FORM 10 - KSB
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

                                       OR

   [ ] TRANSITION REPORT PURSUANT TO 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: (516) 992-1900

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

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
                                ---                     ---

Check if disclosure of delinquent  filers pursuant to item 405 of Regulation S-B
is not  contained  herein,  and  will  not be  contained,  to  the  best  of the
Registrant's   knowledge  in   definitive   proxy  or   information   statements
incorporated  by reference  in Part III of this form 10-KSB or any  amendment to
this Form 10-KSB.

State the aggregate market value of the voting stock held by  non-affiliates  of
the Issuer:  $33,393,614(based  upon the closing price of Issuer's Common Stock,
$.001 par value, as of March 23, 2001).

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

Common Stock, $.001 Par Value                        7,827,923
(Title of Class)                            (No. of Shares Outstanding
                                                at March 23, 2001)

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE




                                  PART I

Item (a) Business

      (a) General  Development of Business.  We were originally  incorporated in
the state of New York in 1994. In August 1999, we reincorporated in Delaware.

      During the period from  September 1996 until  September  1999, we sold our
securities in private  placements exempt from registration  under the Securities
Act of 1933, as amended.

      In November 1999, we sold, in an initial public offering, 1,000,000 shares
of  common  stock at an  initial  offering  price of $7.50  per  share.  The net
proceeds that we received  from the public  offering  amounted to  approximately
$5,915,000.

      In December 1999, the underwriter of the initial public offering exercised
its  over-allotment  option to purchase  150,000 common shares from us for $7.50
per share. The net proceeds received by us amounted to approximately $992,000.

      In fiscal year 2000,  options to acquire 66,000 shares of common stock and
warrants to acquire  1,115,084 shares were exercised.  The net proceeds received
by us from these transactions was $3,426,374.

      Recent Developments

      In  fiscal  year  2001,  we  declared  a  dividend   distribution  of  one
non-transferable  right to purchase  one share of our common  stock for every 10
outstanding  shares of common  stock  held of  record on March 30,  2001,  at an
exercise  price of $8.50.  The rights  will expire one year after the date of an
effective  registration  statement  relating  to  the  shares  of  common  stock
underlying the rights. If certain  conditions occur, we have the right to redeem
the outstanding rights for $.01 per right.

      (b) Business of Issuer

            (1) Principal Products

      Our  company  was formed to  develop,  manufacture  and market an advanced
document verification system to enable a retailer to:

      (i)   reduce  check  cashing,  credit  card and other types of fraud which
            principally utilize fake driver licenses as proof of identity;

      (ii)  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

      (iii) 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 terminal  helps  merchants  deter the  economic  loss  resulting  from
"identity  theft," the fastest  growing crime in America.  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 detecting.

      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  age-restricted  products to verify
the ID of potential customers to determine if they are of legal age to buy these
products. These laws impose stringent


                                     - 2 -


penalties for  violations.  In addition,  many states and local  governments are
setting up undercover "sting" operations to detect violations.

      The  product  we have  designed  and  developed  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 Driver licenses
and to verify  age and reduce the risk of severe  penalties  for  non-compliance
with laws pertaining to age restricted products.

      Driver license

      The driver license is the most widely used form of government issued photo
identification.   We  believe   the  driver   license  has  become  a  de  facto
identification card. In addition to its primary function,  the driver license is
used to verify  identity for social  services,  firearm  sales,  check  cashing,
credit card use and other applications.

      Non-driver identification card

      Although many people do not have a driver license, many jurisdictions that
use American  Association  of Motor  Vehicle  Administrators  (AAMVA)  compliant
driver  licenses  offer  other  identification  cards that may  contain  encoded
information.   These  identification  cards,  as  well  as  military  ID's,  are
fundamentally identical to driver licenses. Because driver licenses are the most
widely used form of legally acceptable government  documentation,  we will refer
to all these types of legally acceptable governmental  identification  documents
as "driver licenses". Our ID-Check software is equally capable of performing its
function with all of these types of government identification.

      The use of false identification

      The  high-tech  revolution  has created a major  problem for merchants and
others who rely on identification documents. In an age where scanners, computers
and color printers are commonplace,  fake ID's of the highest quality are easily
obtainable from a number of locations  including  college  campuses and over the
Internet.  These  fakes  appear  so real,  even law  enforcement  agencies  have
encountered  difficulty  distinguishing  them  from  legally  issued  documents.
Additionally,  these high-tech devices have the ability to easily alter properly
issued ID's.  Therefore,  anyone can gain access to a false  identity that gives
them the ability, in a commercial transaction, to present fake and stolen credit
cards or  checks  that are  supported  by  false  identification.  Additionally,
starting with only a fraudulent  driver  license,  an individual  may be able to
create multiple  identities,  commit fraud, buy age restricted  products such as
alcohol and tobacco while  underage,  evade law  enforcement and engage in other
criminal activities, such as:

      (i)    unlawfully obtaining welfare or other government benefits;

      (ii)   illegally purchasing firearms;

      (iii)  theft of a rented motor vehicle;

      (iv)   illegally entering gaming establishments;

      (v)    purchasing movie tickets for certain rated movies while underage;

      (vi)   illegally purchasing narcotic prescriptions; and

      (viii) refund fraud.

      Given the ease with which identification can be falsified,  simply looking
at a  driver  license  may not be  sufficient  to  verify  age or  identity  and
determine  whether or not it is fraudulent.  Rather,  what is needed is a system
which can accurately read the electronically  stored  information.  We possess a
patented  software  application  technology that provides an analysis of all the
data  contained on these  documents  by reading and  comparing  the  information
encoded on the tracks of the magnetic  stripe or bar code on the driver  license
against known standards.


                                     - 3 -


Exposure of Merchants to Fraud and the Need for Document Verification

      Merchants are facing  significant  economic losses due to various types of
frauds, such as:

      (i)   check fraud supported by fake Ids;

      (ii)  credit and debit card fraud supported by fake Ids;

      (iii) refund fraud;

      (iv)  pharmacy fraud, including false narcotic prescriptions, supported by
            fake Ids; and

      (v)   employee fraud, including employee theft and payroll theft.

Underage Use of Alcohol and Tobacco Products and the Need for Age Verification

      Overview

      Underage  access to  age-restricted  products,  like  alcohol and tobacco,
remains a major societal problem.

      (i)   according to Connecticut  Clearinghouse,  approximately 10.6 million
            or  51.2%  of  high  school  students  in the  United  States  drink
            alcoholic  beverages at least once weekly,  with 86%  purchasing the
            alcohol themselves;

      (ii)  the Office of Drug Control Policy  reported that  approximately  9.5
            million  drinkers of  alcoholic  beverages  in 1996 were between the
            ages of 12 and 20,  according  to the  U.S.  Department  of  Justice
            Office of Juvenile Justice and Delinquency Prevention;

      (iii) the Insurance  Institute for Highway  Safety has said that, in 1997,
            26% of 16-20 year-olds  fatally injured in motor vehicle crashes had
            high blood alcohol concentrations;

      (iv)  according to the Journal of Adolescent Health,  approximately  3,000
            minors begin smoking regularly every day;

      (v)   Join Together  Online's Fact Finder reports that underage youths can
            purchase  cigarettes  successfully  70%-80%  of the  time  over  the
            counter and 90%-100% of the time through vending machines; and

      (vi)  Join Together also reports that each year  merchants  illegally sell
            minors 947 million packs of cigarettes and 26 million  containers of
            chewing tobacco worth $1.26 billion.

To combat  this  problem,  most  states  have  enacted  laws which  provide  for
substantial penalties for businesses that sell tobacco and alcohol to minors.

      Regulation of retailers of tobacco products

      New federal  regulations  have been enacted that place a greater burden on
retailers to prevent the sale of tobacco products to minors. Clerks are required
to check the photo ID of anyone trying to purchase  tobacco products who appears
to be under the age of 27.


                                     - 4 -


      Regulation of retailers of alcoholic beverages

      The retailer of alcoholic  products who sells to an underage  person could
face  potential  fines,  suspension  of its license and the  potential  outright
revocation of its license to sell alcoholic beverages.

      As a result  of law  enforcement  efforts  and  regulatory  penalties,  we
believe retailers that sell alcohol and tobacco, such as liquor stores, bars and
convenience  stores, are facing increasing pressure to accurately verify the age
of their customers.

      ID-Check Solution and Benefits

      We believe  the  ID-Check  solution  is the most  advanced,  reliable  and
effective  technology,  which provides  retailers with an easy to use, 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 data base to
operate.  Our terminals have the ability to operate add-on  peripherals  such as
printers, bar code scanners 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 clerk or employee  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

      (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 which has Microsoft Windows
            95/98/NT ("PC") 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.


                                     - 5 -


            (2) Marketing and Distribution

      Our objective has been to become the leading  developer and distributor of
document and age  verification  products.  To date,  we have begun our marketing
efforts through direct sales by our sales and marketing personnel, participation
in trade shows, through resellers and OEM agreements.

      We generate  revenues  from the sale or lease of ID-Check  terminals,  the
sale of software  upgrade  cards and will,  beginning  in April  2001,  generate
revenues from our C-Link software.

      Our patented ID-Check  software is installed in a self-contained  terminal
similar to those  commonly  used as credit  card  terminals,  which we intend to
market to mass  merchandisers,  grocery,  convenience store and pharmacy chains,
casinos, banks and resellers of age restricted products. The ID-Check unit has a
suggested  retail  price of  approximately  $2,500,  which  includes  our Q-Link
software,  upgrade  cards for the first year  after  purchase  and our  ID-Check
Guide.  We have  developed  a  comprehensive  marketing  plan to build  customer
awareness and develop brand recognition in target markets.  Initially, we intend
to promote the advantages and ease of use of the ID-Check terminal through:

      (i)   trade publications;

      (ii)  trade shows;

      (iii) conventions and seminars;

      (iv)  direct mail;

      (v)   our website; and

      (vi)  national advertising.

      We also intend to seek endorsements from public interest organizations and
trade  associations,  which we believe have an interest in discouraging  illegal
purchases of age-restricted products.

      As we gain  market  acceptance  of the  ID-Check  terminal,  we  intend to
develop and market related software applications.

      Distribution strategy

      In October 1999, we hired a vice president of sales.  In December 2000, we
hired a director of  corporate  sales.  We intend to hire  additional  sales and
marketing support staff, to prepare additional  marketing materials and continue
to develop our marketing strategy.

      Our initial target markets

      Our initial target markets for the ID-Check terminal are:

      (i)   mass merchandisers;

      (ii)  convenience stores;

      (iii) grocery and pharmacy chains;

      (iv)  casinos;

      (v)   banks;

      (vi)  bars and night clubs; and


                                     - 6 -


      (vi)  resellers of age restricted products.

      Distributors and independent sales organizations

      Management  estimates  there are  thousands of  businesses  referred to as
distributors or independent  sales  organizations  (ISO's),  which specialize in
marketing equipment to "mom and pop" establishments. We believe that this is the
most cost  effective  way of reaching the smaller  retailers.  As such,  we have
actively begun to enter into sales  agreements  with  distributors  and ISO's to
distribute our product.

      Upgrade cards

      Our software  requires  periodic updates as states that did not previously
conform to AAMVA standards begin to store electronically readable information on
their  driver  licenses  and as  states  adjust or  modify  the  format of their
electronically  stored  information.  The  upgrade  cards,  which can be used to
instantly  upgrade the  terminal by simply  swiping or scanning the upgrade card
through the ID-Check terminal are included in the purchase price of the ID-Check
unit for the first  year after  purchase.  We have  begun to sell  upgrade  card
packages for the period  commencing  after the first year of  purchase.  Because
each terminal has a unique serial  number,  the upgrade card will only work with
that terminal, making unauthorized copying of these cards valueless. We may also
develop a secure way of delivering upgrades through the Internet.

      The ID-Check guide to US and Canadian ID's

      The United States and Canada are moving toward  uniformity in their driver
licenses and identification  cards.  However, some states and provinces have not
yet adopted AAMVA  standards.  Because of our familiarity  with these government
documents,  we  offer  a  printed  manual  to  provide  financial  institutions,
government  agencies  and  retail  stores  with a method of  verifying  document
authenticity  when driver licenses are presented  which do not have  information
electronically  stored on either a magnetic  stripe or bar code. This product is
bundled with the initial sale of the ID-Check terminal.  Additionally, we intend
to independently market this product directly through our sales personnel.

      C-Link Software

      We have  developed  our C-Link  software,  which will be introduced to the
marketplace in April 2001.  C-Link,  when used in conjunction  with our ID-check
terminal,  has the  ability to collect  the  information  read and stored by the
ID-Check  terminal and save it to a PC hard drive for  permanent  storage.  Once
saved,  the information can be utilized to prevent economic loss to the user and
can  also be  searched,  analyzed  and  used to  easily  generate  demographics,
statistics and mailing lists to existing customers where permitted by law.

      Additional Target Customers

      In addition to the target markets prior stated,  others that could benefit
by using the ID-Check terminal to prevent fraudulent  transactions  supported by
the use of a fake driver license as proof of identity include:

      (i)   car rental agencies;

      (ii)  hotels and motels;

      (iii) stadiums and arenas;

      (iv)  firearm merchants;

      (v)   movie theaters;

      (vi)  law enforcement agencies; and


                                     - 7 -


      (vii) buildings with security concerns.

