Filed Pursuant to Rule 424(B)(3)
Registration File No.: 333-104598
INTELLI-CHECK, INC.
SERIES A 8% CONVERTIBLE PREFERRED STOCK
WARRANTS
COMMON STOCK
This prospectus relates to the public resale, from time to time, of the
following securities, up to the amounts shown.
30,000 shares of Series A 8% Convertible Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock").
Warrants to purchase 113,636 shares of common stock, par value $.01 per
share (the "Warrants").
568,181 shares of common stock, par value $.01 per share, (the "Common
Stock") issuable upon conversion of the Series A Preferred Stock and upon
exercise of the Warrants.
On March 27, 2003, we entered into a securities purchase agreement with
the selling securityholder. The agreement provided for the sale of 30,000 shares
of Series A Preferred Stock and the issuance of 113,636 Warrants. If the selling
securityholder converts all of its Series A Preferred Stock and exercises all of
the Warrants, we will issue up to a total of 568,181 shares of Common Stock,
subject to any adjustments.
Dividends on the Series A Preferred Stock are cumulative and payable
semi-annually beginning September 30, 2003 at the rate of $8 per share per
annum. Each share of Series A Preferred Stock is convertible at the option of
the holder, at any time, into 15.15 shares of our Common Stock, subject to
adjustment if certain events occur. We may redeem any or all of the Series A
Preferred Stock at any time after one year from the issuance date at a cash
redemption price of $100 per share, provided that the volume weighted average
price regular way of our common stock for any 20 out of 30 consecutive trading
days equals or exceeds 200% of the conversion price then in effect. We are
required to redeem all outstanding Series A Preferred Stock five years from the
issuance date. The Warrants permit the holders to purchase shares of Common
Stock at a price equal to $6.78 per share, subject to adjustment if certain
events occur.
These securities may be offered and sold by the entity listed on page
14 of this prospectus under the section entitled "Selling Securityholder", or by
its transferees. We refer to such persons as the selling securityholder.
We are registering the offered securities as required under the terms
of a registration rights agreement between the selling securityholder and us. We
will not receive any proceeds from any sales of the offered securities by the
selling securityholder, but will incur expenses in connection with the offering.
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To the extent that any Warrants are exercised, we will receive an amount equal
to the number of shares of Common Stock purchased times the exercise price.
Neither our Series A Preferred Stock nor the Warrants are listed on any
securities exchange and there is no public market for these securities. The
Series A Preferred Stock have priority over our Common Stock in the payment of
dividends and in the event of liquidation. Holders of Series A Preferred Stock
are entitled to vote with the holders of our common stock as a single class on
all matters submitted to a vote of the Registrant on an "as converted" basis
subject to the applicable rules of the American Stock Exchange.
We will bear the expenses in connection with the offering, including
filing fees and our legal and accounting fees, estimated at $30,000.
Our common stock is quoted on the American Stock Exchange under the
symbol IDN. On June 23, 2003, the last reported sales price of the common stock
on the American Stock Exchange was $8.00.
INVESTING IN OUR COMMON STOCK, SERIES A PREFERRED STOCK AND WARRANTS
INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 24, 2003.
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TABLE OF CONTENTS
RISK FACTORS................................................................4
FORWARD-LOOKING STATEMENTS.................................................10
USE OF PROCEEDS............................................................11
PRICE RANGE OF COMMON STOCK................................................11
DIVIDEND POLICY............................................................12
ABOUT INTELLI-CHECK, INC...................................................12
SELLING SECURITYHOLDER.................................................... 14
PLAN OF DISTRIBUTION.......................................................15
DESCRIPTION OF SECURITIES..................................................17
LEGAL MATTERS..............................................................19
EXPERTS....................................................................19
WHERE YOU CAN FIND MORE INFORMATION ABOUT US...............................20
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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As used in this prospectus, the terms "we," "us," "our," and "Intelli-Check"
mean Intelli-Check, Inc., unless we specify otherwise. We are incorporated under
the laws of the state of Delaware. Our executive offices are located at 246
Crossways Park West, Woodbury, New York 11797 and our telephone number is (516)
992-1900.
RISK FACTORS
You should carefully consider the factors described below and other
information contained in this prospectus before making a decision to buy any
securities registered hereunder. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us, may also impair our business operations. If any of the following
risks actually occurs, our business, financial condition or results of
operations could be materially and adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment. This prospectus also contains forward-looking statements that
involve risks and uncertainties. Please refer to "Forward-Looking Statements" on
page 10.
FINANCIAL RISKS
WE HAVE INCURRED LOSSES SINCE INCEPTION AND LOSSES MAY CONTINUE, WHICH COULD
RESULT IN A DECLINE IN THE VALUE OF OUR SECURITIES AND A LOSS OF YOUR
INVESTMENT.
We sustained net losses of $5,550,234 for the fiscal year ended
December 31, 2002. We expect to incur additional expenditures in line with the
sales growth of our business. Consequently, if sales were to be below our sales
expectations, we would incur additional operating losses.
SHOULD WE BE UNABLE TO OBTAIN ADDITIONAL FINANCING IF NEEDED, WE WOULD BE
REQUIRED TO CURTAIL OUR MARKETING AND DEVELOPMENT PLANS AND POSSIBLY CEASE
OPERATIONS.
Our capital requirements have been and will continue to be significant.
