UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

[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, 2004

                                       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)

       Registrant's telephone number, including area code: (516) 992-1900
                                                           --------------

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                               Yes  X     No
                                   ---       ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to item 405
of Regulation  S-K 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-K or any amendment to this
Form 10-K. _____

Indicated  by check mark  whether the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

                               Yes        No  X
                                   ---       ---

State the aggregate market value of the voting and non-voting stock held by
non-affiliates of the Issuer: $61,118,303 (based upon the closing price of
Issuer's Common Stock, $.001 par value, as of the last business day of the
Issuer's most recently completed second fiscal quarter (June 30, 2004).

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                       10,754,240
-----------------------------                       ----------
      (Title of Class)             (No. of Shares Outstanding at March 25, 2005)

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>


                                TABLE OF CONTENTS


                                     Part I

 1.   Business                                                                 3
 2.   Description of Property                                                 13
 3.   Legal Proceedings                                                       13
 4.   Submission of Matters to a Vote of Security Holders                     14


                                     Part II

 5.   Market for Common Equity and Related Stockholder Matters                15
 6.   Selected Financial Data                                                 16
 7.   Management's Discussion and Analysis                                    16
7A.   Quantitative and Qualitative Disclosures About Market Risks             23
 8.   Financial Statements and Supplementary Data                             23
 9.   Changes In and Disagreements  With Accountants on Accounting and
      Financial Disclosure                                                    23
9A.   Controls and Procedures                                                 23
9B.   Other Information                                                       23


                                    Part III

10.   Directors and Executive Officers                                        24
11.   Executive Compensation                                                  27
12.   Security  Ownership of Certain  Beneficial Owners and Management
      and Related Stockholder Matters                                         29
13.   Certain Relationships and Related Transactions                          31
14.   Principal Accountant and Fees                                           31
15.   Exhibits and Financial Statement Schedules                              32


                                  2
<PAGE>


Item 1. Business

Overview

      We were  originally  incorporated  in the  state of New  York in 1994.  In
August 1999, we reincorporated in Delaware.  We have developed and are currently
marketing  an  advanced  document  verification  system as part of our  identity
management   solutions  to  enable  a  user  to  detect   altered  and  tampered
identification cards and to address problems such as:

      o     Commercial  Fraud - which may lead to economic  losses to  merchants
            from check  cashing,  debit and credit card and other types of fraud
            such  as  identity  theft  which  principally   utilizes  fraudulent
            identification cards as proof of identity;

      o     Unauthorized Access - by verifying  identification,  our systems and
            software  are designed to increase  security and deter  terrorism at
            airports,   shipping  ports,   rail  and  bus  terminals,   military
            installations,  high  profile  buildings  and  infrastructure  where
            security is a concern;

      o     Underage  Access  to  Age  Restricted  Products  and  Services  - by
            verifying  identification,  our systems and software are designed to
            determine the customer's age and validity of the identification card
            to detect and prevent the use of fraudulent  identification  for the
            purchase of alcohol,  tobacco and other age-restricted  products and
            services  and to  reduce  the risk to the  retailer  of  substantial
            monetary  fines,  criminal  penalties  and the potential for license
            revocation for the sale of age-restricted products to minors; and

      o     Inefficiencies  Associated  With  Manual  Data  Entry  - by  reading
            encoded data  contained  in the bar code and  magnetic  stripe of an
            identification  card with a quick  swipe or scan of the card,  where
            permitted  by  law,   customers  are  capable  of   accurately   and
            instantaneously  inputting information into forms,  applications and
            the like without the errors associated with manual data entry.

Our Products and Services

      ID-Check(TM) technology

      Our patented ID-Check(TM) technology is our advanced document verification
software.  ID-Check is  contained in our  software  products,  and is capable of
reading and  verifying in one swipe or scan the encoded  data  contained on U.S.
and Canadian driver licenses, state issued identification cards and military IDs
that, in most cases,  comply with the standards of the American  Association  of
Motor Vehicle Administrators  (AAMVA), the American National Standards Institute
(ANSI) and the International Standards Organization (ISO).