      Products in Development

      We have developed prototypes of the following products:

      MAVE.  In April 1998,  we built two  prototypes  of a  hand-held  portable
version of our ID-Check terminal specifically  designed for law enforcement.  We
have   trademarked  this  product  as  MAVE  for  Mobile  Age  Verification  and
Enforcement.

      P-Link.  P-Link  is a  software  application  designed  to  replicate  the
features  of  ID-Check  using  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.

      M-Link.  M-Link expands  C-Link's  abilities to maintain  memberships  and
customer loyalty programs to encourage repeat  customers.  M-Link is intended to
be sold  separately  as a service  pack,  which  extends  the  functionality  of
C-Link's software.

      Possible Future Uses for our Technology

      We believe that our patented ID-Check  technology may have applications in
a variety  of other  areas.  Some  examples  of  potential  users  for  ID-Check
technology include:

      (i)   Airlines, since FAA regulations require passengers over 18 years old
            to  produce  a  valid  driver  license  or  other  form  of  legally
            acceptable  picture  identification  in order to board any  airliner
            domestically; and

      (ii)  Credit card terminal  manufacturers,  which could use our technology
            to verify that the credit card holder has  presented a valid  driver
            license prior to processing the transaction.

            (3) Competition

      Unless a device  can  read,  decode  and  analyze  all of the  information
legally  permitted  to be analyzed  which is  electronically  stored on a driver
license,  the user may not obtain  accurate  and  reliable  confirmation  that a
driver  license is valid and has not been altered or tampered with. We are aware
of several companies,  including Legal Age and The IdentiScan Company, LLC, that
are currently offering products that  electronically read and calculate age from
a driver license. We have tested and compared some of these products to ID-Check
and believe  that our product is  superior in quality and  functionality.  These
other products are based on types of equipment which have limited functionality.
Those units that cannot read barcodes are at a significant  disadvantage because
nearly 31% of the currently  issued driver  licenses as well as all encoded U.S.
military ID's and uniformed services cards contain barcodes.  This percentage is
expected  to  continue  to  increase  within the next year  based  upon  current
available information.  In addition, some of these other products cannot connect
to a PC or use a  printer.  We also  believe  that  some of these  products  may
infringe on our patent.

      There are also products being marketed  which are  essentially  electronic
calendars  designed to assist the retailer in calculating  the age of the person
presenting a driver license. These devices,  however, cannot determine whether a
driver license is valid or has been altered.

      A very small number of laminate  verifiers are currently used to determine
the validity of the laminate on a driver license.  However,  laminate  verifiers
are fragile, not reliable and we believe can only be used in New York State.


                                     - 8 -


            (4) Supplier

      We  have   engaged  a  subsidiary   of  Welch   Allyn,   Inc.,  a  leading
privately-held  manufacturer  of  medical  equipment  and  barcode  readers  and
scanners,  to provide a programmable  terminal to operate our patented  ID-Check
software.  We have placed  orders for 7,000  terminals of which we have received
4,000, which contain a three-track  magnetic reader and a scanner/imager,  which
is an advanced form of barcode scanner.

            (5) Intellectual Property

      In  January  1999,  we were  issued  a  patent  on our  ID-Check  software
technology.  We have also been granted multiple copyrights in the United States,
which are effective in Canada and other major industrial  countries.  The patent
covers a specific process relating to ID-Check,  including age verification from
a driver license. In addition,  the copyright  protection covers software source
codes and  supporting  graphics  relating to the operation of ID-Check and other
software  products.  We have also received  several  trademarks  relating to our
company, its product names, and logos.

      We  also  rely  on  proprietary  knowledge  and  employ  various  methods,
including  confidentiality  agreements, to protect our software codes, concepts,
ideas and documentation of our proprietary technology.

      Under an agreement with Mr. Kevin Messina,  our Senior  Executive V.P. and
Chief Technology  Officer,  we will pay royalties equal to 0.005% of gross sales
from  $2,000,000  to  $52,000,000  and  0.0025%  of  gross  sales in  excess  of
$52,000,000.

            (6) Employees

      As of March 23, 2001, we had twenty-three  full-time employees,  including
four  who  are  engaged  in  executive   management,   thirteen  in  information
technology, four in sales and marketing and two administrative staff. We believe
our relations  with our  employees are generally  good and we have no collective
bargaining agreements with any labor unions.

Item 2.  Description of Property

      Our executive offices are currently  located in Woodbury,  New York, where
we occupy  approximately  9,700 square feet of leased space  pursuant to a lease
expiring  on  December  31,  2010.  Our  offices  were  originally   located  in
Huntington, New York under a lease that expired October 31, 2000. Payments under
these  leases were  $80,538 for 2000 and will be  $2,515,414  for the  remaining
years of the lease.

Item 3.  Legal Proceedings

      The IdentiScan Company, LLC offers a product that electronically reads and
calculates age from a driver license. Representatives of IdentiScan had met with
us on several  occasions in the past, at their  suggestion,  to discuss a merger
between the two companies. We declined to proceed with those discussions. We had
informed  IdentiScan that we believe its product may infringe on our patent.  In
response, in August 1999, IdentiScan filed a complaint against us which seeks to
have the IdentiScan  product declared  non-infringing on our patent and seeks to
have our patent declared invalid.  The complaint does not seek monetary damages.
We believe  that our patent,  to which we hold clear  title,  is valid and fully
enforceable.  We are vigorously defending it. We also believe IdentiScan's claim
of non-infringement is without merit. However, if our patent were to be declared
invalid or if our patent were to be otherwise limited,  we believe it would have
an adverse  effect on our business and future success  because other  companies,
including IdentiScan, might be able to use some or all of the technology covered
by our patent to develop and market  products  which will directly  compete with
ID-Check.  In October 1999, IdentiScan withdrew the original suit in Connecticut
and re-filed in Delaware, where the lawsuit is in its initial phase.

      We are not aware of any  infringement by our products or technology on the
proprietary rights of others.

      Other than as set forth above, we are not currently  involved in any legal
or regulatory  proceeding,  or arbitration,  the outcome of which is expected to
have a material adverse effect on our business.


                                     - 9 -


Item 4.  Submission of Matters to a Vote of Security Holders

      During the fourth quarter of the Company's  fiscal year ended December 31,
2000 there were no matters submitted to a vote of security holders.

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

      (a) The Company's  Common Stock is traded on the American  Stock  Exchange
under  the  symbol  "IDN."  The  following  table  indicates  high and low sales
quotations for the periods indicated based upon information supplied by AMEX.

            2000                     Low                High
            ----                     ---                ----

            First quarter            $9.375             $13. 75

            Second quarter           $5.875             $11.875

            Third quarter            $6.625             $13.625

            Fourth quarter           $8.50              $15.125

            2001                     Low                High
            ----                     ---                ----

            January                  $8.25              $11.625

            February                 $4.72              $10.26

      (b) Number of Holders of Common Stock.  The number of holders of record of
our Common  Stock on March 23, 2001 was 75,  which does not  include  individual
participants in security position listings.

      (c) Dividends.  There were no dividends or other  distributions made by us
during the fiscal year ended December 31, 2000.  Future  dividend policy will be
determined by the Board of Directors based on our earnings, financial condition,
capital requirements and other then existing conditions.  It is anticipated that
cash  dividends  will  not be paid to the  holders  of our  common  stock in the
foreseeable future.

      (d)  Recent  Sales  of  Unregistered  Securities.  In  November  1999,  we
completed  our initial  public  offering  from which we received net proceeds of
approximately  $5,915,000.  In  December  1999 the  underwriters  of our initial
public  offering  exercised the over allotment  option to purchase an additional
150,000  shares of our common  stock  from which we  received  net  proceeds  of
$992,000.  After  repayment  of the Notes we issued in August and  September  we
invested  approximately  $5,000,000 in short term financial instruments and used
approximately  $607,000 to make additional deposits on terminals and for general
capital purposes.

      In addition,  during 1999 we sold the following unregistered securities in
reliance on the  exemption  provided by Section 4(2) and  Regulation  506 of the
Securities Act as transactions not involving a public offering:

      In March 1999, we commenced a private  placement and sold 259,600 units at
$2.00 per  unit.  These  units  consisted  of one share of common  stock and one
warrant to acquire an additional share at $3.00 per share. We received  $489,200
as a result of the offering prior to June 30, 1999 and $30,000 in August 1999.

      In March 1999, we issued warrants to GunnAllen  Financial Inc. to purchase
50,000  shares  of our  common  stock at an  exercise  price of $3.00  per share
expiring March 24, 2002.  These warrants were issued in payment of the fee under
a consulting agreement and were subsequently cancelled.


                                     - 10 -


      In April 1999, we adjusted the exercise price of warrants issued to Empire
State  Development,  formerly  New York  Science and  Technology  Foundation  to
purchase  100,000  shares of our common  stock from $3.00 to $2.00 if  exercised
within 30 days of the  adjustment.  In May 1999, the  Foundation  exercised such
warrant and we issued  100,000  shares of our common  stock and a new warrant to
purchase 100,000 shares of our common stock at an exercise price of $3.00, which
was to expire in May 2001. This warrant was exercised in February 2001.

      In May 1999,  we issued 10,000 shares of our common stock to a third party
in exchange for the termination of a royalty agreement as part of the settlement
of a lawsuit.

      In May 1999, we issued to Mr. Mandelbaum 75,000 shares of our common stock
and warrants to purchase  75,000 shares at an exercise  price of $3.00 per share
and we issued to Mr.  Messina  5,063  shares of our common stock and warrants to
purchase 5,063 shares at an exercise price of $3.00 per share.  These  issuances
were due to reductions in deferred  compensation.  In addition, we issued to Mr.
Messina 69,937 shares of our common stock and warrants to purchase 69,937 shares
of our common stock at an exercise  price of $3.00 per share in exchange for the
termination of Mr. Messina's reversion rights for certain software.

      In June 1999,  we agreed to terminate  the supplier  agreement we had with
Hazeltine (formerly Marconi Aerospace Systems, Inc.), for which we issued 75,000
shares of our common  stock to  Hazeltine  in payment  of  outstanding  invoices
totaling  $220,000,  and we  received  all  units  of  ID-Check  which  had been
manufactured,  all samples, designs, drawing, software, molds and any other item
related to ID-Check.

      In June 1999,  all  remaining  deferred  compensation  and interest due to
Frank Mandelbaum, Kevin Messina and Todd Cohen was eliminated by the issuance of
options to purchase 375,000,  207,000 and 110,000 shares,  respectively,  of our
common stock.

      In June 1999,  we issued 9,000  shares of our common stock to  Blanchfield
King Kober,  our former  accountants,  in payment of  accounting  fees  totaling
$36,000.

      In August and September  1999 we placed  $1,200,000 of secured  promissory
notes with interest at 10%. These notes had warrants  attached to purchase 2,500
of our shares for each  principal  amount of $50,000 at $3.00 per share expiring
in August  2002 and can be  redeemed  by us at $.01 per warrant at any time that
our stock has a public market price of $6.00 per share for 20 consecutive  days.
The notes  matured on the sooner of July 31,  2000 or the date that we  received
gross proceeds from a public offering of our securities of $6,000,000. The notes
were  redeemed on November 24, 1999.  In December  2000, we amended the terms of
the  warrant  agreement  to enable  the  holders  of the  warrants  to utilize a
cashless exercise provision.  During 2000, we received $22,500 from the exercise
of 7,500 of these  warrants.  In addition,  8,125  warrants  were  exercised and
converted into 5,640 shares of our common stock utilizing the cashless  exercise
option. As of December 31, 2000, 44,375 of these warrants remained outstanding.

      In December 2000, the Company  granted 25,000 stock options to Korey Kay &
Partners Inc., our advertising firm, for services to be performed,  of which all
are exercisable at $10.00.  In December 2000 3,599 of these stock options vested
for services performed which services were valued at $14,398.

      During  2000,  the  Company  received  $3,223,874  from  the  exercise  of
1,078,216  warrants  previously  issued. As of December 31, 2000, there remained
warrants outstanding to purchase 496,475 shares of the Company's common stock at
an  exercise  price of $3.00  and  10,000  underwriter  warrants  that  carry an
exercise price of $8.40.

      During 2001, the Company received $369,375 from the exercise of 123,125 of
the remaining warrants  outstanding through March 23, 2001. In addition,  10,000
warrants  were  converted  into  7,062  shares  of the  Company's  common  stock
utilizing the cashless exercise provision.  Also during this period, the Company
received $4,500 from the exercise of 1,500 stock options.

Item 6. Management's Discussion and Analysis of  Financial Condition and Results
        of Operations


                                     - 11 -


      (a) Overview

      Our  company  was formed in 1994 to address a growing  need for a reliable
document and age verification  system to detect  fraudulent  driver licenses and
other widely accepted forms of government-issued  identification  documents. Our
sales  through  September  30, 2000 had been minimal  since  through 1998 we had
previously produced only a limited pre-production run of our product for testing
and market  acceptance.  In late 1999, we received a limited  number of ID-Check
terminals  which  were  then  available  for  sale.  Shortly  thereafter,  these
terminals  were  returned  to the  manufacturer  to be  upgraded  to  contain an
advanced  imager/scanner,  which  allows our software to read the encoding on 51
jurisdictions as opposed to 32 jurisdictions on the original scanner. During the
fourth quarter of 2000, we experienced a material  increase in sales as a result
of product  availability and establishing  marketing and distributor  agreements
with  resellers.  Since  inception,  we have  incurred  significant  losses  and
negative cash flow from operating activities, and as of December 31, 2000 we had
an accumulated  deficit of  approximately  $6,900,000.  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
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  refocused 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 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.