We anticipate that our currently available cash including approximately
$2,800,000 we received from the net sale of our Series A Preferred Stock,
expected revenues and additional capital we expect to receive from the exercise
of in the money options will be sufficient to meet our anticipated working
capital and capital expenditure requirements of approximately $5,000,000, as
well as the potential payment of approximately $920,000 awarded to Early Bird
Capital through December 31, 2003. See "The finding against us in the Early Bird
lawsuit could have a material adverse effect on our ability to continue to fund
our operations". If we fail to attain significant sales or a positive cash flow,
or options are not exercised, we may be required to reduce certain costs or seek
additional equity or debt financing to fund the costs of our operations. We
cannot assure you that additional financing will be available to us when needed,
on commercially reasonable terms, or at all.
ISSUANCE OF EQUITY SECURITIES, SHOULD WE BE REQUIRED TO RAISE ADDITIONAL
CAPITAL, MAY BE ON TERMS THAT ARE DETRIMENTAL TO EXISTING SHAREHOLDERS.
Should we be required to raise additional working capital to meet our
capital requirements, we may continue to offer equity securities for sale, and
shareholders would then experience additional dilution. Any new equity
securities we issue may have rights, preferences or privileges senior to those
of existing holders of common stock. See "Future sales of a large number of
shares of our common stock may cause our stock price to decline."
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THE FINDING AGAINST US IN THE EARLY BIRD LAWSUIT COULD FORCE US TO RAISE
ADDITIONAL CAPITAL WHICH MAY NOT BE AVAILABLE ON SATISFACTORY TERMS AND COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO CONTINUE TO FUND OUR
OPERATIONS.
This lawsuit was brought as a demand for arbitration by Early Bird
Capital Inc. in January 2002, seeking monetary damages of $968,000 from an
alleged failure to issue warrants with registration rights pursuant to the terms
of a Financial Advisory and Investment Banking Agreement dated as of August 20,
2000. We had not issued the warrants because registration rights were not in the
agreement. The arbitration took place in December 2002 and January 2003.
$920,000 was awarded by the arbitrators to Early Bird Capital on April 10, 2003.
We are evaluating our options with respect to this award, however, payment of
the award would diminish the funds we have for working capital potentially
requiring us to raise additional capital, which may not be available on
satisfactory terms and could have a material adverse affect on our ability to
continue to fund our operations.
RISKS RELATED TO OUR BUSINESS
ANY DELAY IN THE SELECTION OF AND SECURING A SOURCE FOR THE NEW PLATFORM TO RUN
OUR PATENTED TECHNOLOGY BEFORE WE DEPLETE OUR INVENTORY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR ABILITY TO FULFILL ORDERS FOR OUR PRODUCTS.
Hand Held Products Inc., formerly known as Welch Allyn, Inc. (HHP),
supplies us with our hardware terminals, which run our patented software. HHP
has informed us that as of July 9, 2003, they will discontinue manufacturing
this model. We are in discussions with HHP and other manufacturers as to which
platform we will select as the replacement for our current model. Any delay in
securing a new source on satisfactory terms or within the time frame to meet our
sales goals could have a material adverse effect on our sales and marketing
plans. Additionally, since we do not have direct control over the manufacturing
process, the possibility of delays and inconsistencies in quality could result
in the failure to fulfill sales orders and the cancellation of potential orders,
which could damage our reputation and cause us to lose sales orders.
TECHNOLOGICAL OBSOLESCENCE DUE TO CHANGES IN HARDWARE TECHNOLOGY BEFORE WE SELL
OUR EXISTING INVENTORY COULD CAUSE US TO TAKE AN ADJUSTMENT AGAINST INVENTORY,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
Our inventory consists primarily of ID-Check terminals that run our
patented software. The inventory was originally received in December 1999.
Shortly thereafter, it was returned to the manufacturer for upgrade and became
available for sale in the fourth quarter of 2000. We periodically evaluate the
current market value of our inventory, taking into account any technological
obsolescence that may occur due to changes in hardware technology and the
acceptance of the product in the marketplace. We believe that a sufficient
market exists to sell with margin the current inventory as well as the remaining
units required to be purchased from our manufacturer for which we have paid a
deposit of $600,000 for which we took a reserve during the fourth quarter of
2002. The current terminal, for which this deposit was paid, is fully capable of
running our patented software since it utilizes a state-of-the art
imager/scanner and magnetic stripe reader. Since our policy is to periodically
evaluate the market
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value of the inventory, should we determine in a future period that an
adjustment is necessary, we would record such adjustment at that time, which
could have a material effect on our results of operations.
IF GOVERNMENTAL AGENCIES WERE TO STOP SHARING DATA WITH US, OUR BUSINESS WOULD
BE DAMAGED.
Currently, a number of states and Canadian provinces which conform to
the guidelines established by standardization bodies cooperate with us by
providing sample driver licenses and identification cards so that we may program
the ID-Check terminal to read and analyze the encoded information found on the
driver licences and identification cards. We cannot assure you that these
jurisdictions will continue to cooperate with us.
FUTURE GOVERNMENT REGULATION RESTRICTING ACCESS TO INFORMATION ELECTRONICALLY
STORED ON DRIVER LICENSES COULD ADVERSELY AFFECT OUR BUSINESS.
Our products can be used to capture information from driver licenses.