      C-Link(R) software

      Our C-Link(R) software, which is our networkable data management software,
works in  conjunction  with the  ID-Check  terminal  where  permitted by law. It
allows the user to instantly view data for further  verification and archives it
into a  personal  computer.  C-Link(R)  can be used on a  stand  alone  personal
computer or network  environment.  It contains  features  such as alerts,  watch
lists, and recurring entry.

      ID-Check SDK

      Our software product,  ID-Check SDK, formerly called IDN-DLL,  is designed
for software developers that wish to incorporate  ID-Check technology into their
applications,   contains  our  proprietary  technology,  as  well  as  a  device
controller,  and is capable of reading the smart chip  contained in the military
common access card, or CAC. We currently  have six license  agreements  executed
with  third  parties  for   integration  and   sub-licensing   of  our  software
applications.

      IDC-1400

      The original product we designed and developed,  the IDC-1400, is based on
our  ID-Check(TM)  technology.  Effective  as of  July  2003,  our  manufacturer
discontinued manufacturing the IDC-1400 terminal.  However, we are offering this
product for sale until  current  inventory is sold and we have  replaced it with
new software  solutions  compatible with new data collection  modules,  or DCM's
that are capable of operating on multiple hardware platforms.


                                  3
<PAGE>


New Products and Services

      ID-Check(R) PC and ID-Check(R) PDA

      Two new  software  solutions,  ID-Check(R)  PC and  ID-Check(R)  PDA,  are
designed to replicate  the  features of ID-Check and to be  platform-independent
and compatible with stationary and mobile hardware applications.  ID-Check(R) PC
is designed to read the smart chip  contained  in the CAC.  The  ID-Check(R)  PC
solution and the  ID-Check(R) PDA solution were introduced to the market in 2004
and are commercially available today.

      ID-Traveler

      ID-Traveler  is a software  solution that can  electronically  compare two
forms of government issued ID's instantaneously and determine whether the common
fields match (i.e. name, address, date of birth, etc.). Should the fields match,
the  information  is  highlighted  in one color.  If the fields do not produce a
match,  the  information  is  highlighted  in a  different  color.  Two forms of
identification that are frequently used include driver's licenses,  state issued
ID cards, military ID's, passports, borders crossing cards, visas, etc.

      ID-Prove

      ID-Prove is a software  solution that is intended to add additional layers
to IDN's identity management suite of products.  ID-Prove,  when prompted,  will
provide an end user of IDN's software with a variable  number of "out of wallet"
questions about that individual. These questions will ensure that the individual
in question is truly who they claim to be.  Currently,  the ID-Prove  product is
integrated into our ID-Traveler product as well as available for IDN partners to
integrate directly into their product offering.

      New version of C-Link(R)

      The newest  version  of  C-Link(R)  contains  all of the  features  of the
current  C-Link(R).  It is now capable of  functioning  with either our IDC-1400
terminals or our data collection module (DCM), and is designed to read the smart
chip contained on the military CAC.

      Data Collection Module

      ID-Check(R) PC,  ID-Check(R) PDA and the next version of C-Link(R) are all
designed  for use  with our new  data  collection  module,  or DCM,  a  compact,
self-contained  two-dimensional  bar code and magnetic  stripe  reader.  The DCM
enables our new software  applications  to be used on a variety of  commercially
available data processing devices,  including PDAs, Tablets,  Laptops,  Desktops
and Point-of-Sale Computers. As a result of these new product introductions,  we
believe  that our  target  markets  will  enjoy  pricing  efficiencies  and more
flexible and versatile technology options,  thereby negating the need to replace
the IDC-1400 platform.

Upgrade Capability

      Our software  requires  periodic  updates as states and provinces that did
not previously conform to AAMVA standards begin to store electronically readable
information  on their  driver  licenses  and as states and  provinces  adjust or
modify the format of their  electronically  stored information.  Our technology,
which can be used to  instantly  upgrade  the  terminal  by simply  scanning  an
encrypted  upgrade card through the ID-Check terminal or downloading it from our
website  through a personal  computer,  is included in the purchase price of the
ID-Check terminal and our ID-Check(R) PC and ID-Check(R) PDA software solutions,
for the first year  after  purchase.  We sell  upgrade  packages  for the period
commencing after the first year of purchase. Each upgrade package is designed to
work only with a  specific  terminal,  which is  identified  by a unique  serial
number.  We have  developed  a secure way of  delivering  upgrades  through  the
Internet for our IDC-1400 terminals.