      (b) Results of Operations

      Comparison of the year ended  December 31, 2000 to the year ended December
31, 1999.

      Revenue  on sales of our  products  is  recognized  upon  shipment  to the
customer.  Certain sales require  continuing  service or post contract  customer
support,  and  performance  by us,  accordingly,  a portion  of the  revenue  is
deferred and  recognized  ratably  over the period in which the future  service,
support and performance are provided, which is generally one year. Currently, if
we do not have enough experience to identify the fair value of each element, the
revenue and related gross margin is deferred and  recognized  ratably over the 1
year period in which the future service, support and performance are provided.

      The Company's  revenues increased from $29,407 for the year ended December
31, 1999 to $342,979  for the year ended  December  31,  2000.  Revenues for the
period ended  December 31, 1999  consisted of sales of a limited number of units
from  shipment of products  received late in 1999 as we did not have any product
prior to this time  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.
Revenues  for the year ended  December  31,  2000  included  initial  sales of a
limited  number of ID-Check  terminals that were available for sale prior to the
early  return  of our  inventory  of these  terminals  to the  manufacturer  for
upgrading.  Sales of our enhanced  product  began in the later part of the third
quarter of 2000.  Revenues of $517,950 from sales in the fourth quarter of 2000,
as well as cost of revenues of $299,040,  were deferred in  accordance  with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements".  The deferred revenue and the related cost
of revenue will be  recognized  ratably over a 12 month period.  Total  revenues
recognized and deferred from the sales of ID-Check  terminals for the year ended
December 31, 2000 were $860,929.

      Operating expenses,  which consist of selling,  general and administrative
and research and  development  expenses,  increased 55% from  $2,278,109 for the
year ended  December 31, 1999,  to  $3,523,357  for the year ended  December 31,
2000.  Selling  expenses,  which consist primarily of salaries and related costs
for marketing, increased substantially from $202,888 for the year ended December
31, 1999 to $890,453 for the year ended  December 31, 2000  primarily due to the
hiring of both a senior  executive  vice  president  and a director  of national
sales and their related travel


                                     - 12 -


expenses as well as increases in advertising  and marketing  expenses  resulting
from the  initiation 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 33% from  $1,194,862  for the year
ended  December  31, 1999 to  $1,590,896  for the year ended  December 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
insurance costs and professional  and legal fees,  resulting from the defense of
our patent lawsuit.  Research and development expenses,  which consist primarily
of salaries and related costs for the development of our products, increased 18%
from $880,359 for the year ended  December 31, 1999 to  $1,042,008  for the year
ended December 31, 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  investments  in
development  and  operating  infrastructure,  including the hiring of additional
programmers  and systems  personnel.  Therefore,  we expect that  expenses  will
increase  in  2001  as  we  increase   expenditures  for  attending   additional
conventions,  brand promotion,  and other marketing  activities.  We also 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 $55,472 for the year ended December 31,
1999 to  $14,863  for the year  ended  December  31,  2000 as a result  of lower
interest expense from the settlement of deferred compensation liability in 1999.

      Interest  income amounted to $261,181 for the year ended December 31, 2000
resulting from investing the proceeds received from our IPO, as well as from the
exercise of warrants and options, 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
$2,299,425 for the year ended December 31, 1999 to $3,132,772 for the year ended
December 31, 2000.

      Comparison of the year ended  December 31, 1999 to the year ended December
31, 1998.

      Revenues  decreased 66% from $86,354 for the year ended  December 31, 1998
to $29,407  recorded  for the year ended  December  31,  1999.  Revenues for the
period ended December 31, 1998 consisted of sales of our initial  pre-production
run of ID-Check terminals while the December 31, 1999 period included sales of a
limited number of units from the shipment of products  received late in 1999. In
the third  quarter of 1998, we withdrew  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.

      Operating expenses,  which consist of selling,  general and administrative
and research and  development  expenses,  increased 51% from  $1,506,615 for the
year ended December 31, 1998 to $2,278,109 for the year ended December 31, 1999.
Selling  expenses,  which  consist  primarily of salaries and related  costs for
marketing, increased 45.5% from $139,470 for the year ended December 31, 1998 to
$202,888 for the year ended  December 31, 1999  primarily due to the hiring of a
director of national sales. General and administrative  expenses,  which consist
primarily  of  salaries  and  related  costs for  general  corporate  functions,
including executive,  finance, accounting,  facilities and fees for professional
services,  increased 31.2% from $910,537 for the year December 31, 1998 ended to
$1,194,862  for the year ended  December 31,  1999,  primarily as a result of an
increase in salaries  because of additional  hiring and the fact that our senior
executives did not defer salary after June 1, 1999, an increase in  depreciation
and increased  professional and legal fees.  Research and development  expenses,
which consist primarily of salaries and related costs for the development of our
products,  increased 92.8% from $456,608 for the year ended December 31, 1998 to
$880,359  for the year ended  December  31,  1999.  This  increase is  primarily
attributable to increases in salaries in additional hiring and the fact that our
senior  executive  did  not  defer  salary  after  June  1,1999,  write  off and
replacement  of  pre-production  units and  testing of new  product  design.  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


                                     - 13 -


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 $61,479 for the year ended December 31,
1998 to  $55,472  for the year  ended  December  31,  1999 as a result  of lower
interest expense from the settlement of deferred compensation  liability in 1999
partially  offset from interest expense on our promissory notes issued in August
and September 1999.

      Interest  income  amounted to $19,169 for the year ended December 31, 1999
resulting  from  investing  the  proceeds  received  from our IPO in short  term
instruments.

      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
$1,503,814 for the year ended December 31, 1998 to $2,299,425 for the year ended
December 31, 1999.

      (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.  During
2000, we received $3,426,374 from the issuance of common stock from the exercise
of warrants and stock options.  We funded the purchase of hardware terminals for
resale and working capital  primarily from these  proceeds.  We will continue to
use these proceeds to fund working capital until we reach profitability.

      Cash used in operating  activities for the year ended December 31, 2000 of
$5,453,829 was primarily attributable to the net loss of $3,132,772,  a decrease
in accounts payable and accrued expenses of $137,941, an increase in certificate
of deposit of $250,000, an increase in inventory of $2,349,729,  and an increase
in other current assets of $457,325, which was partially offset by a decrease in
a deposit on hardware  purchases of $245,800 and an increase of deferred revenue
of $545,334.  This increase in inventory resulted primarily from the purchase of
inventory  received  at the end of the third  quarter.  Cash  used in  operating
activities for the year ended December 31, 1999 of $1,521,581 resulted primarily
from the net loss of  $2,299,425,  an increase in  inventory  of $169,916  and a
deposit on hardware  purchases  of  $245,800  which was  partially  offset by an
increase in accounts payable and accrued  expenses of $1,159,805.  This increase
in accounts  payable  and  accrued  expenses  for 1999 was  attributable  to our
diminished working capital.  Cash used in investing  activities was $223,511 for
the year ended  December  31, 2000 and $93,797 for the year ended  December  31,
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 $3,388,481 for the year ended December 31,
2000 and was primarily related to the exercise of outstanding warrants and stock
options.  Cash provided by financing activities of $7,836,326 for the year ended
December 31, 1999 was primarily  related to proceeds received from the Company's
successful  completion  of its initial  public  offering as well as the proceeds
received from its private placement.

      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 December 31, 2000,  warrant holders
exercised 986,500 warrants to purchase common stock,  which were all outstanding
warrants that were due to expire on various dates through  December 31, 2000 and
the Company received proceeds totaling  $2,953,875.  Most of these warrants were
originally due to expire on June 30, 2000, but the expiration  date was extended
by  the  Company  to  December  31,  2000.  Additionally,  there  were  warrants
outstanding to purchase  584,600 shares of our common stock at an exercise price
of $3.00 and 100,000 of  underwriter's  warrants  at an exercise  price of $8.40
with an expiration date beyond December 31, 2000. Of these warrants, 98,125 were
converted by the cashless exercise provision into 38,584 shares of common stock.
An  additional  90,000  warrants were also  exercised  and the company  received
proceeds of $270,000  prior to December 31, 2000. In addition,  133,125 of these
warrants  were  exercised  through  March 23, 2001 and we  received  proceeds of
$369,375. The remaining warrants totaling 363,350


                                     - 14 -


expire on various dates up to November  2004. 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,  except for 10,000 of the  underwriter's
warrants still  outstanding.  As of March 23, 2001, the conditions for redeeming
these warrants have not been met.

      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 be able 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 December  31, 2000,  we had a net  operating  loss carry  forward of
approximately $6,521,000, which expires beginning in the year 2013. The issuance
of equity securities in the future, together with our earlier 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,  therefore we have recorded a full valuation
allowance for the benefit from the net-operating losses.

Forward Looking Statements

      The foregoing contains certain forward-looking statements. Due to the fact
that the  Company  faces  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.

Item 7. Financial Statements

      Financial Statements are attached hereto following page F-1.

Item  8. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

      During fiscal year 2000 there were no changes in or disagreements with the
Company's   principal   independent   accountant   on  accounting  or  financial
disclosure.

                                    PART III

Item 9. Directors and Executive Officers of the Company

      As of March 23, 2001, the Company's  directors and executive officers were
as follows:

                         Position With the Company
Name and Age             and Principal Occupation              Held Office Since
------------             ------------------------              -----------------

Frank Mandelbaum, 67     Chairman, Chief Executive Officer           1996
                         and Director


                                     - 15 -


                         Position With the Company
Name and Age             and Principal Occupation              Held Office Since
------------             ------------------------              -----------------

Kevin Messina, 35        Senior Executive Vice President,            1998
                         Chief Technology Officer and
                         Director

Edwin Winiarz, 43        Senior Executive Vice President,            1999
                         Treasurer and Chief Financial
                         Officer and Director

W. Robert Holloway, 61   Senior Executive Vice President,            1999
                         Sales

Paul Cohen, 60           Director                                    1996

Evelyn Berezin, 75       Director                                    1999

Charles McQuinn, 60      Director                                    1999

Jeffrey Levy, 59         Director                                    1999

Howard Davis, 45         Director                                    2000

Business Experience

      Frank  Mandelbaum  has  served  as our  Chairman  of the  Board  and Chief
Executive  Officer since July 1, 1996. He also served as Chief Financial Officer
until September 1999. From January 1995 through May 1997, Mr.  Mandelbaum served
as a consultant  providing  strategic and financial  advice to Pharmerica,  Inc.
(formerly Capstone Pharmacy Services,  Inc.), a publicly held company.  Prior to
January 1995, Mr. Mandelbaum was Chairman of the Board,  Chief Executive Officer
and Chief Financial Officer of Pharmerica,  Inc. From July 1994 through December
1995,  Mr.  Mandelbaum  served  as  Director  and  Chairman  of  the  Audit  and
Compensation  Committees of Medical  Technology  Systems,  Inc., also a publicly
held company.  From November 1991 through January 1995, Mr. Mandelbaum served as
Director of the Council of Nursing Home  Suppliers,  a  Washington,  D.C.  based
lobbying  organization.  From 1974 to date, Mr.  Mandelbaum has been Chairman of
the Board and  President  of J.R.D.  Sales,  Inc.,  a privately  held  financial
consulting  company.  As required by his employment  agreement,  Mr.  Mandelbaum
devotes substantially all his business time and attention to our business.

      Kevin Messina, a co-founder of Intelli-Check, was elected Senior Executive
Vice  President in July 2000 and appointed as Chief  Technology  Officer in June
1998.  Between  June 1998 and July 2000,  Mr.  Messina  served as the  Company's
President.  From our  company's  inception  in October  1994 to June  1998,  Mr.
Messina served as our Executive Vice President,  Chief  Information  Officer and
Secretary.  Prior to October 1994,  Mr. Messina was the founder and President of
K.M. Software, which served the banking and commodities industries. During 1998,
1999 and 2000,  Mr. Messina was selected to serve on various  industry  councils
for  AAMVA  and  various  committees  of ANSI  and the  International  Standards
Organization (ISO). In August 1998, Mr. Messina was elected to the US delegation
representing   ANSI,  the  National  Committee  for  Information  and  Technical
Standards,  the  Information  Technology  Industry  Council,  the  International
Electrotechnical  Commission and various other national  bodies that are members
of ISO. In November 1998, Mr. Messina was elected  chairperson of the committee,
which was in charge of recommending encryption and bar code formats. Since then,
AAMVA has adopted the  recommendation  as the  standard  for U.S.  and  Canadian
driver licenses and ID cards for the five-year period ending in 2005.


                                     - 16 -


      Edwin Winiarz was elected Senior Executive Vice President in July 2000 and
a director in August 1999 and became  Executive  Vice  President,  Treasurer and
Chief Financial  Officer on September 7, 1999. From July 1994 until August 1999,
Mr. Winiarz was Treasurer and Chief Financial  Officer of Triangle Service Inc.,
a privately held national service company. From November 1990 through July 1994,
Mr.  Winiarz  served as Vice President  Finance/Controller  of Pharmerica,  Inc.
(formerly  Capstone  Pharmacy  Services,  Inc.).  From March 1986 until November
1990, Mr. Winiarz was a manager with the accounting firm of Laventhal & Horwath.
Mr.  Winiarz is a certified  public  accountant  and holds an MBA in  management
information systems from Pace University.