Currently, only a small number of our customers are legally restricted from
using this information for their own use without customer consent. Because
issues of personal privacy are currently a major topic of public policy debate,
it is possible that in the future additional customers may be restricted from
capturing this information. In that event, we could anticipate an adverse effect
on our business.
THE REFOCUSING OF OUR MARKETING EFFORTS HAS EXPOSED US TO LONG SALES AND
IMPLEMENTATION CYCLES FOR OUR PRODUCTS.
Since we have refocused our marketing efforts for Intelli-Check's
ID-Check technology from the age verification market to the document
verification and access control markets which consist of large retailers and
government agencies, we have exposed ourselves to longer sales and
implementation cycles for our products. The sales cycle for these prospective
customers is lengthy requiring multiple meetings, presentations and a test
period, which continues to impact our sales. In addition, budgetary constraints
and the slowing of the economy may also continue to delay purchasing decisions
by prospective customers. As a result, the time between initial contact with a
potential customer and conclusion of a sale of these products typically
comprises a period of months and is subject to delays, many of which are beyond
our control. We cannot assure you that the refocusing of our marketing efforts
will produce sales that will be substantial enough to have a material impact on
our revenues or results of operations.
FAILURE TO MANAGE OUR OPERATIONS IF THEY EXPAND COULD IMPAIR OUR FUTURE GROWTH.
If we are able to expand our operations, particularly through multiple
sales to large retailers and government agencies, the expansion will place
significant strain on our management, financial controls, operating systems,
personnel and other resources. Our ability to manage future growth, should it
occur, will depend to a large extent upon several factors, including our ability
to do the following:
o build and train our sales force;
o establish and maintain relationships with distributors;
o develop customer support systems;
o develop expanded internal management and financial controls
adequate to keep pace with growth in personnel and sales, if
they occur; and
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o manage the use of third-party manufacturers and suppliers.
If we are able to grow our business but do not manage our growth
successfully, we may experience increased operating expenses, loss of customers,
distributors or suppliers and declining or slowed growth of revenues.
OUR ABILITY TO COMPETE MAY BE DAMAGED AND OUR REVENUES MAY BE REDUCED IF WE ARE
UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY.
Our success depends upon maintaining the confidentiality and
proprietary nature of our software and other intellectual property rights. To
protect these rights, we rely principally on a combination of:
o contractual arrangements providing for non-disclosure and
prohibitions on use;
o patents and pending patent applications;
o trade secret, copyright and trademark laws; and
o certain technical measures.
Patent, trade secret, copyright and trademark laws provide limited
protection. Because patent applications in the United States are not publicly
disclosed until the relevant patent is issued, applications may have been filed,
which, if issued as patents, could relate to our services and products as
currently designed or as we may modify them in the future to meet the market's
requirements. Trade secret, copyright and trademark laws, in combination with
the steps we take to protect our proprietary rights, may not adequately prevent
misappropriation of those rights. We may be required to bring proceedings in the
United States Patent and Trademark office or other legal action to enforce our
patents, trademarks or copyrights. We may find it necessary to litigate to
protect our trade secrets and know-how. Any legal actions would be costly,
timing consuming, and would divert the attention of management and technical
personnel.
The protections provided by laws protecting intellectual property
rights do not prevent our competitors from developing, independently, products
similar or superior to our products and technologies. In addition, effective
protection of copyrights, trade secrets, trademarks, and other proprietary
rights may be unavailable or limited in certain foreign countries.
Our inability or failure to protect our proprietary technology could
damage our ability to compete, reduce our revenues and damage our prospects for
achieving growth and profitability.
IF OUR FUTURE PRODUCTS INCORPORATE TECHNOLOGY THAT INFRINGES THE PROPRIETARY
RIGHTS OF THIRD PARTIES AND WE DO NOT SECURE LICENSES FROM THEM, WE COULD BE
LIABLE FOR SUBSTANTIAL DAMAGES THAT WOULD CAUSE A MATERIAL REDUCTION IN REVENUES
AND IMPAIR OUR PROSPECTS FOR ACHIEVING GROWTH AND PROFITABILITY.
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We are not aware of our current products infringing on the proprietary
rights of third parties. However, in furtherance of the development of our
services or products, we may need to acquire licenses for intellectual property
to avoid infringement of third party rights or claims of infringement. These
licenses may not be available on commercially reasonable terms, if at all.
Claims for infringement if made, could damage our business prospects, our
results of operations and financial condition, whether or not the claims have
merit, by:
o consuming substantial time and financial resources required to
defend against them;
o diverting the attention of management from growing our
business and managing operations;
o resulting in costly litigation; and
o disrupting product sales and shipments.
If any third party prevails in an action against us for infringement of
its proprietary rights, we could be required to pay damages and either enter
into costly licensing arrangements or redesign our products so as to exclude the
infringing technology. As a result, we would incur substantial costs, delays in
product development, sales and shipments, our revenues may decline substantially
and we may not be able to achieve the growth required for us to achieve
profitability.
FAILURE TO ATTRACT AND RETAIN MANAGEMENT AND OTHER PERSONNEL MAY DAMAGE OUR
OPERATIONS AND FINANCIAL RESULTS AND CAUSE OUR STOCK PRICE TO DECLINE.