                                       4
<PAGE>


Background on Identification Documentation

      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. The  introduction  of more  comprehensive  ID legislation,
which has  already  been passed by the House of  Representatives,  and should it
become law, would officially designate the driver license as the national ID. 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. There are approximately 228 million driver licenses in circulation
in the U.S. and Canada. Our technology can read the data encoded on all licenses
that in most cases comply with the AAMVA/ANSI/ISO standards, which we believe is
over 200 million of those  issued at the  current  time.  Currently,  forty-nine
states,  the District of Columbia,  and eight  Canadian  Provinces  encode their
licenses.  We believe that the number of readable licenses will continue to grow
as the remaining  states and five Canadian  Provinces  that have not yet encoded
their license  begin to encode and  jurisdictions  that have  recently  begun to
encode complete their rotations.

      Non-driver identification card

      Although many people do not have a driver license, many jurisdictions that
use 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 these types of government identification.

Regulation of Retailers of Tobacco Products and Alcoholic Beverages

      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 IDs of
potential  customers to determine  that they are of legal age to purchase  these
products. These laws impose stringent penalties for violations. For example, 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 appear to be
under the age of 27,  and the  retailer  of  alcoholic  products  who sell to an
underage  person could face potential  fines,  suspension of its license and the
potential  outright  revocation  of its  license  to sell  alcoholic  beverages.
Additionally,  in states  where  enacted,  dram shop laws  allow a person who is
injured by any obviously intoxicated person to file a claim for relief for fault
against any person who knowingly sells alcoholic beverages to a person less than
21  years  of  age.  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.

Current Challenges Associated with Verifying Identification Documents

      The high-tech revolution has created a major problem for those 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 from thousands of sites on
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:

      o     committing identity theft;        o     gaining entrance to high
                                                    profile buildings and
      o     improperly boarding                     sensitive infrastructures,
            airplanes;                              such as nuclear facilities;

      o     committing credit card,           o     illegally purchasing
            debit card and check                    firearms;
            cashing fraud;
                                              o     purchasing age restricted
      o     unlawfully obtaining                    products such as alcohol
            welfare or other government             and tobacco while under age;
            benefits;
                                              o     committing employee fraud,
      o     committing refund fraud,                including employee theft
                                                    and payroll theft; and
      o     committing pharmacy fraud,
            including false narcotic          o     engaging in medical fraud.
            prescriptions,

      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.   Since  merchants  are  facing
significant  economic  losses due to these  frauds,  we believe  that a document
verification  system  which  can  accurately  read  the  electronically   stored
information is needed.  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.


                                       5
<PAGE>


ID-Check Solutions and Benefits

      We believe that ID-Check and our family of software  solutions contain the
most advanced,  reliable and effective technology,  which provides users with an
easy, reliable,  and cost-effective method of document and age verification.  We
have received  encoding  formats from most  jurisdictions  that conform to AAMVA
standards. This information,  combined with our patented technology, enables the
ID Check software as well as our  ID-Check(R) PC and ID-Check(R) PDA software to
read, decode, process and verify the information electronically stored on driver
licenses.  As jurisdictions and AAMVA change their documents and guidelines,  we
believe our software, together with our programmable terminal, can be adapted to
these changes.

      ID Check  terminals do not require a connection  to a central  database to
operate,  thus negating  privacy  concerns.  Our  terminals  have the ability to
operate add-on  peripherals  such as printers,  bar code  scanners,  fingerprint
readers and other  devices.  Additionally,  our  terminals  and our new software
solutions utilizing our DCM can communicate with personal computers, which could
enhance  the  functionality  of  these  products  and  potentially   create  the
opportunity for sales of other software products by us.