      W. Robert  Holloway was elected  Senior  Executive  Vice President in July
2000 and was Vice  President,  Sales from October 1999 to July 2000.  From April
1999 to October  1999,  Mr.  Holloway was  Director of Sales for The  IdentiScan
Company LLC. In February and March 1999, Mr.  Holloway  worked as an independent
consultant.  From August 1996 to January  1999,  Mr.  Holloway  was Global Sales
Manager for Welch Allyn,  Inc. From October 1994 to July 1996, Mr.  Holloway was
Vice  President and Sales Manager of Bowne & Company of New York.  Mr.  Holloway
holds an AB in economics  from  Columbia  University  and an MBA in finance from
Boston University.

      Paul Cohen has served as a director of Intelli-Check  since November 1996.
From   December   1990  to  present,   Mr.   Cohen  has  been  the  director  of
pharmaceuticals  for Allou Health and Beauty Care, Inc, a public  company.  Paul
Cohen is the father of Todd Cohen, our former President.

      Evelyn Berezin was elected a director in August 1999. She has been,  since
October  1987,  an  independent   management   consultant  to  technology  based
companies.  From July 1980 to  September  1987,  Ms.  Berezin was  President  of
Greenhouse Management Company, a venture capital fund dedicated to investment in
early-phase  high-technology  companies. Ms. Berezin holds an AB in Physics from
New York  University and has held an Atomic Energy  Commission  Fellowship.  Ms.
Berezin is  currently a member of the Board of  Directors  of Bionova  Corp.,  a
publicly held biotechnology  company. In addition,  she has served on the boards
of a number of other public  companies  including Cigna Corp.,  Datapoint Corp.,
Koppers  Company,  Inc. and Genetic  Systems Inc., as well as more than fourteen
private technology-based companies.

      Charles McQuinn was elected a director in August 1999. He has been,  since
1997, an independent product development/marketing  consultant to Internet based
companies.  Mr.  McQuinn has also served as CEO of The McQuinn  Group,  Inc.,  a
system integration and institutional  marketing  company,  from November 1998 to
the present.  From 1995 to 1997,  Mr. McQuinn was President of DTN West, a fixed
income price quote company with products for banks and governments. From 1990 to
1995, Mr. McQuinn was President of Bonneville  Market  Information,  an equities
price quote  company with  products for traders and brokers.  From 1985 to 1990,
Mr. McQuinn was President of Bonneville  Telecommunications Company, a satellite
video and data company.  Prior to 1985,  he was with  Burroughs  Corporation  in
various product development/marketing/management  positions. Mr. McQuinn holds a
BS in marketing from Ball State University and an MBA in management from Central
Michigan University.

      Jeffrey Levy was elected a director in December  1999. He has been,  since
February  1977  President  and Chief  Executive  Officer of  LeaseLinc,  Inc., a
third-party  equipment  leasing company and lease  brokerage.  Prior to 1977 Mr.
Levy served as President  and Chief  Executive  Officer of American  Land Cycle,
Inc. and Goose Creek Land Cycle, LLC, arboreal waste recycling companies. During
that time he also served as Chief Operating  Officer of ICC  Technologies,  Inc.
and AWK Consulting Engineers,  Inc. Mr. Levy has had a distinguished career as a
member of the  United  States  Air Force  from  which he retired as a colonel in
1988.  He serves as a board member of the Northern  Virginia  Chapter of Mothers
Against  Drunk  Driving,  the  Washington  Regional  Alcohol  Program,  the Zero
Tolerance  Coalition and the National Drunk and Drugged Driving Prevention Month
Coalition  and is a member of the  Virginia  Attorney  General's  Task  Force on
Drinking  by  College  Students  and  MADD's  National  Commission  on  Underage
Drinking. Mr. Levy holds a BS in International  Relations from the United States
Air Force  Academy,  a  graduate  degree in  Economics  from the  University  of
Stockholm and an MBA from Marymount University.

      Howard Davis was  appointed a non-voting  advisor to the Board in December
1999 and elected a director in March 2000.  He has been,  since 1997,  Executive
Vice  President  of  GunnAllen   Financial  Inc.,  where  he  is  the  executive
responsible for the investment  banking and finance division.  From 1990 to 1997
Mr. Davis was President and Chief  Executive  Officer of Kensington  Securities,
Inc. In 1997,  Kensington  and  GunnAllen  joined  together.  Mr. Davis has also
served as President of Wentworth Securities, Inc. from 1988 to 1990 and prior to
that as President of Numero Uno


                                     - 17 -


Franchise  Corporation.  He has attended the University of Southern  California,
California  State  University,  Northridge  and Kent State  University  where he
majored in Finance and Accounting.

      Directors  serve for staggered  terms of either 3 years, 2 years or 1 year
and hold office until the next annual meeting, following the conclusion of their
term, of stockholders and the election and  qualification  of their  successors.
Executive  officers are elected by and serve at the  discretion  of the board of
directors.

Board Committees

      The board of directors has  established a compensation  committee which is
comprised of Mr.  Davis,  chairman,  Mr. Levy and Mr.  Cohen.  The  compensation
committee reviews and determines the compensation for all officers and directors
of our company and reviews general policy matters  relating to the  compensation
and benefits of all employees.  The compensation  committee also administers the
stock option plans.

      The  board  of  directors  has  established  an audit  committee  which is
comprised  of Ms.  Berezin,  chairman,  Mr.  McQuinn  and Mr.  Davis.  The audit
committee  recommends to the board of directors the annual  engagement of a firm
of independent  accountants  and reviews with the  independent  accountants  the
scope  and  results  of  audits,  our  internal  accounting  controls  and audit
practices  and  professional   services   rendered  to  us  by  our  independent
accountants.

      The board of directors has established a corporate  governance  committee,
which is comprised  of Mr.  McQuinn,  chairman,  Ms.  Berezin and Mr. Levy.  The
corporate  governance committee reviews our internal policies and procedures and
by-laws and acts as our nominating committee for the Board of Directors.

      The  board  of  directors  has also  established  a  technology  oversight
committee  comprised of Mr. Levy,  chairman,  Ms. Berezin and Mr.  McQuinn.  The
technology  oversight  committee  will monitor the  development  of products and
services  offered  by our  company  and assist  management  in  planning  future
development  of  products  and  services   within  the  framework  of  consumer,
regulatory  and  competitive  environments.  This  committee  will also  monitor
actions  taken  to  protect  our   intellectual   property  and  will  recommend
appropriate actions in furtherance of that protection.

Compliance with Section 16(a) of the Exchange Act

      The Securities  and Exchange  Commission has adopted rules relating to the
filing of ownership reports under Section 16 (a) of the Securities  Exchange Act
of  1934.  One such  rule  requires  disclosure  of  filings,  which  under  the
Commission's rules, are not deemed to be timely.  During its review, the Company
discovered that Mr. Mandelbaum failed to file a timely report regarding the sale
and gift of 18,600  shares of common  stock by his spouse for which he disclaims
beneficial ownership. Such report was subsequently filed.

Item 10. Executive Compensation

      The following  table sets forth  compensation  paid to executive  officers
whose  compensation  was in excess of $100,000 for any of the three fiscal years
ended December 31, 2000. No other executive  officers  received total salary and
bonus compensation in excess of $100,000 during any of such fiscal years.


                                     - 18 -


                           SUMMARY COMPENSATION TABLE



                                                                         Annual      Long-Term
                                                                      Compensation   Compensation
                                                                      ------------   ------------
                                                                                     Securities
                                                                                     Underlying
Name and Principal Position                                 Year(s)     Salary ($)   Options/SARS (#)
---------------------------                                 -------     ----------   ----------------
                                                                            
Frank Mandelbaum                                             2000       150,000      --
Chairman & CEO                                               1999       150,000      75,000
                                                             1998       150,000      50,000

Kevin Messina                                                2000       150,000      --
Senior Executive Vice President,                             1999       150,000      75,000
Chief Technology Officer                                     1998       150,000      --

Edwin Winiarz                                                2000       125,000      25,000
Senior Executive Vice President, Chief Financial Officer     1999        37,981      50,000

W. Robert Holloway                                           2000       115,000      --
Senior Executive Vice President-                             1999        19,904      20,000
Sales


      The options  shown above were granted under the 1998 and 1999 Stock Option
Plans,  are  exercisable  at $3.00 per share,  except for (1) Ed Winiarz  having
25,000 options,  at an exercise price of $10.75 exercisable on September 1, 2001
and  50,000 at an  exercise  price of $5.00  and (2) W.  Robert  Holloway  at an
exercise price of $7.50. All options expire five years after the date of grant.

      Messrs.   Mandelbaum  and  Messina  have  Employment  Agreements  expiring
December 31, 2001,  which provide for base annual salaries of $225,000,  subject
to specified conditions.  Because of our limited resources,  Messrs.  Mandelbaum
and Messina  have from time to time  agreed to defer the receipt of  substantial
portions of their salaries.  In May 1999, Mr.  Mandelbaum's  deferred salary was
reduced by $150,000 by the issuance to him of 75,000  shares of our common stock
and warrants entitling him to purchase an additional 75,000 shares of our common
stock at a price of $3.00 per  share at any time  prior to May 3,  2001.  In May
1999, Mr. Messina's  deferred salary was reduced by $10,126 through the issuance
to him of 5,063 shares of our common stock and warrants to purchase 5,063 shares
of our common stock at a purchase  price of $3.00 per share at any time prior to
May 3,  2001.  As of  June  30,  1999,  Mr.  Mandelbaum's  deferred  salary  was
approximately $375,000, Mr. Messina's deferred salary was approximately $200,000
and Mr. Todd Cohen's deferred salary was approximately  $110,000.  In June 1999,
Mr.  Messina  received,  in lieu of all  deferred  salary,  options to  purchase
207,000 shares of common stock at an exercise price of $3.00 per share.  Also in
June 1999, Mr. Mandelbaum received,  in lieu of all deferred salary,  options to
purchase 375,000 shares of common stock at an exercise price of $3.00 per share.

      Mr. Todd Cohen  resigned as  President  in April 1998.  In June 1999,  Mr.
Cohen  received,  in lieu of all deferred  salary,  options to purchase  110,000
shares of common stock at an exercise price of $3.00 expiring July 15, 2004.

      All the options  granted in exchange for deferred salary expire five years
after the date of grant.

      The  following  table  summarizes  options  granted  during the year ended
December 31, 2000 to the named executive officers:


                                     - 19 -




------------------------------------------------------------------------------------------------------------------
                                   Individual Grants
             ---------------------------------------------------------------
                                  % of Total Options                              Potential Realizable Value At
                 Number of            Granted To                               Assumed Annual Rates of Stock Price
                 Securities          Employees In                                Appreciation for Option Term
             Underlying Options          2000          Exercise   Expiration   -----------------------------------
   Name           Granted             Fiscal Year       Price         Date             5%                10%
------------------------------------------------------------------------------------------------------------------
                                                                                     
Ed Winiarz         25,000               10.40%         $ 10.75       9/1/05         $74,250            $164,075
------------------------------------------------------------------------------------------------------------------


      Pursuant to their employment  agreements,  Messrs.  Mandelbaum and Messina
each received a grant in August 1999 of options to purchase 75,000 shares of our
common stock at a purchase price of $3.00 per share.  Options to purchase 50,000
shares of common stock are  currently  exercisable.  Options to purchase  25,000
shares of our common stock become  exercisable  on January 1, 2002.  The options
expire five years from the date of grant.  During the years ended  December  31,
1999 and  December  31,  2000,  we granted  employees  other than the  executive
officers  named above  options to  purchase  156,000  shares and 215,000  shares
respectively, of common stock under the 1998 and 1999 Stock Option Plans.

      The amounts shown as potential  realizable  value  represent  hypothetical
gains that could be achieved for the respective  options if exercised at the end
of the option  term.  The 5% and 10% assumed  annual rates of  compounded  stock
price  appreciation  are  mandated  by  rules  of the  Securities  and  Exchange
Commission  and do not represent our estimate or projection of our future common
stock prices.  These amounts  represent certain assumed rates of appreciation in
the value of our common  stock from the fair market  value on the date of grant.
Actual  gains,  if any, on stock option  exercises  are  dependent on the future
performance of the common stock and overall stock market conditions. The amounts
reflected in the table may not necessarily be achieved.

Compensation of Directors

      Non-employee  directors receive a fee of $500 for attending board meetings
and $250 for attendance at such meetings telephonically. They also receive a fee
of $300 for each  committee  meeting  held on a date  other than that of a board
meeting  and are  reimbursed  for  expenses  incurred  in  connection  with  the
performance  of  their   respective   duties  as  directors.   In  August  1999,
non-employee  directors,  Messrs.  Paul Cohen and McQuinn and Ms. Berezin,  each
received a grant of a  non-qualified  stock  option to purchase an  aggregate of
45,000  shares of our  common  stock  upon their  election  as a director  at an
exercise  price of $3.00 per share.  Of these options,  15,000 were  immediately
exercisable  and an additional  15,000 became  exercisable  in July 2000 and the
remaining 15,000 will become exercisable on the date of our next annual meeting.
On December  13, 1999,  Mr. Levy and Mr.  Davis were each granted  non-qualified
options to purchase  15,000  shares of our common stock at an exercise  price of
$11.625,  the fair  market  value  on the  date of  grant.  These  options  were
immediately  exercisable.  In  addition,  in July 2000  they  were each  granted
non-qualified  options to purchase an aggregate  of 30,000  shares of our common
stock for  serving as a director  at an  exercise  price of $8.25 per share.  Of
these options, 15,000 are immediately exercisable and 15,000 will be exercisable
at the time of the next annual  meeting  for Mr.  Levy and 15,000 for Mr.  Davis
provided that he is re-elected.  Options granted to  non-employee  directors are
exercisable  only  during the  non-employee  director's  term and  automatically
expire on the date his or her service terminates.  Mr. Paul Cohen had previously
been granted  options to purchase  30,000 shares of common stock  exercisable at
$3.00 per share.  Mr. Cohen also received an option to purchase 50,000 shares of
common  stock  exercisable  at $3.00 per  share in  connection  with a  one-year
consulting agreement dated November 1, 1997.