We depend to a significant degree on the skills, experience and efforts
of our executive officers and other key management, technical, finance, sales
and other personnel. Our failure to attract, integrate, motivate and retain
existing or additional personnel could disrupt or otherwise harm our operations
and financial results. Although we have employment agreements with each of Frank
Mandelbaum, our Chairman and Chief Executive Officer, Edwin Winiarz, our Senior
Vice President - Treasurer and Chief Financial Officer and W. Robert Holloway,
our Senior Executive Vice President - Sales, securing their employment for
varying terms, we do not carry key man life insurance policies covering any
employees. The loss of services of certain of our key employees, an inability to
attract or retain qualified personnel in the future, or delays in hiring
additional personnel could delay the development of our business and have a
negative impact on our operating results and financial condition.
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RISKS RELATED TO THE OFFERING
CONTINUED VOLATILITY IN OUR STOCK PRICE COULD ADVERSELY AFFECT YOUR INVESTMENT.
The market price of our common stock, like the price of shares of
technology companies generally, has been and may continue to be volatile. From
January 1, 2002 to March 31, 2003, the closing bid price of our common stock has
varied from a high of $19.45 to a low of $2.10 per share, as reported on the
American Stock Exchange. If our future operating results are below the
expectations of stock market analysts and investors, our stock price may
decline. Public announcement of our financial results and business developments
may have a significant impact on the market price of our common stock. For
example, each of the following could have the effect of temporarily or
permanently driving down the market price of our common stock:
o shortfalls in revenues or cash flows from operations;
o conversions of preferred stock into common stock;
o delays in development or roll-out of any of our product; and
o announcements by one or more competitors of new product
introductions, acquisitions or technological innovations.
In addition, the stock market experiences extreme fluctuations in price and
volume that particularly affect the market prices of shares of emerging
technology companies, such as ours. These price and volume fluctuations are
often unrelated or disproportionate to the operating performance of the affected
companies. Because of this volatility, we may fail to meet the expectations of
our shareholders or of securities analysts, and our stock price could decline as
a result. Declines in our stock price for any reason, as well as broad-based
market fluctuations or fluctuations related to our financial results or other
developments, may adversely affect your ability to sell your shares at a price
equal to or above the price at which you purchased them. Decreases in the price
of our common stock may also lead to de-listing of our common stock.
FUTURE SALES OF A LARGE NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE OUR STOCK
PRICE TO DECLINE.
At March 31, 2003, 8,875,302 shares of our common stock were issued and
outstanding. Assuming conversion of all of the shares of Series A Preferred
Stock and exercise of all the Warrants there would be 9,443,483 shares issued
and outstanding as of the effective date of this prospectus. Of these shares,
7,522,702 shares are presently eligible for resale without restriction, and
568,181 shares being registered for resale under this prospectus will be
transferable without restriction under the Securities Act of 1933 after the
effective date of this prospectus. Another 1,352,600 shares are eligible for
resale subject to the restrictions on volume, manner of sale and other
conditions of Rule 144 promulgated under the Securities Act. Sales of large
amounts of these shares in the public market could depress the market price of
our common stock and impair our ability to raise capital through offerings of
our equity securities. Resale of shares of common stock that may be received by
holders of outstanding warrants or convertible preferred stock may also dilute
substantially the net tangible book value of shares of common stock, which would
further impair its liquidity.
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WE WILL NOT RECEIVE ANY PROCEEDS OF THE OFFERING OF SECURITIES COVERED BY THIS
PROSPECTUS FROM WHICH TO RECOUP THE EXPENSES WE INCURRED.
Intelli-Check will not receive any proceeds from the offering of
securities covered by this prospectus. We have incurred expenses of
approximately $30,000.00 in connection with the offering, including expenses of
preparation of this prospectus and the related registration statement and fees
payable to the SEC, which we cannot recoup from offering proceeds. See "Use of
Proceeds."
THERE IS NO MARKET FOR OUR SERIES A PREFERRED STOCK OR THE WARRANTS AND HOLDERS
OF THESE SECURITIES MAY HAVE DIFFICULTY SELLING THEM IN THE FUTURE.
There has been no market for either our Series A Preferred Stock or the
Warrants and we cannot assure you that a market will develop and that if such a
market develops, there will be sufficient liquidity to permit purchases of these
securities in this offering to sell them in the future at or near the offering
price.
THE ABSENCE OF ARTHUR ANDERSEN'S CONSENT TO THE USE OF ITS OPINION MAY LIMIT THE
REMEDIES AVAILABLE TO PURCHASERS OF SECURITIES PURSUANT TO THIS PROSPECTUS.
Our inability to obtain Arthur Andersen's consent to the use of its
opinion for our financial statements for the 2001 year and the absence of a
signed opinion may limit the remedies available to you since your claims against
Arthur Andersen LLP under the Securities Act of 1933, as amended, (the
"Securities Act") based on these financial statements may be limited. Moreover,
even if claims against Arthur Andersen LLP are permitted, Arthur Andersen LLP
may not have the financial resources to satisfy any judgment. In addition,
notwithstanding that we have not filed the written consent of Arthur Andersen,
LLP, our directors and officers may still be able to establish a due diligence
defense to any claim relating to those financial statements on the basis that
they were made on the authority of our expert which could limit your ability to
asset a claim against them.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have filed with the Securities and
Exchange Commission (SEC) which we have referenced under "Where You Can Find
More Information About Us" on page 19 contain forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements represent our judgment regarding
future events. Although we would not make forward-looking statements unless we
believe we have a reasonable basis for doing so, we cannot guarantee their
accuracy and actual results may differ materially from those we anticipated due
to a number of uncertainties, many of which we are not aware. We urge you to
consider the risks and uncertainties discussed under "Risk Factors" and
elsewhere in this prospectus and in the other documents filed with the SEC in
evaluating our forward-looking statements. We have no plans to update our
forward-looking statements to reflect events or circumstances after the date of
this prospectus. We generally identify forward-looking statements with the words
"believe", "intend," "plan," "expect," "anticipate," "estimate," "will,"
"should" and similar expressions.