      The ID Check process is quick,  simple and easy to use. After matching the
(driver  license)   photograph  to  the  person   presenting  the  document  for
identification,  the user simply swipes the driver license  through the ID-Check
terminal if the card has a magnetic stripe or scans it if it has a bar code. The
terminal quickly determines if the document:

      o     is valid;

      o     has been altered or tampered with;

      o     has expired; and

      o     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:

      o     respond  to the  user by  displaying  the  results  in  words on the
            terminal's screen;

      o     save  information  that is  permissible by law to the terminal's own
            memory;

      o     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

      o     send the results to a personal  computer which has Microsoft Windows
            95/98/ME/NT/2000/XP  ("PC")  for  permanent  storage  when  used  in
            conjunction with our software,  which  simplifies  record keeping by
            downloading   comprehensive  ID-Check  due  diligence  data  into  a
            personal computer,  where permitted by law. This provides a merchant
            with secure  back-up files that include  individual  and  cumulative
            transaction records.

Strategy

      Our  objective  is  to  be  a  leading  provider  of  identity  management
solutions,  which  include  our  identity  verification  technology  systems and
software in the age verification, commercial fraud protection and access control
markets. Key elements of our strategy are as follows:

      Expand Marketing Relationships with Trade Associations and Public Interest
Groups.  We are  marketing  our systems and  software to members of The American
Association of Airport Executives (AAAE), the largest professional  organization
for airports in the world, Credit Union National Association (CUNA), the premier
trade  association for credit unions,  and Mothers Against Drunk Driving (MADD),
one of the highest  profile  public  interest  groups.  We intend to continue to
expand our relationships with trade associations and public interest groups that
can help expand our customer base.

      Develop  Additional   Strategic   Alliances  with  Providers  of  Security
Solutions. We have entered into strategic alliances with Bioscrypt Inc., Identix
Corporation,  Ultra-Scan  Inc.,  Cross-Match  Technologies,  Si-Vault  biometric
companies;  Lenel  Systems  International,  a provider  of  integrated  security
solutions; and Northrop Grumman and Anteon, integrators in the defense industry,
to utilize our systems and  software  as the  proposed or  potential  enrollment
application  for  their  technologies  and  to  jointly  market  these  security
applications.  We believe these  relationships  will broaden our marketing reach
through  their  sales  efforts  and we intend to  develop  additional  strategic
alliances with additional providers of security solutions.


                                       6
<PAGE>


      Strengthen  Sales and  Marketing  Efforts.  We intend to capitalize on the
growth in demand for age and document  verification  by continuing to market and
support our systems  and  software.  Our sales and  marketing  departments  were
recently  re-organized  by target market rather than  geographic area to provide
focus and create experts in each area.

      Enter into  Additional  Licensing  Agreements.  We intend to  continue  to
license  our  software  for  use  with a  customer's  system.  We are  currently
licensing our IDN-SDK and C-Link(R) software products for Windows and Windows CE
platforms and intend to similarly license our ID-Check(R) PC and ID-Check(R) PDA
software  solutions.  Our  software  is  intended  to be used with a  compatible
hardware  device.  We have entered into  thirteen (13)  licensing  agreements to
date.

      Protect  Intellectual   Property.   We  intend  to  strongly  protect  our
intellectual  property portfolio in order to preserve value and obtain favorable
settlements  where  warranted.  For  example,  in February  2003,  we filed suit
against CardCom,  Inc. d/b/a CardCom Technology,  Inc. claiming that CardCom had
infringed one of our patents.  Subsequently,  we entered into a patent licensing
agreement with CardCom  effective  March 2003 which provides for a non-exclusive
three year license in connection with the manufacture, use and sale of CardCom's
age verification  products in the United States and Canada. We also have filed a
patent infringement lawsuit against Tricom Card Technologies, Inc. in July 2003,
which is currently being litigated.

Our Revenue Sources

      We derive our revenue from the following sources:

      o     Sales of our  systems by our own direct  sales  force and  marketing
            partners;

      o     Royalties and licensing fees from licensing our patented  technology
            to third parties;

      o     Revenue  sharing  and  marketing   arrangements   through  strategic
            alliances and partnerships; and

      o     Sale of software upgrades and extended maintenance programs.