      In addition,  non-employee  directors  who are members of a committee  are
entitled  to  receive  grants  of stock  options  for  each  year  served.  Each
chairperson  of a committee  receives  options to purchase  2,500  shares of our
common stock, while a committee member receives options to purchase 1,500 shares
of our common  stock.  In March 2000 and July 2000 the  following  non-qualified
options were granted to committee chairpersons:


                                     - 20 -


         Name               Committee                      Number of Options
         ----               ------------                   -----------------
                                                         March 2000   July 2000
                                                         ----------   ---------
      Ms. Berezin   Audit                                  2,500         2,500
      Mr. McQuinn   Corporate Governance                   2,500         2,500
      Mr. Levy      Technology Oversight                   2,500         2,500
      Mr. Davis     Compensation                                         2,500

      The following non-qualified options were granted to committee members:

         Name               Committee(s)                   Number of Options
         ----               ------------                   -----------------
                                                         March 2000   July 2000
                                                         ----------   ---------
      Mr. Cohen     Compensation, Audit                    3,000         1,500
      Ms. Berezin   Corporate Governance,
                      Technology Oversight                 3,000         3,000
      Mr. McQuinn   Audit, Technology Oversight            3,000         3,000
      Mr. Levy      Corporate Governance, Compensation                   3,000
      Mr. Davis     Audit                                  1,500         1,500

      These options are exercisable at $12.125 for options granted in March 2000
and $8.75 for options granted in July 2000, the fair market value on the date of
grant, are immediately  exercisable during the committee members term and expire
five years from date of grant.

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

      Effective  January 1, 1999,  Mr.  Mandelbaum  and Mr. Messina each entered
into  a  three-year  employment  agreement  with  Intelli-Check.   Each  of  the
agreements provides for a base salary of $225,000.  However,  until such time as
we receive  payment for gross sales of at least  $1,000,000,  the  salaries  are
capped at $150,000.  The  agreements  also provide for the payment of a bonus if
our sales  exceed  $2,000,000  in the  previous  year.  The bonus will be in the
amount of $50,000 plus 1% of the amount of sales in excess of $2,000,000 in each
year. In addition, for each fiscal year ending during the term of the employment
agreements,  we will grant to each of the  executives  an option to purchase the
greater of 25,000 shares of our common stock at fair market value on the date of
grant or 10,000  shares of our common  stock at fair market value on the date of
grant for each full  $250,000 by which  pre-tax  profits  for each year  exceeds
pre-tax profits for the prior fiscal year. However, we are not required to grant
options to purchase more than 150,000 shares of our common stock with respect to
any one fiscal year.

      If there  shall occur a change of  control,  as defined in the  employment
agreement, the employee may terminate his employment at any time and be entitled
to  receive  a payment  equal to 2.99  times his  average  annual  compensation,
including  bonuses,  during the three years  preceding the date of  termination,
payable in cash to the extent of three  months  salary and the balance in shares
of our common stock based on a valuation of $2.00 per share. Included within the
definition  of change of  control  is the first day on which a  majority  of the
directors of the company do not consist of  individuals  recommended  by Messrs.
Mandelbaum, Messina and one outside director.

      We have entered into a two-year  employment  agreement  with Mr.  Winiarz,
which became  effective on September 7, 1999. The agreement  provides for a base
salary of $125,000.  In addition,  we granted Mr.  Winiarz an option to purchase
50,000  shares  of  common  stock,  of which  30,000  options  were  immediately
exercisable  at $5.00  per  share  and  20,000  options  became  exercisable  on
September 7, 2000 at $5.00 per share.

      We entered into a two-year employment  agreement with Mr. Holloway,  which
became  effective on October 25, 1999. The agreement  provides for a base salary
of $115,000.  In addition,  we granted Mr. Holloway an option to purchase 50,000
shares  of  common  stock  at  $7.50  per  share,  of which  20,000  shares  are
immediately  exercisable  and 5,000 shares  become  exercisable  for each 10,000
sales of ID-Check products sold that exceed 10,000. The maximum options that can
be earned in any calendar year may not exceed 100,000.  Any options earned above
the initial 50,000 options will be at fair market value on the date of grant.


                                     - 21 -


         Under the terms of the agreements, each of the executives has the right
to receive his  compensation in the form of shares of common stock valued at 50%
of the  closing  bid price of our  shares of common  stock as of the date of the
employee's  election,  which is to be made at the beginning of each quarter.  In
addition,  each of the  employment  agreements  requires the executive to devote
substantially   all  his  time  and  efforts  to  our   business   and  contains
non-competition  and nondisclosure  covenants of the officer for the term of his
employment and for a period of two years thereafter.  Each employment  agreement
provides that we may terminate the agreement for cause.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The  following   table  sets  forth,  as  of  December  31,  2000  certain
information  regarding beneficial  ownership of Intelli-Check's  common stock by
each  person who is known by us to  beneficially  own more than 5% of our common
stock.  The table also  identifies the stock ownership of each of our directors,
each of our  officers,  and all  directors  and  officers as a group.  Except as
otherwise  indicated,  the stockholders listed in the table have sole voting and
investment powers with respect to the shares indicated.

      Unless otherwise indicated,  the address for each of the named individuals
is c/o Intelli-Check, Inc., 246 Crossways Park West, Woodbury, NY 11797-2015.

      Shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise or  conversion  of options,  warrants or
other similar convertible or derivative  securities are deemed to be outstanding
for the purpose of computing  the  percentage  ownership of such  individual  or
group,  but are not deemed to be  outstanding  for the purpose of computing  the
percentage ownership of any other person shown in the table.

      The  applicable  percentage  of  ownership  is based on  7,696,236  shares
outstanding as of December 31, 2000.



-----------------------------------------------------------------------------------------
                          Name                        Shares Beneficially Owned   Percent
-----------------------------------------------------------------------------------------
                                                                             
Frank Mandelbaum                                              1,327,000            16.09
-----------------------------------------------------------------------------------------
Kevin Messina                                                 1,401,736            17.35
-----------------------------------------------------------------------------------------
Edwin Winiarz                                                   50,000               *
-----------------------------------------------------------------------------------------
W. Robert Holloway                                              22,000               *
-----------------------------------------------------------------------------------------
Paul Cohen                                                     296,385              3.79
-----------------------------------------------------------------------------------------
Evelyn Berezin**                                                41,000               *
-----------------------------------------------------------------------------------------
Charles McQuinn***                                              41,000               *
-----------------------------------------------------------------------------------------
Jeffrey Levy                                                    38,300               *
-----------------------------------------------------------------------------------------
Howard Davis                                                    35,500               *
-----------------------------------------------------------------------------------------
Todd Cohen                                                    1,077,900            13.81
-----------------------------------------------------------------------------------------
Empire State Development, formerly                             550,000              6.67
New York State Science and Technology Foundation
-----------------------------------------------------------------------------------------
All Executive Officers and Directors as a group (10           3,252,921            36.27
persons)
-----------------------------------------------------------------------------------------


  * Indicates  beneficial  ownership  of less  than  one  percent  of the  total
    outstanding common stock.


                                     - 22 -


 ** In February  2001,  Ms.  Berezin  exercised 500 of the options  beneficially
    owned by her and now holds 500 shares of common stock.

*** In February  2001, Mr.  McQuinn  exercised 1000 of the options  beneficially
    owned by him and now holds 1000 shares of common stock.

      The amounts shown for Mr.  Mandelbaum do not include 31,400 shares held by
Mr. Mandelbaum's wife, for which Mr. Mandelbaum disclaims beneficial ownership.

      The amounts shown for Mr. Paul Cohen do not include  50,000 shares held by
Mr. Cohen's wife, for which Mr. Cohen disclaims beneficial ownership.

      Mr. Todd Cohen's address is 5 Violet Drive,  Huntington Station,  New York
11746.

      Due to recent legislation, all assets of the New York State Small Business
Technology Investment Fund, which were located in the New York State Science and
Technology  Foundation,  were transferred to The Urban  Development  Corporation
d/b/a Empire State Development.  The Commissioner of Empire State Development is
Charles  A.  Gargano.  The  members  of the Board of  Directors  are  Charles A.
Gargano,  J. Patrick Barrett,  Charles E. Dorkey,  III, David Feinberg,  Anthony
Gioia,  Deborah  Weight and Elizabeth  McCaul.  The address for that fund is 633
Third Avenue, New York, NY 10017.

      The amounts shown in the table above for the following persons include the
right to acquire the number of shares shown  pursuant to  currently  exercisable
stock options and/or warrants at the exercise price shown:

--------------------------------------------------------------------------------
      NAME                             NUMBER OF SHARES          EXERCISE PRICE
--------------------------------------------------------------------------------
      Frank Mandelbaum                     550,000                    $3.00
--------------------------------------------------------------------------------
      Kevin Messina                        382,000                    $3.00
--------------------------------------------------------------------------------
      Edwin Winiarz                         50,000                    $5.00
--------------------------------------------------------------------------------
      W. Robert Holloway                    20,000                    $7.50
--------------------------------------------------------------------------------
      Paul Cohen                           110,000                    $3.00
                                             3,000                   $12.125
                                             1,500                    $8.75
--------------------------------------------------------------------------------
      Evelyn Berezin                        30,000                    $3.00
                                             5,500                   $12.125
                                             5,500                    $8.75
--------------------------------------------------------------------------------
      Charles McQuinn                       30,000                    $3.00
                                             5,500                   $12.125
                                             5,500                    $8.75
--------------------------------------------------------------------------------
      Jeffrey Levy                          15,000                   $11.625
                                             2,500                   $12.125
                                            20,500                    $8.75
--------------------------------------------------------------------------------
      Howard Davis                          15,000                   $11.625
                                             1,500                   $12.125
                                            19,000                    $8.75
--------------------------------------------------------------------------------


                                     - 23 -


--------------------------------------------------------------------------------
      Todd Cohen                           110,000                    $3.00
--------------------------------------------------------------------------------

*Empire State Development, formally New    100,000*                   $3.00
York State Science and Technology
Foundation
--------------------------------------------------------------------------------

* Exercised on February 22, 2001.

Item 12. Certain Relationships and Related Transactions

      In  October  1994,  Messrs.   Todd  Cohen  and  Kevin  Messina  co-founded
Intelli-Check  and each  purchased  975,000  shares of common stock for $975. In
April 1998,  Mr. Todd Cohen  resigned as an officer of our company for  personal
reasons and in August 1999, he completed his term as a director.

      In  June  1996,  Mr.  Messina's  company,  K.M.  Software,   assigned  two
copyrights   covering  certain  software  employed  by  ID-Check  and  a  patent
application  covering the ID-Check  technology to Intelli-Check for an agreement
to pay $98,151 plus  interest.  The agreement  also gave K.M.  Software,  or its
successor,  the right to  reclaim  the rights to the  copyrights  and the patent
under  certain  specified  conditions.  In May  1999,  the prior  agreement  was
superseded  and in exchange Mr.  Messina  received  69,937  shares of our common
stock and warrants to purchase  69,937 shares of our common stock,  at $3.00 per
share,  exercisable  at any time  prior to May 3, 2001.  The May 1999  agreement
provides for the payment by  Intelli-Check of royalties equal to 0.005% of gross
sales from  $2,000,000  to  $52,000,000  and 0.0025% of gross sales in excess of
$52,000,000.  Also, in May 1999, Mr.  Messina's  deferred  salary was reduced by
$10,126  through  the  issuance to him of 5,063  shares of our common  stock and
warrants to purchase  5,063  shares of our common  stock at a purchase  price of
$3.00 per share at any time prior to May 3, 2001.  In June 1999,  the balance of
Mr. Messina's  deferred salary was reduced to zero by the issuance of options to
purchase  207,000  shares of our common  stock at a purchase  price of $3.00 per
share at any time prior to June 30, 2004.

      In June 1996, Frank  Mandelbaum,  Intelli-Check's  Chief Executive Officer
and Chairman of the Board of Directors, purchased 950,000 shares of common stock
for  $50,000.  From time to time since  then,  Mr.  Mandelbaum  loaned  money to
Intelli-Check  totaling $142,000. In November 1997, Mr. Mandelbaum converted his
outstanding  loans  into  71,000  shares of our  common  stock and  warrants  to
purchase  71,000  shares  of our  common  stock at  $3.00  per  share,  which he
exercised on December 31, 2000. In May 1999, Mr.  Mandelbaum's  deferred  salary
was reduced by  $150,000  through  the  issuance to him of 75,000  shares of our
common  stock and  warrants to purchase  75,000  shares of our common stock at a
purchase  price of $3.00 per  share at any time  prior to May 3,  2001.  In June
1999, Mr.  Mandelbaum's  deferred  salary was reduced to zero by the issuance of
options to purchase  375,000  shares of our common stock at an exercise price of
$3.00 per share at any time prior to June 30, 2004.