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USE OF PROCEEDS
We will not receive any of the proceeds of this offering. To the extent
that the Warrants are exercised, we will receive an amount equal to the number
of shares of common stock purchased times the exercise price. We cannot predict
when or how much we will receive from the exercise, if any, of the Warrants.
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the American Stock Exchange under
the symbol "IDN." since November 1999. The following table sets forth, for the
calendar periods indicated, the high and low closing sales prices of our common
stock as reported by the American Stock Exchange.
LOW HIGH
--- ----
2001
----
First Quarter $3.70 $11.625
Second Quarter $4.50 $10.60
Third Quarter $7.40 $14.75
Fourth Quarter $10.20 $19.45
2002
----
First Quarter $11.30 $18.19
Second Quarter $4.85 $15.75
Third Quarter $2.10 $5.90
Fourth Quarter $2.90 $9.87
2003
----
January $6.35 $8.44
February $5.80 $7.66
March $6.01 $7.70
April $6.15 $8.12
As of June 6, 2003, there were approximately 64 holders of record of
the Common Stock which does not include individual participants in security
position listings. On June 23, 2003, the closing sales price of our common stock
was $8.00 per share.
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THERE IS NO MARKET FOR THE SERIES A PREFERRED STOCK OR THE WARRANTS.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our Common Stock
and do not presently intend to do so. Future dividend policy will be determined
by our Board of Directors on the basis of our earnings, capital requirements,
financial condition and other factors deemed relevant.
Dividends on the Series A Preferred Stock are cumulative and payable
semi-annually beginning September 30, 2003 at the rate of $8.00 per share per
annum.
ABOUT INTELLI-CHECK, INC.
OVERVIEW
Our company was formed to develop, manufacture and market an advanced
document verification system to enable a user to detect altered, tampered or
fake IDs to:
(i) reduce check cashing, credit card and other types of fraud such as
identity theft, the fastest growing crime in America, which principally
utilizes fake driver licenses as proof of identity;
(ii) increase security and deter terrorism at airports, shipping ports,
rail and bus terminals, military installations, high profile buildings
and other sites where security is a concern; and
(iii) determine the customer's age and validity of the ID to detect and
prevent the use of fraudulent identification for the purchase of
alcohol, tobacco and other age-restricted products and to reduce the
risk to the retailer of substantial monetary fines, criminal penalties
and license revocation for the sale of age-restricted products to
minors.
Our advanced document verification software, which we have licensed to
third parties and is contained in our ID-Check unit (terminal) reads in one
swipe or scan the encoded data contained on U.S. and Canadian driver licenses,
state issued identification cards and military IDs that comply with the
standards of the American Association of Motor Vehicle Administrators (AAMVA),
the American National Standards Institute (ANSI) and the International Standards
Organization (ISO).
Our terminal or licensed software helps merchants prevent economic loss
resulting from identity theft. The availability of high-tech fake ID's exposes
retailers to many forms of fraud utilizing fake ID's, which our unit has the
capability of helping to detect.
The terminal or the licensed software are effective tools to enhance
security and deter terrorism at airports and other sites where security is
increasing. The terminals have been installed in over a dozen major airports to
verify the identity of employees and prevent access to secure areas. One major
airport recently reordered terminals. Since the tragic events of September 11,
2001, there has been increased interest in our technology to control access and
to help deter the threat of terrorism.
Additionally, in an effort to combat the problems of underage drinking
and smoking, the federal government and many states and Canadian provinces have
enacted laws requiring businesses that sell
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age-restricted products to verify the ID of potential customers to determine
that they are of legal age to purchase these products. These laws impose
stringent penalties for violations. In addition, many states and local
governments have set up undercover "sting" operations to detect violations.
The product we have designed and developed, the IDC-1400 is based on
our patented ID-Check (TM) technology. ID-Check provides businesses with a
reliable, simple and cost-effective way to reduce economic loss supported by
fake or altered driver licenses and to verify age and reduce the risk of severe
penalties for non-compliance with laws pertaining to age restricted products.
Effective July 9, 2003, our manufacturer will discontinue manufacturing the
IDC-1400 terminal and has introduced a new model to replace the existing
IDC-1400. We are in discussions with our manufacturer as well as other
manufacturers to select a new platform to run our patented software.
On December 18, 2001, we acquired substantially all the assets of The
IDentiScan Company, LLC, a provider of age verification terminals. The
IDentiScan products are targeted to the age verification market and they have
broadened our product line to better penetrate that market. IDentiScan has been
selected to be the exclusive provider of age verification terminals to Sunoco,
Inc.
Our new product, IDN-DLL, is a software application designed to
supplement our existing products by replicating the features of ID-Check using a
customer's existing hardware (or with minimal additional hardware components)
included in Point-Of-Sale (POS) terminals for multi-lane retailers such as
grocery and mass-retail stores. Currently, we have five (5) license agreements
executed with third parties for integration and sub-licensing of this
application.