Our Target Markets

      The use of false  identification  cards,  primarily  driver  licenses  and
non-driver  identification  cards, to engage in commercial fraud, to gain access
to  unauthorized  areas  and to  gain  entry  to,  or  purchase  products  from,
establishments that sell age-restricted items, is prevalent. Given the ease with
which  identification  can be  falsified,  we believe  that simply  looking at a
driver's  license may not be  sufficient to verify age or identity and determine
whether or not such an  identification  card is fraudulent.  Since merchants are
facing  significant  economic  losses due to these frauds,  we believe that what
they need is a  document  verification  system,  which can  accurately  read the
electronically stored information. We target the markets that would most benefit
from our systems and software. Those target markets include:

Commercial fraud protection

      o     Banks and other financial         o     Casino cage operations
            institutions                      o     Mass merchandisers and
      o     Credit unions                           retailers
      o     Credit card issuers               o     Hospitals, medical
      o     Check cashing services                  facilities and health
      o     Pharmacies                              plans
      o     Auto dealerships and rental       o     Lodging Industry
            car agencies

Access control

      o     Airports and airlines             o     Oil refineries and storage
      o     Departments of Motor                    facilities
            Vehicles                          o     Military establishments
      o     Prisons                           o     College Campuses
      o     Law enforcement agencies          o     Department of Homeland
      o     Notable buildings                       Security
      o     Court houses                      o     Bus, rail and port
      o     Nuclear facilities                      facilities

Age verification market

      o     Bars and night clubs              o     Casinos and gaming
      o     Convenience stores                      establishments
      o     Grocery chains                    o     Sellers of sexually explicit
      o     Restaurants                             material
      o     Stadiums and arenas               o     Firearm dealers



                                       7
<PAGE>


Current Customers

      We have  generated  revenues from our customers  from the sale of systems,
licensing   of  software   and  sale  of  software   upgrades.   The   following
representative customers are using our systems and software for commercial fraud
protection:

      o     Certegy Check Services, Inc.      o     Comerica Bank
      o     MGM Grand                         o     The Cooperative Bank
      o     Caesar's Palace                   o     Mohegan Sun Resort Casino
      o     Foxwoods Resorts and Casino

      The following  representative customers are using our systems and software
for access control:

      o     JFK Airport in New York,          o     New York, Vermont and
            O'Hare International Airport            Delaware Department of
            in Chicago and Reagan                   Motor Vehicles
            National Airport in               o     Port Authority of New York
            Washington DC                           and New Jersey
      o     American Stock Exchange           o     United States Supreme Court
      o     Fort Sam Houston and Fort
            Hood

      The following  representative customers are using our systems and software
for age verification:

      o     Integrated Solutions              o     Darden Restaurants
            International LLC                 o     Houston's Restaurants
      o     Sunoco                            o     Anton Airfoods, Inc.
      o     Exxon/Mobil franchisees

Marketing and Distribution

      Our objective has been to become the leading  developer and distributor of
document and age verification products. To date, our marketing efforts have been
through direct sales by our sales and marketing personnel, through resellers and
license  agreements.  We are marketing  our age  verification  products  through
direct marketing  approaches such as targeted  mailings,  web seminars,  a small
number  of  select  trade  shows  and  well  known  public  interest  and  trade
associations,  such as the Credit Unions of North America  (CUNA),  the American
Association  of Airport  Executives  (AAAE) and Mothers  Against  Drunk  Driving
(MADD).

      We generate  revenues  from the sale or lease of ID-Check  terminals,  the
sale of C-Link(R)  software,  the sale and licensing of our patented software to
third parties, annual jurisdictional upgrades and from our software and hardware
warranty programs. We also expect to generate revenues from various new software
solutions.

      Our patented  ID-Check software is Microsoft Gold Certified and can run on
a variety of Windows and  Windows CE  platforms  in addition to devices  such as
credit card terminals. We plan to market our newly introduced ID-Check(R) PC and
ID-Check(R) PDA solutions to the government,  airlines,  airports,  high profile
buildings  or  infrastructure,  mass  merchandisers,  grocery,  convenience  and
pharmacy  chains,  casinos and banks. The ID-Check reader known as the DCM (data
capture  module)  has a  "bundled  with  software"  suggested  retail  price  of
approximately  $1,299.  Our  self-contained  or stand alone offering,  the model
1400, has a suggested  retail price of  approximately  $1,995 which includes our
C-Link software and upgrades for the first year after purchase.

      We  have  developed  a  comprehensive  marketing  plan to  build  customer
awareness and develop brand  recognition in our target  markets.  We promote the
advantages and ease of use of our products through:

      o     Endorsements by nationally        o     Direct mail;
            known public interest groups      o     Web seminars, as well as our
            and trade associations;                 own website;
      o     Trade publications;               o     Various conventions and
      o     Trade shows;                            industry specific seminars.