      In March 1997, one of our  directors,  Paul Cohen  purchased  37,500 units
consisting  of one  share  of  common  stock  and one  warrant  to  purchase  an
additional  share  at $3.00  per  share in  connection  with one of our  private
placements,  for  $75,000.  He exercised  the warrants in December  2000 and the
Company received net proceeds of $112,500.  In November 1997, Mr. Cohen received
an option to purchase  50,000  shares of common stock  exercisable  at $3.00 per
share in connection with a one-year consulting agreement. Also in November 1997,
Mr. Cohen's wife purchased  25,000 units consisting of one share of common stock
and one  warrant to purchase an  additional  share of common  stock for $3.00 in
connection with one of our private placements for $50,000.  Mrs. Cohen exercised
the warrant in December  2000 and the Company  received net proceeds of $75,000.
In August 1999, Mr. Cohen purchased one unit in connection with our last private
placement.  The unit consisted of a promissory note having a principal amount of
$50,000, which bore interest at the annual rate of 10% and a warrant to purchase
2,500 shares of our common stock for $3.00 per share.  The  principal was repaid
by the Company to Mr. Cohen in November 1999.


                                     - 24 -


      In June 1999,  all  deferred  compensation  due to Todd Cohen,  our former
President  and director,  was  eliminated by the issuance of options to purchase
110,000  shares of common  stock at an exercise  price of $3.00 per share at any
time prior to June 30, 2004.

Item 13. Exhibits and Reports on Form 8-K

      (a) Exhibits. See index of exhibits annexed hereto.

      (b) Reports on Form 8-K. None.


                                     - 25 -


                                   SIGNATURES

      Pursuant  to the  requirements  of Section 13 or 15 (d) of the  Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:    March 23, 2001                         INTELLI-CHECK, INC.

                                             By:  /s/ Frank Mandelbaum
                                                  --------------------
                                             Frank Mandelbaum
                                             Chairman, Chief Executive Officer
                                             and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

Date: March 23, 2001       /s/ Frank Mandelbaum
                           ------------------------
                           Frank Mandelbaum
                           Chairman, Chief Executive Officer and Director

Date: March 23, 2001
                           ------------------------
                           Kevin Messina
                           Senior Executive Vice President, Chief Technology
                           Officer and Director

Date: March 23, 2001       /s/ Edwin Winiarz
                           ------------------------
                           Edwin Winiarz
                           Senior Executive Vice President, Treasurer and Chief
                           Financial Officer

Date: March 23, 2001       /s/ Paul Cohen
                           ------------------------
                           Paul Cohen, Director

Date: March 23, 2001       /s/ Evelyn Berezin
                           ------------------------
                           Evelyn Berezin, Director

Date: March 23, 2001       /s/ Charles McQuinn
                           ------------------------
                           Charles McQuinn, Director

Date: March 23, 2001       /s/ Jeffrey Levy
                           ------------------------
                           Jeffrey Levy, Director

Date: March 23, 2001       /s/ Howard Davis
                           ------------------------
                           Howard Davis, Director




INDEX TO FINANCIAL STATEMENTS



                                                                                             Page
                                                                                             ----
                                                                                       
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                      F-1

FINANCIAL STATEMENTS:
    Balance Sheet as of December 31, 2000                                                     F-2

    Statements of Operations for the Years Ended December 31, 1999 and 2000                   F-3

    Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 2000         F-4

    Statements of Cash Flows for the Years Ended December 31, 1999 and 2000                   F-5

NOTES TO FINANCIAL STATEMENTS                                                             F-6 - F-15





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Intelli-Check, Inc.:

We have audited the accompanying balance sheet of Intelli-Check, Inc. (a
Delaware corporation) as of December 31, 2000, and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1999 and 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intelli-Check, Inc. as of
December 31, 2000, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 2000 in conformity with accounting principles
generally accepted in the United States.

                                                        ARTHUR ANDERSEN LLP

New York, New York
March 19, 2001


                                      F-1


INTELLI-CHECK, INC.

BALANCE SHEET
DECEMBER 31, 2000

                                     ASSETS
                                     ------
CURRENT ASSETS:
  Cash and cash equivalents                                        $ 4,091,689
  Accounts receivable                                                   44,795
  Inventory                                                          2,536,338
  Other current assets                                                 511,638
            Total current assets                                     7,184,460

CERTIFICATE OF DEPOSIT (Note 8)                                        250,000

PROPERTY AND EQUIPMENT, net (Note 3)                                   438,021

PATENT COSTS, net of accumulated amortization of $38,235                67,426
                                                                   -----------
            Total assets                                           $ 7,939,907
                                                                   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
  Accounts payable                                                 $   180,792
  Accrued expenses (Note 4)                                            489,229
  Deferred revenue                                                     545,334
  Current portion of capital lease obligations (Note 8)                 48,767
                                                                   -----------
            Total current liabilities                                1,264,122
                                                                   -----------

CAPITAL LEASE OBLIGATIONS (Note 8)                                      42,738
                                                                   -----------
COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY:
  Series A Convertible Preferred Stock - $.01 par value;
    250,000 shares authorized; 0 shares issued and outstanding            --
  Common stock - $.001 par value; 20,000,000 shares authorized;
    7,696,236 shares issued and outstanding                              7,696
  Additional paid-in capital                                        13,561,362
  Accumulated deficit                                               (6,936,011)
                                                                   -----------
            Total stockholders' equity                               6,633,047
                                                                   -----------
            Total liabilities and stockholders' equity             $ 7,939,907
                                                                   ===========

The accompanying notes are an integral part of this balance sheet.


                                      F-2


INTELLI-CHECK, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000



                                                             1999           2000
                                                         -----------    -----------
                                                                  
REVENUE                                                  $    29,407    $   342,979
COST OF REVENUE                                               14,420        198,712
                                                         -----------    -----------
            Gross profit                                      14,987        144,267
                                                         -----------    -----------
OPERATING EXPENSES:
  Selling                                                    202,888        890,453
  General and administrative                               1,194,862      1,590,896
  Research and development                                   880,359      1,042,008
                                                         -----------    -----------
            Total operating expenses                       2,278,109      3,523,357
                                                         -----------    -----------
            Loss from operations                          (2,263,122)    (3,379,090)

OTHER INCOME (EXPENSE):
  Interest income                                             19,169        261,181
  Interest expense                                           (55,472)       (14,863)
                                                         -----------    -----------
                                                          (2,299,425)    (3,132,772)
INCOME TAX BENEFIT                                              --             --
                                                         -----------    -----------
            Net loss                                     $(2,299,425)   $(3,132,772)
                                                         ===========    ===========
PER SHARE INFORMATION:
  Net loss per common share-
    Basic and diluted                                    $     (0.45)   $     (0.47)
                                                         ===========    ===========
  Common shares used in computing per share amounts-
    Basic and diluted                                      5,079,807      6,648,191
                                                         ===========    ===========


The accompanying notes are an integral part of these statements.


                                      F-3


INTELLI-CHECK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000



                                                                Series A
                                          Common Stock       Preferred Stock       Additional
                                       ------------------   -------------------      Paid-In     Accumulated
                                        Shares     Amount    Shares     Amount       Capital       Deficit         Total
                                       ---------   ------   --------    -------    -----------   -----------    -----------
                                                                                           
BALANCE, December 31, 1998             4,402,552   $4,402    250,000    $ 2,500    $   839,342   $(1,503,814)   $  (657,570)

  Issuance of common stock in
    private placements                   274,600      275       --         --          548,925          --          549,200
  Exercise of warrant                    160,000      160       --         --          379,840          --          380,000
  Issuance of common stock for note
    payable and interest                  69,937       70       --         --          139,804          --          139,874
  Issuance of common stock for
    deferred salary                       80,063       80       --         --          160,046          --          160,126
  Issuance of common stock for
    settlements and accounts payable     128,000     128       --         --          445,588          --          445,716
  Issuance of stock options for
    deferred salary                         --       --         --         --          700,000          --          700,000
  Conversion of preferred stock          250,000      250   (250,000)    (2,500)         2,250          --             --
  Issuance of common stock in IPO,
    net of expenses                    1,150,000    1,150       --         --        6,905,976          --        6,907,126
   Net loss                                 --       --         --         --             --      (2,299,425)    (2,299,425)
                                       ---------   ------   --------    -------    -----------   -----------    -----------
BALANCE, December 31, 1999             6,515,152    6,515       --         --       10,121,771    (3,803,239)     6,325,047

  Exercise of warrants                 1,115,084    1,115       --         --        3,222,759          --        3,223,874
  Exercise of stock options               66,000       66       --         --          202,434          --          202,500
  Issuance of stock options in
    settlement of accounts payable          --       --         --         --           14,398          --           14,398
  Net loss                                  --       --         --         --            --       (3,132,772)    (3,132,772)
                                       ---------   ------   --------    -------    -----------   -----------    -----------
BALANCE, December 31, 2000             7,696,236   $7,696       --      $  --      $13,561,362   $(6,936,011)   $ 6,633,047
                                       =========   ======   ========    =======    ===========   ===========    ===========


The accompanying notes are an integral part of these statements.


                                      F-4


INTELLI-CHECK, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000


                                                                                    1999           2000
                                                                                -----------    -----------
                                                                                         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                      $(2,299,425)   $(3,132,772)
  Adjustments to reconcile net loss to net cash used in operating activities-
      Depreciation and amortization                                                 104,053         90,115
      Noncash expenditure                                                              --           14,398
      Changes in assets and liabilities-
        (Increase) in certificate of deposit                                           --         (250,000)
        (Increase) in accounts receivable                                           (14,320)       (30,475)
        (Increase) in inventory                                                    (169,916)    (2,349,729)
        (Increase) in other current assets                                          (53,392)      (457,325)
        (Increase) decrease in deposit                                             (245,800)       245,800
        (Increase) decrease in other assets                                          (2,586)         8,766
        Increase (decrease) in accounts payable and accrued expenses              1,159,805       (137,941)
        Increase in deferred revenue                                                   --          545,334
                                                                                -----------    -----------
            Net cash used in operating activities                                (1,521,581)    (5,453,829)
                                                                                -----------    -----------
CASH FLOWS FROM INVESTING activities:
  Purchases of property and equipment                                               (93,797)      (223,511)
                                                                                -----------    -----------
            Net cash used in investing activities                                   (93,797)      (223,511)
                                                                                -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock                                      7,836,326      3,426,374
  (Repayment of) capital lease obligations                                             --          (37,893)
  Proceeds from promissory notes                                                  1,200,000           --
  Repayment of promissory notes                                                  (1,200,000)          --
                                                                                -----------    -----------
            Net cash provided by financing activities                             7,836,326      3,388,481
                                                                                -----------    -----------
            Net increase (decrease) in cash and cash equivalents                  6,220,948     (2,288,859)

CASH AND CASH EQUIVALENTS, beginning of year                                        159,600      6,380,548
                                                                                -----------    -----------
CASH AND CASH EQUIVALENTS, end of year                                          $ 6,380,548    $ 4,091,689
                                                                                ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash paid during the period for interest                                  $    37,458    $    14,863
                                                                                ===========    ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
  Conversion of preferred stock to common stock                                 $   250,000    $      --
  Common stock issued to satisfy debt and notes payable                             139,874           --
  Common stock issued to satisfy deferred salary                                    160,126           --
  Common stock issued for settlements and accounts payable                          445,715           --
  Stock options issued to satisfy deferred salary                                   700,000           --
  Capital lease obligations incurred                                                 71,519         54,125
  Stock options issued in settlement of account payable                                --           14,398


The accompanying notes are an integral part of these statements.


                                      F-5


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS

Intelli-Check, Inc. (the "Company") was originally incorporated in New York in
October 1994 and reincorporated in Delaware in December 1999 to develop,
manufacture and market an advanced document verification system to enable a
retailer to help prevent economic loss through various frauds utilizing fake
ID's as support for these transactions and to determine whether purchasers of
age restricted products meet the minimum age requirements for the sale. This
helps reduce the risk to the retailer of substantial monetary fines, criminal
penalties and license revocation for the sale of age-restricted products to
minors.

The Company has developed and patented the innovative software technology that
is included in the advanced document verification system terminal called
"ID-Check." The ID-Check terminal, in which the Company's patented software is
loaded, was designed to offer convenient and reliable document and age
verification. ID-Check reads, analyzes and displays the encoded information
contained on driver licenses and other forms of accepted government issued
identification where permitted by law. In addition, the ID-Check terminal is
capable of being upgraded to accommodate changes made by the governmental
issuers of driver licenses and ID cards. The ID-Check terminal requires a quick
swipe or scan of the driver license or ID card by the retailer; displays a
"valid", "invalid", "yes", "no", "expired", "tampered" or other customized
displays; and creates a record of transactions to protect the merchant against
fraudulent transactions and as proof that the retailer has used proper due
diligence in the sale of age restricted products.

2.  SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with
original maturities of three months or less when purchased.

Revenue Recognition

Revenue on sales of the Company's product is recognized upon shipment to the
customer. Certain sales require continuing service or post contract customer
support and performance by the Company, and accordingly a portion of the revenue
is deferred and recognized ratably over the period in which the future service,
support and performance are provided, which is generally one year. Currently, if
the Company does not have enough experience to identify the fair value of each
element, the full amount of the revenue and related gross margin is deferred and
recognized ratably over the one-year period in which the future service, support
and performance are provided.