We believe the ID-Check solution is the most advanced, reliable and
effective technology, which provides users with an easy, reliable, and
cost-effective method of document and age verification. We have received
encoding formats from most jurisdictions that conform to AAMVA standards. This
information, combined with our patented technology, enables the ID-Check
software to read, decode and process the information electronically stored on
driver licenses. As jurisdictions and AAMVA change their documents and
guidelines, we believe our software, together with our programmable terminal,
can be adapted to these changes.
ID-Check terminals do not require a connection to a central database to
operate thus negating privacy concerns. Our terminals have the ability to
operate add-on peripherals such as printers, bar code scanners, fingerprint
readers and other devices. Additionally, our terminals can communicate with
personal computers, which could enhance the functionality of the terminals and
potentially create the opportunity for sales of other software products by us.
The ID-Check process is quick, simple and easy to use. After matching
the (driver license) photograph to the person presenting the document for
identification, the user simply swipes the driver license through the ID-Check
terminal if the card has a magnetic stripe or scans it if it has a bar code. The
terminal quickly determines if the document:
(i) is valid;
(ii) has been altered or tampered with;
(iii) has expired; and
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(iv) has a date of birth equal to or greater than the legal age to
purchase age restricted products, such as alcohol and tobacco,
in the retailer's location.
Then, the terminal will automatically:
(i) respond to the user by displaying the results in words on the
terminal's screen;
(ii) save information that is permissible by law to the terminal's
own memory;
(iii) print a record of the transaction including the results on a
roll of paper similar to that used in cash registers, if an
optional printer has been installed; and
(iv) send the results to a personal computer ("PC") which has
Microsoft Windows 95/98/ME/NT/2000/XP for permanent storage
when used in conjunction with our Q-Link or C-Link software,
which simplifies record keeping by downloading comprehensive
ID-Check due diligence data into a PC. This provides a merchant
with secure back-up files that include individual and
cumulative transaction records, where permitted by law.
Our initial marketing focus was targeted towards retailers of
age-restricted products such as alcohol and tobacco. Because of our technology'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, we have refocused our marketing efforts to
address the markets being affected by the cost to industry of "Identity Theft"
and the need for enhanced security. As a result of our ID-Check product having
the ability to verify the encoded formats of the documents described above, we
have already sold our ID-Check unit to some of the largest companies in the
gaming industry, a state Port Authority, military establishments, airports,
nuclear power plants, high profile buildings and have completed successful tests
of our technology in one of the largest mass merchandisers in the United States
and a large quasi-government department. We are currently in the test phase with
some major public companies. In addition, we have recently signed agreements
with some high profile organizations which will promote our technology, such as
Northrup Grumman, Mothers Against Drunk Driving (MADD) and the American
Association of Airport Executives (AAAE).
SELLING SECURITYHOLDER
The selling securityholder may resell the offered securities from time
to time as provided under the section entitled "Plan of Distribution" in this
prospectus or as described in a prospectus supplement. We are registering the
offered securities as required under the terms of a registration rights
agreement between us and the selling securityholder dated as of March 27, 2003.
We have agreed, among other things, to bear certain expenses in connection with
the registration and sale of the securities being offered by the selling
securityholder. See "Plan of Distribution".
The following table sets forth the ownership of the selling
securityholder, the number of shares of Series A Preferred Stock, Common Stock
and Warrants beneficially owned by the selling securityholder, and the number of
shares which may be offered for resale pursuant to this prospectus. The selling
securityholder has not had any position, office or other material relationship
with us or our
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predecessors or affiliates within the past three years. The information included
below is based upon information provided by the selling securityholder. Because
the selling securityholder may offer all, some or none of its shares, the "After
Offering" column of the table assumes the sale of all of its securities;
however, we do not know that this will actually occur.
The selling securityholder has obtained the shares of Series A
Preferred Stock and Common Stock underlying the Series A Preferred Stock, the
Warrants and the Common Stock underlying the Warrants covered in this prospectus
through private transactions. Gryphon Master Fund, L.P. is an accredited
investor which acquired 30,000 shares of our Series A Preferred Stock and
Warrants to purchase 113,636 shares of our Common Stock pursuant to a private
placement by us solely to Gryphon Master Fund, L.P. in March 2003 for an
aggregate purchase price of $3 million. The Series A Preferred Stock is
convertible into 454,545 shares of our common stock subject to adjustment if
certain events occur. The issuance of the Series A Preferred Stock and the
Warrants in the March 2003 private placement is deemed to be exempt from the
registration requirements of the Securities Act, pursuant to Section 4(2)
thereof, and was made, in each case, without general solicitation or
advertising. We agreed to register for resale the securities being offered by
this prospectus under the terms of the registration rights agreement executed in
connection with these transactions.
Gryphon Master Fund, L.P. is not a registered broker-dealer, is not an
affiliate of a registered broker-dealer and is the only selling securityholder
with sole voting and investment power over all of the securities set forth
below:
SECURITY NUMBER OF SECURITIES OWNED
-------- --------------------------
BEFORE OFFERING AFTER OFFERING
--------------- --------------
Series A 8% Convertible Preferred Stock 30,000 -0-
Common Stock underlying Series A
8% Convertible Preferred Stock 454,545 -0-
Warrants 113,636 -0-
Common Stock underlying Warrants 113,636 -0-
The natural persons who have voting and investment control over the
securities being sold by Gryphon Master Fund L.P. are E.B. Lyon III and E.B.