      As we gain market  acceptance  for our ID-Check  technology,  we intend to
develop and market other related software applications.

      We further  intend to add  qualified  "value added"  remarketers  that are
capable of reaching  smaller  customers.  We believe  this  represents  the most
cost-effective  way to reach  numerous  "mom and  pop"  establishments  in North
America involved in the sale of age restricted products.  Furthermore,  in order
to broaden our sales "reach" into existing and new markets,  we will continue to
enter into selective  agreements  with proven  application  solution  providers,
system integrators, resellers and independent sales representatives.  Basically,
we are in the process of revamping our entire distribution network to provide us
with greater effectiveness.


                                       8
<PAGE>


Competition

      We compete in a market that is relatively new, intensely competitive,  and
rapidly  changing.  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 Card Com, Tri Com Technologies,  Positive
Access,  ID Logix  and  Legal  Age 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.  We believe that units unable to read bar
codes are at a significant disadvantage because forty-three (43) states and five
(5)  Canadian  provinces  currently  utilize  bar codes to encode  their  driver
licenses,  as well as all U.S.  military ID's and uniformed  services  cards. In
addition,  some of these other products cannot connect to a personal computer or
use a printer.

      We have  experienced  and  expect  to  continue  to  experience  increased
competition  in the  age  verification  market,  and  have  experienced  limited
competition from companies in the document  verification  market.  If any of our
competitors were to become the industry standard or were to enter into or expand
relationships with significantly larger companies through mergers,  acquisitions
or otherwise,  our business and operating  results could be seriously harmed. In
addition,  potential  competitors  could  bundle their  products or  incorporate
functionality  into existing  products in a manner that  discourages  users from
purchasing our products.

Manufacturing

      In January 2004, we entered into a two year product  supply  agreement for
the  purchase  of input  devices.  Under the terms,  these  devices,  which were
private  labeled,  are programmed to work in conjunction  with our  ID-Check(TM)
technology.

Intellectual Property

      In January 1999, the U.S. Patent and Trademark  Office granted us a patent
on our ID-Check  software  technology.  In October 2002, we were granted another
patent relating to our document authentication and age verification  technology.
At present,  we have other patent  applications  pending in the U.S.  Patent and
Trademark  Office.  These patents cover  commercially  important  aspects of our
capabilities  relating to the  authentication of a document,  such as a driver's
license, along with the verification of the age of an individual associated with
that  document.  Upon our  acquisition  of the  assets  of  IDentiScan,  we also
received equitable ownership and sole ownership rights to intellectual property,
including  other patents and patent  applications  relating to age  verification
technology.  We currently hold four (4) U.S.  patents,  two (2) Canadian patents
and one (1) United  Kingdom  patent.  We have been  notified by the U.S.  Patent
Office of the issuance of another patent.

      We have also been granted multiple copyrights in the United States,  which
are effective in Canada and in other major  industrial  countries.  In addition,
the copyright  protection  covers software source codes and supporting  graphics
relating to the operation of ID-Check and other software products.  We also have
several trademarks relating to our company, its product names and logos.

      In connection with the sales or licensing of our intellectual property, we
have  entered  into an  agreement  with Mr.  Kevin  Messina,  our former  Senior
Executive V.P. and Chief Technology  Officer,  under which 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.  Cumulatively,  as of December 31, 2004,
total fees payable under this agreement amounted to $148.

Employees

      As of March 1, 2005, we had nineteen full-time employees. Four are engaged
in  executive  management,  seven in  information  technology,  six in sales and
marketing and two in administration. We believe our relations with our employees
are generally  good and we have no  collective  bargaining  agreements  with any
labor unions.


                                       9
<PAGE>


                                  RISK FACTORS

                   Risks Related to Our Business and Industry

We have incurred  losses since  inception  and losses may continue,  which could
result  in a  decline  in  the  value  of our  securities  and a  loss  of  your
investment.

      We sustained net losses of $6,450,943  and $6,922,931 for the fiscal years
ended December 31, 2003 and December 31, 2004, respectively.  We expect to incur
additional expenditures in line with the sales growth of our business. We cannot
assure you that we will achieve operating profits in the near future.