During the year ended December 31, 2000, the Company contracted sales of
$860,929, of which $517,950 have been deferred and are included in deferred
revenue in the accompanying balance sheet. In addition, the Company has deferred
the related cost of revenues from the above transactions amounting to $299,040,
which are included in other current assets in the accompanying balance sheet.

Inventory

Inventory is stated at the lower of cost or market and cost is determined using
the first-in, first-out method. Inventory is primarily comprised of finished
goods.

Long-Lived Assets

The Company's policy is to record long-lived assets at cost and amortize these
costs over the expected useful life of the related assets, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." These assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
reasonable. Furthermore, these assets are evaluated for continuing value and
proper useful lives by comparison to undiscounted expected future cash flow
projections. The Company has determined that no impairment exists as of December
31, 2000.


                                      F-6


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Property and Equipment

Property and equipment are recorded at cost and are depreciated over their
estimated useful lives ranging from three to ten-years using the straight-line
basis. Equipment held under capital leases is amortized utilizing the
straight-line method over the lesser of the term of the lease or estimated
useful life of the asset.

Patent Costs

Patent costs, primarily consisting of legal costs, are amortized over a period
of 17 years.

Capitalized Software Development Costs

SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased
or Otherwise Marketed," specifies that costs incurred internally in creating a
computer software product shall be charged to expense when incurred as research
and development until technological feasibility has been established for the
product. Software production costs for computer software that is to be used as
an integral part of a product or process shall not be capitalized until both (a)
technological feasibility has been established for the software and (b) all
research and development activities for the other components of the product or
process have been completed. The Company has not capitalized any software costs
for the years ended December 31, 1999 and 2000.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and net operating loss carryforwards. Deferred tax assets
and liabilities are measured using expected tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. The
Company has recorded a full valuation allowance for its deferred tax assets as
of December 31, 2000, due to the uncertainty of the realizability of those
assets.

Fair Value of Financial Instruments

The Company adheres to the provisions of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." This pronouncement requires that the Company
calculate the fair value of financial instruments and include this additional
information in the notes to financial statements when the fair value is
different than the book value of those financial instruments. At December 31,
2000 the carrying value of all financial instruments approximated fair value.

Business Concentrations and Credit Risk

Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash, cash equivalents and short-term commercial
paper. The Company maintains cash between two financial institutions. The
Company performs periodic evaluations of the relative credit standing of these
institutions. The Company has had limited sales due to initial release of the
enhanced product in late September 2000 to a number of clients which are
concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral, and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information.

There were no customers that accounted for greater than 10% of sales or accounts
receivable for the year ended December 31, 1999. However, approximately 80% of
the Company's sales during the year ended December 31, 2000 were made to one
customer under a master manufacturing order agreement. In addition, the same
customer accounted for approximately 27% of accounts receivable as of December
31, 2000.


                                      F-7


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

The Company currently has one supplier for the production of its ID-check
products (Note 8). The Company does not maintain a manufacturing facility of its
own and, accordingly, is dependent on maintaining its existing production
relationships. Further, should the Company's relationship with its supplier
terminate unexpectedly, it may not be able to find an alternative, comparable
supplier on satisfactory terms to the Company, and therefore, there may be an
adverse effect on the Company's results of operations.

Net Income (Loss) Per Common Share

The Company computes net income (loss) per common share in accordance with SFAS
No. 128, "Earnings Per Share". Under the provisions of SFAS No. 128, basic net
income (loss) per common share ("Basic EPS") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted net
income (loss) per common share ("Diluted EPS") is computed by dividing net
income (loss) by the weighted average number of common shares and dilutive
common share equivalents then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the statements of
operations.

Diluted EPS for the years ended December 31, 1999 and 2000, does not include the
impact of stock options and warrants then outstanding, as the effect of their
inclusion would be antidilutive.

Stock-Based Compensation

The Company accounts for stock compensation under the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," by continuing to apply the
provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees," ("APB No. 25") while providing the necessary pro forma
disclosures as if the fair value method had been applied.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Comprehensive Loss

The Company's comprehensive net loss is equal to its net loss for the years
ended December 31, 1999 and 2000.

Segment Information

The Company adheres to the provisions of SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This statement establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in financial
statements issued to shareholders. Management has determined that it does not
have any separately reportable business segments.

Costs of Computer Software Developed or Obtained for Internal Use

The Company accounts for certain software costs under Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which provides guidance for determining whether
computer software is internal-use software and guidance on accounting for the
proceeds of computer software originally developed or obtained for internal use
and then subsequently sold to the public. It also provides guidance on
capitalization of the costs incurred for computer software developed or obtained
for internal use. The adoption of SOP 98-1 in 1999 did not have a material
effect on the Company's financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                      F-8


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Recently Issued Accounting Standards

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.

In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
currently engage in derivative activity and does not expect the adoption of this
standard to have a material effect on the Company's results of operations,
financial position or cash flows.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. The Company adopted SAB 101 in the fourth quarter of 2000, which did not
have a material impact on the Company's previously reported financial position,
results of operations, or cash flows.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, and Interpretation of APB Opinion No.
25" ("FIN 44"). The Interpretation is intended to clarify certain problems that
have arisen in practice since the issuance of APB No. 25 "Accounting for Stock
Issued to Employees." The effective date of the interpretation was July 1, 2000.
The provisions of the interpretation will apply prospectively, but it will also
cover certain events occurring after December 15, 1998 and after January 12,
2000. The adoption of FIN 44 did not have a material impact on the Company's
current or historical financial statements.

In September 2000, the Emerging Issue Task Force ("EITF") reached a consensus
with respect to EITF Issue No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs." The purpose of this issue discussion was to clarify the
classification of shipping and handling revenues and costs. The consensus
reached was that all shipping and handling billed to customers is revenue.
Further, a consensus was reached that classification of shipping and handling
costs is an accounting policy decision that should be disclosed pursuant to APB
No. 22, "Disclosures of Accounting Policies".

The Company currently records amounts billed for shipping and handling
appropriately as revenue and the related costs are recorded as cost of revenue.
The Company adopted this consensus in the fourth quarter of 2000, which did not
have a material impact on the Company's historical or current financial
statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

3.  PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following as of December 31, 2000:

           Computer equipment                               $  368,207
           Furniture and fixtures                              151,210
           Leasehold improvements                              143,253
           Office equipment                                     40,412
                                                            ----------
                                                               703,082

           Less- Accumulated depreciation                     (265,061)
                                                            ----------
                                                            $  438,021
                                                            ==========

Depreciation expense for the years ended December 31, 1999 and 2000 amounted to
$97,843 and $83,908, respectively.


                                      F-9


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

4.  ACCRUED EXPENSES

Accrued expenses are comprised of the following as of December 31, 2000:

           Professional fees                      $  251,501
           Payroll                                    71,824
           Rent                                       34,346
           Other                                     131,558
                                                  ----------
                                                  $  489,229
                                                  ==========

5.  SHORT-TERM DEBT

In August and September 1999, the Company placed $1,200,000 of secured
promissory notes with interest at 10% for net proceeds of $1,050,00. The notes
had warrants attached to purchase 2,500 shares of common stock for each
principal amount of $50,000, at $3.00 per share. The warrants expire in August
2002 and can be redeemed by the Company at $0.01 per warrant at any time the
Company's common stock has an average market price of $6.00 per share for a
period of twenty consecutive trading days. The fair value of the warrants was
deemed to be immaterial. The notes were to mature at the earlier of July 31,
2000 or the date at which the Company received gross proceeds from an initial
public offering ("IPO") of its securities of at least $6,000,000. In connection
with the closing of the Company's IPO in November 1999, these notes along with
all accrued interest, were repaid prior to December 31, 1999.

6.  INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes as of
December 31, 2000 are as follows:

 Deferred tax assets, net:

    Net operating loss carryforwards                           $ 2,608,000
    Depreciation                                                   (20,000)
    Accruals                                                       (64,000)
    Other                                                           (5,700)
    Less- Valuation allowance                                   (2,518,300)
                                                              ------------
              Deferred tax assets, net                         $        --
                                                              ============

Realization of deferred tax assets is dependent upon future earnings, if any.
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that it is more likely than not that these
assets will not be realized in the near future.

As of December 31, 1999 and 2000, the Company had net operating loss
carryforwards (NOL's) for federal income tax purposes of approximately
$3,250,000 and $6,521,000, respectively. There can be no assurance that the
Company will realize the benefit of the NOL's. The federal NOL's are available
to offset future taxable income and expire from 2018 through 2020 if not
utilized. Under Section 382 of the Internal Revenue Code, these NOL's may be
limited due to ownership changes.

7.  STOCKHOLDERS' EQUITY

Series A Convertible Preferred Stock

In January 1997, the Board of Directors authorized the creation of a class of
Series A Convertible Preferred Stock with a par value of $.01. The Series A
Convertible Preferred Stock is convertible into an equal number of common shares
at the holder's option, subject to adjustment for anti-dilution. The holders of
Series A Convertible Preferred Stock are entitled to receive dividends as and if
declared by the Board of Directors. In the event of liquidation or dissolution
of the Company, the holders of Series A Convertible Preferred Stock are entitled
to receive all accrued dividends, if applicable, plus the liquidation price of
$1.00 per share.


                                      F-10


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

As of December 31, 2000, there were no outstanding shares of Series A
Convertible Preferred Stock.

Common Stock and Warrants

In January 1999, the Company completed a private placement of stock, which
originally commenced in 1998. During January 1999, the Company sold 15,000
units, consisting of one share of the Company's common stock and one warrant to
purchase an additional share of common stock at $3.00, expiring two years from
the date of closing. The Company received total proceeds of $30,000 in January
1999. The Company allocated the net proceeds from the sale of the common stock
to the common stock and to the warrant.

In February 1999, the Company extended the expiration dates for the warrants
issued on May 26, 1997 and November 30, 1997 until June 30, 2000 and further
extended the warrants to December 31, 2000. The Company did not record a charge
for the adjustment to the terms of the warrants, as the amount was immaterial.
All of the warrants were exercised prior to their expiration.

In March 1999, the Company commenced an additional private placement and sold
259,600 units, consisting of one share of common stock and one warrant to
purchase an additional share of common stock at $3.00, expiring two years from
the date of closing. The Company received total proceeds of $489,200 prior to
June 30, 1999 and the remaining balance of $30,000 in August 1999. The Company
allocated the net proceeds from the sale of the common stock to the common stock
and to the warrant.

In April 1999, the Company adjusted the exercise price of a warrant to purchase
common stock of the Company issued to an investor, in a previous common stock
private placement, from $3.00 to $2.00. The adjustment was contingent upon the
investor exercising the warrants within thirty days of the adjustment. The
Company did not record a charge for the adjustment to the terms of the warrants,
as the amount was immaterial as the exercise price of the warrant was equal or
above the fair market value of the Company's common stock on the date of the
adjustment. The investor exercised this warrant in May 1999 at the adjusted
exercise price and the Company received total proceeds of $200,000. In addition,
the investor received a new warrant to purchase 100,000 shares of the Company's
common stock at an exercise price of $3.00 per share, which was exercised in
February 2001. In the opinion of management, the new warrant was been issued
with an exercise price that was equal or above the fair market value of the
Company's common stock on the date of grant.

In connection with an agreement executed in May 1999, which superceded a prior
license agreement (Note 8), the Company repaid a loan of $98,151 and accrued
interest of $41,724 to the then President of the Company. The Company paid $1.00
in cash and issued 69,937 units, consisting of one share of the Company's common
stock and one warrant to purchase an additional share of common stock at $3.00,
expiring in May 2001.

In June 1999,  the Company  issued 9,000 shares of common stock to a third party
for  professional  services  rendered on behalf of the Company.  The shares were
valued at $4.00 per share,  and  accordingly,  the Company  recorded a charge of
$36,000 in the accompanying statement of operations for the year ended December
31, 1999.  In addition,  the Company  issued  34,000 shares of common stock to a
third party in connection  with fees  incurred in  connection  with its IPO. The
shares were valued at $5.00 per share,  and  accordingly,  the Company  recorded
this  transaction as an offset to additional  paid in capital as of December 31,
1999.

On November 18, 1999, the Company successfully completed its IPO of 1,150,000
shares of common stock at $7.50 per share, including the underwriters'
overallotment option, for net proceeds of approximately $6,907,000 after
underwriting commissions and offering expenses.

During the year ended December 31, 2000, the Company received net proceeds of
$3,223,874 from the exercise of 1,115,084 warrants. As of December 31, 2000,
there remained warrants outstanding to purchase 596,475 shares of the Company's
common stock at an exercise price of $3.00, except for 10,000 warrants that
carry an exercise price of $8.40.

In the opinion of management, all warrants have been issued with an exercise
price that is equal or above the fair market value of the Company's common stock
on the date of grant.


                                      F-11


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Stock Options

In order to retain and attract qualified personnel necessary for the success of
the Company, the Company adopted a Stock Option Plan (the "1998 Stock Option
Plan") covering up to 400,000 of the Company's common shares, pursuant to which
officers, directors, key employees and consultants to the Company are eligible
to receive incentive stock options and nonqualified stock options. The
Compensation Committee of the Board of Directors administers the 1998 Stock
Option Plan and determines the terms and conditions of options granted,
including the exercise price. The 1998 Stock Option Plan provides that all stock
options will expire within ten years of the date of grant. Incentive stock
options granted under the 1998 Stock Option Plan must be granted at an exercise
price that is not less than the fair market value per share at the date of grant
and the exercise price must not be less than 110% of the fair market value per
share at the date of grant for grants to persons owning more than 10% of the
voting stock of the Company. The 1998 Stock Option Plan also entitles
nonemployee directors to receive grants of non-qualified stock options as
approved by the Board of Directors.