Lyon IV.
PLAN OF DISTRIBUTION
Our shares of common stock are traded on the American Stock Exchange
under the symbol IDN. We are registering the Warrants and the shares of Series A
Preferred Stock and the Common Stock on behalf of the selling securityholder.
The Warrants and the shares of Series A Preferred Stock and the Common Stock may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected at various times in one or more of the following
transactions, or in other kinds of transactions:
o transactions on the American Stock Exchange or on any national
securities exchange or U.S. inter-dealer system of a registered
national securities association on which the Warrants and the Series A
Preferred Stock and the Common Stock may be listed or quoted at the
time of sale;
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o in the over-the-counter market;
o in private transactions and transactions otherwise than on these
exchanges or systems or in the over-the-counter market;
o in connection with short sales of the shares;
o by pledge to secure or in payment of debt and other obligations;
o through the writing of options, whether the options are listed on an
options exchange or otherwise;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options; or
o through a combination of any of the above transactions.
The selling securityholder and its successors, including its
transferees, pledgees or donees or their successors, may sell the Warrants,
Series A Preferred Stock and the Common Stock directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling securityholder or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The selling securityholder as of the date of this prospectus has a
short position of 244,800 shares of our common stock and a derivative contract
with a counterparty that effectively causes the selling securityholder to be
short an additional 65,000 shares. The selling securityholder has represented to
us that it does not intend to, and will not, cover the short position with the
shares being registered and sold pursuant to this prospectus.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
We entered into a registration rights agreement for the benefit of the
selling securityholder to register the Warrants and our Series A Preferred Stock
and the Common Stock under applicable federal and state securities laws. The
registration rights agreement provides for cross-indemnification of the selling
securityholder and us and our respective directors, officers and controlling
persons against specific liabilities in connection with the offer and sale of
the Warrants, Series A Preferred Stock and the Common Stock, including
liabilities under the Securities Act. We will pay substantially all of the
expenses incurred by the selling securityholder incident to the offering and
sale of the Warrants, Series A Preferred Stock and the Common Stock.
We have advised the selling securityholder that during the time it may
be engaged in a distribution of the securities offered by this prospectus, it is
required to comply with Regulation M promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). With certain exceptions,
Regulation M precludes any selling securityholder, any affiliated purchasers and
any broker-dealer or other person who participates in the distribution from
bidding for or purchasing, or
16
attempting to induce any person to bid for or purchase, any security which is
the subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with an at the market offering such as this
offering. All of the foregoing may affect the marketability of the securities.
DESCRIPTION OF OUR SECURITIES
CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common
stock, par value $.001 per share and 1,000,000 shares of Preferred Stock, par
value $.01 per share.
COMMON STOCK
General. We have 20,000,000 authorized shares of common stock. All of
our shares of common stock outstanding will be validly issued, fully paid and
non-assessable.
Voting Rights. Each share of common stock entitles its holder to one
vote, either in person or by proxy, at meetings of stockholders. Our board of
directors consists of three classes each of which serves for a term of three
years. At each annual meeting of the stockholders, the directors in only one
class will be elected. The holders are not permitted to vote their shares
cumulatively. Accordingly, the holders of more than fifty percent (50%) of the
issued and outstanding shares of common stock can elect all of our directors.
Dividend Policy. All shares of common stock are entitled to participate
ratably in dividends when and as declared by our board of directors out of the
funds legally available for payment of dividends. Any dividends may be paid in
cash, property or additional shares of common stock. We presently expect that
any earnings will be used to develop our business and that no cash dividends on
the shares of common stock will be declared in the foreseeable future. Payment
of future cash dividends will be subject to the discretion of our board of
directors, therefore, cash dividends on our common stock may not be paid in the
future.
Miscellaneous Rights and Provisions. Holders of common stock do not
have:
o preemptive or other subscription rights;
o conversion rights;
o redemption; or
o sinking fund provisions.
In the event of our liquidation or dissolution, whether voluntary or
involuntary, each share of common stock is entitled to share ratably in any
assets available for distribution to our holders of common stock after
satisfaction of all liabilities, including payments to holders of our preferred
stock.
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PREFERRED STOCK
Of the 1,000,000 shares of Preferred Stock, 30,000 shares are
designated as Series A 8% Convertible Preferred Stock, par value $.01 per share.
Series A 8% Convertible Preferred Stock
(i) Face Amount: The face amount per share of the Series A Preferred
Stock is $100.00.
(ii) Dividends: Dividends on the Series A 8% Convertible Preferred
Stock are payable in cash semi-annually beginning on September 30, 2003 until
converted or redeemed at the rate of $8.00 per share per year. Dividends on the
Series A Preferred Stock will be paid in preference to any dividends paid to the
holders of our common stock or any other series of our preferred stock made
junior to the Series A Preferred Stock of any amounts paid such holders on the
redemption, repurchase or retirement of any such other stock.
(iii) Liquidation: (a) Upon any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall be entitled, before any distributions
shall be made to the holders of the Common Stock, or any other class of our
capital stock ranking junior to the Series A Convertible Preferred Stock, to be
paid an amount (the "Series A Liquidation Amount") equal to $100 per share plus
the amount of any accrued and unpaid dividends to the payment date. Written
notice of such liquidation, dissolution or winding up, stating a payment date,
the Series A Liquidation Amount and the place where said sums shall be payable
shall be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to the holders of record of the Series A
Convertible Preferred Stock, such notice to be addressed to each shareholder at
his post office address as shown by our records.