We may be unable to meet our future capital requirements.

      Our capital requirements have been and will continue to be significant. In
the event that we do not  generate  meaningful  revenue,  we would need to raise
additional  capital.  If we are unable to raise additional  capital,  we plan to
implement  cost saving  measures  to sustain  business  activities  on a reduced
level.   Unplanned   acquisition   and  development   opportunities   and  other
contingencies may arise, which could require us to raise additional  capital. If
we raise  additional  capital  through the sale of equity,  including  preferred
stock,  or convertible  debt  securities,  the percentage  ownership of our then
existing stockholders will be diluted.

      We  currently  do not  have a  credit  facility  or  any  commitments  for
additional financing. We cannot be certain that additional financing,  should it
be needed, will be available when and to the extent required.  If adequate funds
are not available on acceptable  terms,  we may be unable to fund our expansion,
develop or enhance  our  products,  or respond to  competitive  pressures.  Such
limitation  could  have a material  adverse  effect on our  business,  financial
condition and results of operations.

We may not be able to keep up  with  rapid  technological  change.  Advances  in
hardware technology before we sell our existing inventory could cause us to take
an adjustment against inventory.

      Our market is  characterized  by frequent  new product  announcements  and
rapid  advancements in hardware  technology.  Significant  technological  change
could render our existing technology obsolete.  If we are unable to successfully
respond to these  developments,  or do not respond in a cost-effective  way, our
business,  financial  condition  and results of  operations  will be  materially
adversely  affected.  Furthermore,  our inventory consists primarily of ID-Check
System  terminals  that  run our  patented  software  on the  IDC-1400  hardware
platform.  We  periodically  evaluate the current market value of our inventory,
taking  into  account  any  technological  obsolescence  that may  occur  due to
advances  in  hardware  technology  and the  acceptance  of the  product  in the
marketplace.  We  determined  that  an  inventory  reserve  of  $990,000  was an
appropriate  adjustment to our results of operations for the year ended December
31,  2003 and an  additional  reserve  of  $357,332  was made for the year ended
December 31, 2004.  Should we determine in a future period that an adjustment to
market value of the inventory is necessary,  we would record such  adjustment at
that time,  which  would not have a material  adverse  effect on our  results of
operations.

Our  proprietary  software  relies on reference  data provided by government and
quasi-government  agencies. If these governmental and quasi-government  agencies
were to stop sharing data with us, the utility of our proprietary software would
be diminished in those jurisdictions and our business would be damaged.

      Currently,  forty-nine (49) states,  eight (8) Canadian  provinces and the
District of Columbia,  which conform to the  guidelines  established  by certain
organizations responsible for implementing industry standards, cooperate with us
by  providing  sample  identification  cards so that we may modify the  ID-Check
System  terminal  and other  software  products  to read and analyze the encoded
information found on such jurisdiction's  identification cards. We cannot assure
you that each of these  jurisdictions will continue to cooperate with us. In the
event that one or more of these  jurisdictions  do not  continue to provide this
reference  data,  the utility of our  proprietary  software may be diminished in
those jurisdictions.

Future   government   regulation   restricting   the   capture  of   information
electronically  stored  on  identification  cards  could  adversely  affect  our
business.

      Our  proprietary  software  products  are  designed  to read  and  capture
information from identification cards. Currently, those customers located in New
Hampshire,  North  Carolina  and Texas are  legally  restricted  from using this
information  for their  own use  without  customer  consent.  Because  issues of
personal  privacy  continue to be a major topic of public policy  debate,  it is
possible   that  in  the  future   additional   customers  in  these  and  other
jurisdictions may be restricted from capturing this information.  Therefore, the
implementation  of unfavorable  regulations or  unfavorable  interpretations  of
existing  regulations  by courts or regulatory  bodies could require us to incur
significant  compliance costs,  cause the development of the affected markets to
become  impractical  and  otherwise  adversely  affect our  business,  financial
condition and results of operations.


                                       10
<PAGE>


Our  refocused  business  strategy  exposes us to long sales and  implementation
cycles for our products.

