additional significant investments
in development and operating infrastructure, including the hiring of additional
programmers and systems personnel. Therefore, we expect that expenses will
continue to increase for the foreseeable future as we increase expenditures for
advertising, brand promotion, 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 $35,584 for the nine months ended
September 30, 1999 to $11,078 for the nine months ended September 30, 2000 as a
result of lower interest expense from the settlement of deferred compensation
liability in 1999.
Interest income amounted to $216,653 for the nine months ended September
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
$1,249,458 for the nine months ended September 30, 1999 to $2,088,788 for the
nine months ended September 30, 2000.
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999.
Sales increased from $106 for the three months ended September 30, 1999 to
$109,676 recorded for the three months ended September 30, 2000. Sales for the
period ended September 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 September 30, 2000 included sales from the
initial release of our enhanced product during the later part of this period.
Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 74% from $469,299 for the three
months ended September 30,1999 to $815,330 for the three months ended September
30, 2000. Selling expenses, which consist primarily of salaries and related
costs for marketing, increased 115% from $73,611 for the three months ended
September 30, 1999 to $158,176 for the three months ended September 30, 2000
primarily due to the hiring of a vice president of sales and the initial role
out of our advertising campaign. 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 $268,310 for the three months ended September 30,
1999 to $403,231 for the three
6
<PAGE>
months ended September 30, 2000, primarily as a result 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 99% from $127,378 for the three
months ended September 30, 1999 to $253,923 for the three months ended September
30, 2000. This increase is primarily attributable to increases in salaries and
related expenses from hiring additional programmers and the increase in fees
paid to software consultants.
Interest expense decreased from $4,660 for the three months ended
September 30, 1999 to $2,683 for the three months ended September 30, 2000 as a
result of lower interest expense from the settlement of deferred compensation
liability in 1999.
Interest income amounted to $55,645 for the three months ended September
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
$473,853 for the three months ended September 30, 1999 to $716,144 for the three
months ended September 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 nine months ended September 30,
2000 of $3,606,313 was primarily attributable to the net loss of $2,088,788, an
increase in inventory of $1,712,276, an increase in deposits on hardware
purchases of $401,700 which was partially offset by an increase in accounts
payable and accrued expenses of $618,221. This increase in accounts payable and
accrued expenses resulted primarily from our increased inventory, which was
received at the end of the quarter. Cash used in operating activities for the
nine months ended September 30, 1999 of $1,253,088 resulted primarily from the
net loss of $1,249,458 and deposits on hardware purchases of $423,905 which was
partially offset by an increase in accounts payable and accrued expenses of
$503,370. This increase in accounts payable and accrued expenses was
attributable to our diminished working capital. Cash used in investing
activities was $76,156 for the nine months ended September 30, 2000 and $85,409
for the nine months ended September 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 $461,788 for the nine months ended September 30, 2000 and was
primarily related to the exercise of outstanding warrants and stock options.
Cash provided by financing activities was $1,941,136 for the nine months ended
September 30, 1999 and was primarily related to the private sales of common
stock and the issuance of promissory notes.
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
7
<PAGE>
outstanding. As of September 30, 2000, there were warrants outstanding to
purchase 1,588,600 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. 132,500
of these warrants were exercised during October 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 November 13, 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 from the sale of the units in inventory 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 the balance of the 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 September 30, 2000, we had a net operating loss carry forward of
approximately $5,300,000, 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-K
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 - November 13, 2000
Intelli-Check, Inc.
(Registrant)
By: __________________
Frank Mandelbaum
Chairman/CEO
By: __________________
Edwin Winiarz
Senior Executive Vice President/CFO
8