(iv) Conversion Rights: Each share of the Series A Preferred Stock will
be convertible at the time of the holders' option into shares of our common
stock at a conversion price of $6.60 per share, subject to anti-dilution
adjustments.
(v) Voting Rights: Holders of Series A Preferred Stock will have voting
rights on an as if converted basis and will vote as a single class with holders
of our common stock with each share of Preferred Stock having 15.15 votes per
share. Fractional votes will not be permitted. Any fractional voting rights
resulting after aggregating all shares shall be rounded to the nearest whole
number (with one-half being rounded upward).
(vi) Sale of Shares at Prices below the Initial Conversion Price: If at
any time or from time to time, subsequent to the issuance date we issue or sell,
or are deemed to have issued or sold shares of our capital stock for
consideration of a price of less than $6.60 per share, the Conversion Price
shall be adjusted.
For purposes of this paragraph, sales or issuances of our capital stock
shall not include any common stock issued or to be issued (i) pursuant to the
exercise of any stock options or warrants outstanding as of March 27, 2003 or
options or warrants issued after the date hereof having an exercise price equal
to or greater than our current market price, as defined, or (ii) pursuant to any
compensation or
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incentive plan for officers, directors, employees or consultants of our Company
which has been approved by our compensation committee.
(vii) Redemption: We are required to redeem all Series A Preferred
Stock outstanding on March 27, 2008 and we have the option to redeem all or any
portion thereof after March 27, 2004 if the volume weighted average price
regular way per share of our common stock is at least 200% of the then current
conversion price for any 20 out of 30 consecutive trading days after March 27,
2004 and the shares of common stock issuable upon conversion can be sold without
restriction on resale under U.S. securities laws. The redemption price is $100
per Preferred Share.
Warrants
We have issued to the holder of the Series A Preferred Stock a warrant
to purchase 113,636 shares of our common stock, exercisable at any time until
March 27, 2008 at an exercise price of $6.78. If at any time or from time to
time, subsequent to the issuance date we issue or sell, or are deemed to have
issued rights, warrants, options or convertible or exchangeable securities at a
price per share less than $6.78, the exercise price shall be adjusted.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed
upon for us by the law firm of Beckman, Lieberman & Barandes, LLP, in Jericho,
New York.
EXPERTS
The financial statements of Intelli-Check, Inc. at December 31, 2002 and for the
year then ended, incorporated by reference herein and in the Registration
Statement have been audited by Grant Thornton LLP, independent auditors, and at
December 31, 2001 and December 31, 2000 and for the years then ended, by Arthur
Andersen LLP, independent auditors, as indicated in their reports thereon. These
financial statements are incorporated by reference herein and in the
Registration Statement, and are included in reliance upon such reports given on
the authority of such firms as experts in accounting and auditing. After
reasonable efforts, we have been unable to obtain the consent of Arthur Andersen
LLP ("Andersen") to the incorporation by reference in the Registration Statement
of which this prospectus is a part of Andersen's reports of its audits of our
financial statements at December 31, 2001 and for the two years in the period
ended December 31, 2001. Under these circumstances, under Rule 437(a) under the
Securities Act of 1933 (the "Act") we may file the Registration Statement
without Andersen's consent. In the absence of Andersen's consent, persons
acquiring shares of the Company's common stock pursuant to this prospectus will
be unable to assert a claim against Andersen under Section 11(a) of the Act in
the event of any untrue statement of material fact or any material omission in
the financial statements audited by Andersen or in its reports with respect
thereto.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information
19
on the operation of the Public Reference Rooms. Our SEC filings are also
available to the public on the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the securities to be sold in this offering. This
prospectus does not contain all of the information set forth in the registration
statement. We have omitted certain parts of the registration statement in
accordance with the rules and regulations of the SEC. For further information
about us and the securities, you should refer to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, you should
refer to the copy of such contract or document filed as an exhibit to or
incorporated by reference in the registration statement. Each statement as to
the contents of such contract or document is qualified in all respects by such
reference. You may obtain a copy of the registration statement, or any of our
other filings with the SEC, from the SEC's principal office in Washington, D.C.
upon payment of the fees prescribed by the SEC.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934. The documents we are incorporating by reference are:
o Our amended annual reports on Form 10K/A filed May 27, 2003,
and June 17, 2003 for the fiscal year ended December 31, 2002.
o Our annual report on Form 10-K for our fiscal year ended
December 31, 2002;
o Our reports on Form 8-K dated June 12, 2002 and October 4,
2002;
o The description of our securities contained in our
registration statement on Form SB-2, File No. 333-87797, dated
November 21, 1999;
o The description of the rights distributed to our shareholders
in October 2001 contained in our registration statement on
Form S-3, File No. 333-59595, dated October 5, 2001; and
o The descriptions of our Series A 8% Convertible Preferred
Stock and the Warrants issued therewith contained in our
current report on Form 8-K dated April 8, 2003.
You may request a copy of these filings at no cost, by writing or
telephoning our secretary at the following address:
Intelli-Check, Inc.
246 Crossways Park West
Woodbury, New York 11797
(516) 992-1900
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