Pursuant to the 1998 Stock Option Plan, the Company had granted in 1997, 50,000
stock options to each of three members of the Board of Directors, of which all
are exercisable at $3.00 per share and all expire within 5 years from the date
of grant. One of the directors had declined to stand for re-election to the
Board. In connection with this decision in 1999, the Company extended the date
of expiration of the former director's stock options until August 15, 2000. The
Company did not record a charge for the adjustment to the terms of the stock
options, as the amount was immaterial.

In August 1999, the Company adopted the 1999 Stock Option Plan (the "1999 Stock
Option Plan") covering up to 1,000,000 of the Company's common shares, pursuant
to which officers, directors, key employees and consultants to the Company are
eligible to receive incentive stock options and nonqualified stock options. The
Compensation Committee of the Board of Directors administers the 1999 Stock
Option Plan and determines the terms and conditions of options granted,
including the exercise price. The 1999 Stock Option Plan provides that all stock
options will expire within ten years of the date of grant. Incentive stock
options granted under the 1999 Stock Option Plan must be granted at an exercise
price that is not less than the fair market value per share at the date of grant
and the exercise price must not be less than 110% of the fair market value per
share at the date of grant for grants to persons owning more than 10% of the
voting stock of the Company. The 1999 Stock Option Plan also entitles
nonemployee directors to receive grants of non-qualified stock options as
approved by the Board of Directors.

In December 2000, the Company granted an option to a third-party purchase 25,000
shares of common stock at $10.00 per share of which 3,599 shares are immediately
exercisable and 21,401 vest as advertising services are performed. The fair
market value of each option has been estimated at $4.00 on the date of grant
using the Black-Scholes option pricing model and will be revalued at each
measurement date when services are performed. The Company recorded a charge of
$14,398 in the accompanying statement of operations as of December 31, 2000 and
will amortize the remaining expense as services are performed.

Had compensation for the 1998 and 1999 Stock Option Plans been determined
consistent with the provisions of SFAS No.123, the effect on the Company's net
loss and basic and diluted loss per share would have been changed to the
following pro forma amounts:

                                         Year Ended            Year Ended
                                      December 31, 1999    December 31, 2000
                                      -----------------    -----------------
   Net loss, as reported                $(2,299,425)         $(3,132,772)
   Net loss, pro forma                   (2,582,153)          (4,077,551)
   Basic and diluted loss per
     share, as reported                       (0.45)               (0.47)
   Basic and diluted loss per
     share, pro forma                         (0.51)               (0.61)


                                      F-12


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Stock option activity under the 1998 and 1999 Stock Option Plans during the
periods indicated is as follows:

                                                                    Weighted
                                                                    Average
                                             Options Granted    Exercise Price
                                             ---------------    --------------
      Outstanding at January 1, 1999             280,000          $   3.00

          Granted                              1,278,000              3.88
          Canceled                               (10,000)             3.00
                                               ---------          --------
      Outstanding at December 31, 1999         1,548,000          $   3.72
                                               ---------          --------
          Granted                                476,560          $   9.48
          Canceled                               (80,000)             3.00
          Exercised                              (66,000)             3.07
                                               ---------          --------
      Outstanding at December 31, 2000         1,878,560          $   5.04
                                               =========          ========

Included in the option schedule are 692,000 non-plan options.

As of December 31, 1999 and 2000, the fair market value of each option grant has
been estimated on the date of grant using the Black-Scholes option pricing model
based upon expected option lives of 5 years and 2 years; risk free interest
rates of 5.00% and 6.00%; expected volatility of 68.11% and 91.0% and a dividend
yield of 0% and 0%, respectively.

The weighted-average remaining life of the options outstanding at December 31,
1999 and 2000 is 4.66 years and 3.87 years, respectively, and the
weighted-average fair value of the options outstanding at December 31, 1999 and
2000 is $2.07 and $5.14, respectively.

As of December 31, 2000, the Company has 799,979 options exercisable and 147,440
options available for future grant under the 1998 and 1999 Stock Option Plans.

In the opinion of management, all stock options have been issued with an
exercise price that is equal or above the fair market value of the Company's
Common Stock on the date of grant.

8.  COMMITMENTS AND CONTINGENCIES

Operating Leases

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 and 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.

In addition, the Company has entered into various leases for office equipment
and office space expiring through December 2010. Future minimum lease payments
under these lease agreements are as follows:

Year Ending December 31:

           2001                                 $   215,376
           2002                                     223,756
           2003                                     230,036
           2004                                     235,801
           2005                                     245,062
           Thereafter                             1,380,822


                                      F-13


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Capital Lease Obligations

The Company leases computer equipment and office equipment under several capital
leases expiring in 2003. The asset and liability are recorded at the lower of
the present value of minimum lease payments or the fair market value of the
assets.

Future minimum payments under the lease agreements are as follows:

  Year Ending December 31:
    2001                                                           $  59,546
    2002                                                              29,655
    2003                                                              18,425
                                                                   ---------
           Total minimum lease payments                              107,626

    Less- Amount representing interest                                16,121
                                                                   ---------
           Present value of net minimum lease payments             $  91,505
                                                                   ---------

Royalty and License Agreements

In January 1996, the Company entered into an agreement with a third party. The
agreement stated that if the Company has sales exceeding $500,000 to certain
customers as specified within the agreement, the Company must pay between 2 to
4% of gross revenues as a royalty to the third party. In May 1999, the Company
and the third party agreed to terminate the royalty agreement pursuant to a
Settlement Agreement. Under the Settlement Agreement, the Company issued 10,000
shares of common stock, valued at $2.00 per share with piggyback registration
rights, to the third party in exchange for the termination of the royalty
agreement. The Company recorded a charge of $20,000 in the accompanying
statement of operations for the year ended December 31, 1999.

The Company entered into an agreement with an officer of the Company during 1996
to license certain software. The agreement stipulated, among other provisions,
that the officer would receive royalties equal to a percentage of the Company's
gross sales. This agreement was terminated in May 1999 and superceded by a new
agreement which calls for payment of the executive royalties of .005% on gross
sales from $2,000,000 to $52,000,000 and .0025% on gross sales in excess of
$52,000,000

Employment Agreements

On January 1, 1999, the Company entered into three-year employment contracts
with both its Chairman and Chief Executive Officer and its Senior Executive Vice
President and Chief Technology Officer. Each of the agreements provides for a
base salary of $225,000 subject to certain conditions and the payment of a bonus
if the Company's sales exceed $2,000,000 in the previous year. The bonus will be
in the amount of $50,000 plus 1% of the amount of sales in excess of $2,000,000
in each year. In addition, for each fiscal year ending during the term of the
employment agreements, the Company will grant to each of the executives an
option to purchase the greater of 25,000 shares of common stock at fair market
value on the date of grant or 10,000 shares of common stock at fair market value
on the date of grant for each full $250,000 by which pre-tax profits for each
year exceeds pre-tax profits for the prior fiscal year. However, the Company is
not required to grant options to purchase more than 150,000 shares of common
stock with respect to any one fiscal year.

In May 1999, the Chairman and Chief Executive Officer converted $150,000 in
deferred salary into 75,000 units, consisting of one share of the Company's
common stock and one warrant to purchase an additional share of common stock at
$3.00, expiring in May 2001. In addition, the Company's Senior Executive Vice
President and Chief Technology Officer converted $10,126 in deferred salary into
5,063 units, consisting of one share of the Company's common stock and one
warrant to purchase an additional share of common stock at $3.00, expiring in
May 2001.


                                      F-14


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

In June 1999, the Chairman and Chief Executive Officer converted approximately
$380,000 in deferred salary and interest into 375,000 options to purchase a
share of common stock at $3.00, expiring in June 2004. In addition, the
Company's Senior Executive Vice President and Chief Technology Officer converted
approximately $210,000 in deferred salary and interest into 207,000 options to
purchase a share of common stock at $3.00, expiring in June 2004. Furthermore,
the Company's former President converted approximately $110,000 in deferred
salary and interest into 110,000 options to purchase a share of common stock at
$3.00, expiring in June 2004.

In July 1999, the Company entered into a two-year employment agreement with its
Senior Executive Vice President and Chief Financial Officer, which became
effective on September 7, 1999. The agreement provides for a base salary of
$125,000. In addition, the Company granted the Chief Financial Officer an option
to purchase 50,000 shares of common stock, of which 30,000 options are
immediately exercisable at $5.00 per share and 20,000 options became exercisable
on September 7, 2000 at $5.00 per share.

Effective October 1999, the Company entered into a two-year employment agreement
with its Senior Executive Vice President of Sales. The agreement provides for a
base salary of $115,000. In addition, the Company granted the Senior Executive
Vice President of Sales an option to purchase 50,000 shares of common stock at
$7.50 per share, of which 20,000 shares are immediately exercisable and 5,000
shares become exercisable for each 10,000 sales of ID-Check products sold that
exceed 10,000. The maximum options that can be earned in any calendar year may
not exceed 100,000. Any options earned above the initial 50,000 options will be
at fair market value on the date of grant.

Supplier Agreements

In June 1999, the Company and Hazeltine (succeeded by Marconi Aerospace Systems,
Inc.) entered into an agreement to terminate the Exclusive Supplier and Royalty
Agreements originally entered into in December 1996. Under the terms of the
termination agreement, Hazeltine returned all units of the Company's ID-Check in
its possession as well as all samples, designs, drawings, software, molds and
any other item related to the ID-Check. The Company issued 75,000 shares of
common stock to Hazeltine in 1999, in order to satisfy outstanding payables of
approximately $220,000 due Hazeltine.

In July 1999, and amended November 1999 and July 2000, the Company entered into
a supplier agreement with Welch Allyn, Inc. The agreement specified that the
Company pay approximately $188,000 for the development of the Company's ID-check
products. In addition, Welch Allyn Inc. agreed to manufacture these products for
an initial period of two years. The Company placed an initial order for a total
of 2,000 units of which they had received 500 units as of December 31, 1999.
These units were subsequently returned to the manufacturer to exchange the
original scanner for a high-tech scanner, which allows 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 July 2000, the Company placed an additional order to purchase
5,000 units and has received a portion of the units prior to December 31, 2000.

9.  SUBSEQUENT EVENTS

In February 2001, the Company signed a letter of intent to acquire certain
assets of Neotilt Corp., a Canadian developer of software for hand held age and
document verification units for approximately $500,000 of the Company's common
stock. Neotilt Corp. may earn additional performance incentives in cash of up to
$125,000 and additional stock options based upon the achievement of certain
milestones. The letter of intent expires on March 31, 2001. The Company will
account for this acquisition under the purchase method of accounting.

In February 2001, an existing investor exercised 100,000 warrants at an exercise
price of $3.00 per share of common stock.

In March 2001, the Company declared a dividend distribution of one
non-transferable right to purchase one share of the Company's common stock for
every 10 outstanding shares of common stock held of record on March 30, 2001, at
an exercise price of $8.50. The rights will expire one year after the date of an
effective registration statement relating to the shares of common stock
underlying the rights. If certain conditions occur, the Company has the right to
redeem the outstanding rights for $.01 per right. In addition, the Company
extended the expiration date of its warrants that were due to expire on various
dates through June 30, 2001, until September 30, 2001.


                                      F-15


                                  EXHIBIT INDEX

Exhibit No.   Description
-----------   -----------

1             Form of Underwriting Agreement (1)

3.1           Certificate of Incorporation of the Company (1)

3.2           By-laws of the Company (1)

4.1           Specimen Stock Certificate (2)

4.2           Form of Underwriters' Warrant Agreement (1)

10.1          1998 Stock Option Plan (1) *

10.2          Employment Agreement between Frank Mandelbaum and the Company,
              dated as of January 1, 1999 (1) *

10.3          Employment Agreement between Kevin Messina and the Company, dated
              as of January 1, 1999 (1) *

10.4          Employment Agreement between Edwin Winiarz and the Company, dated
              as of July 21, 1999 (1) *

10.5          Agreement of Lease between the Company and Industrial and Research
              Associates, dated as of October 15, 2000

10.6          1999 Stock Option Plan (1) *

10.7          Development and Supply Agreement between the Company and Welch
              Allyn Data Collection Inc., dated July 9, 1999 (1)

10.8          Agreement between the Company and Northern Leasing Systems Inc.,
              dated as of August 13, 1999 (1)

10.9          Employment Agreement between the Company and W. Robert Holloway,
              dated October 25, 1999 (1) *

10.10         Agreement between the Company and Kevin Messina, individually and
              d/b/a K.M. Software Development, dated as of May 3, 1999 (1) *

10.11         Memorandum of Understanding between AAMVA net, Inc. and
              Intelli-Check, Inc. effective November 15, 2000

21            List of Subsidiaries (1)

23            Consent of Arthur Andersen LLP

-----------------------
      *     Denotes a management contract or compensatory plan, contract or
            arrangement.

      (1)   Incorporated by reference to Registration Statement on Form Sb-2
            (File No. 333-87797) filed September 24, 1999.

      (2)   Incorporated by reference to Amendment No. 1 to the Registration
            Statement filed November 1, 1999.

      (3)   Incorporated by reference to Amendment No. 2 to the Registration
            Statement filed November 15, 1999.