      Our target  customers in the commercial fraud  protection,  access control
and age  verification  markets include large retailers and government  agencies,
which typically require longer sales and implementation  cycles for our products
than do our potential customer base solely interested in age verification,  such
as  restaurant,  bar and  convenience  store  operators.  The  longer  sales and
implementation  cycles for larger retail  companies  continue to have an adverse
impact  on  the  timing  of  realizing  our  revenues.  In  addition,  budgetary
constraints  and  economic  slowdowns  may also  continue  to  delay  purchasing
decisions  by  these  prospective   customers.   These  initiatives  have  costs
associated  with them, and we cannot assure you that they  ultimately will prove
successful or result in, an increase to, our revenues or profitability.

      In addition,  the loss or significant  reduction in government spending by
government  entities  could  materially  limit our ability to obtain  government
contracts. These limitations, if significant, could also have a material adverse
effect on our  business,  financial  condition  and  results of  operations.  In
addition, we will need to develop additional strategic  relationships with large
government   contractors  in  order  to  successfully   compete  for  government
contracts.  Our inability to develop these strategic relationships may limit our
ability to implement our business strategy.

The market for our systems and software is evolving and its growth is uncertain.

      Demand and market acceptance for recently  introduced and existing systems
and  software and sales from such  systems and  software,  are subject to a high
level of uncertainty  and risk.  Our business may suffer if the market  develops
more slowly than anticipated and does not sustain market acceptance.

Failure to manage our operations if they expand could impair our future growth.

      If we are able to expand our  operations,  particularly  through  multiple
sales to large  retailers and government  agencies in the document  verification
market, the expansion will place significant strain on our management, financial
controls,  operating  systems,  personnel  and other  resources.  Our ability to
manage  future  growth,  should it occur,  will  depend to a large  extent  upon
several factors, including our ability to do the following:

      o     build and train our sales force;

      o     establish and maintain relationships with distributors;

      o     develop customer support systems;

      o     develop expanded internal management and financial controls adequate
            to keep pace with growth in personnel and sales, if they occur; and

      o     manage the use of third-party manufacturers and suppliers.

If we are able to grow our business  but do not manage our growth  successfully,
we may experience increased operating expenses, loss of customers,  distributors
or suppliers and declining or slowed growth of revenues.

We are subject to risks associated with product failure and technological flaws.

      Products as complex as those offered by us may contain  undetected  errors
or result in failures  when first  introduced or when new versions are released.
Despite  vigorous  product  testing efforts and testing by current and potential
customers,  it is  possible  that  errors  will be  found  in a new  product  or
enhancement  after  commencement  of  commercial  shipments.  The  occurrence of
product  defects or errors could result in adverse  publicity,  delay in product
introduction,  diversion of resources to remedy defects,  loss of, or a delay in
market  acceptance,  claims by customers  against us, or could cause us to incur
additional costs, any of which could adversely affect our business.


                                       11
<PAGE>


Our failure to protect our  proprietary  technology  may impair our  competitive
position.

      We  continue  to  allocate  significant   resources  to  develop  new  and
innovative  technologies  which we  utilize  in our  products  and  systems.  We
consider such  allocation  to be  fundamental  to our continued  success as such
success depends,  to a significant  degree, upon our ability to provide products
and systems that provide  superior  functionality  and  performance  compared to
those of our  competitors.  Accordingly,  we must  protect our  technology  from
unauthorized  use. This is done by processes  aimed at  identifying  and seeking
appropriate protection for newly developed intellectual property, i.e., patents,
trade  secrets,  copyrights  and  trademarks,  as  well  as  policies  aimed  at
identifying  unauthorized  use  of  such  property  in  the  marketplace.  These
processes include:

      o     contractual arrangements providing for non-disclosure of proprietary
            information;

      o     maintaining   and  enforcing   issued   patents  and  filing  patent
            applications  on  innovative  solutions  to  commercially  important
            problems;

      o     protecting our trade secrets;

      o     protecting our copyrights and trademarks by  registration  and other
            appropriate means,

      o     establishing  internal  processes for identifying and  appropriately
            protecting new and innovative technologies; and

      o     establishing  practices  for  identifying  unauthorized  use  of our
            intellectual property.

      While we actively  protect our intellectual  property,  it does not follow
that others will not intentionally or innocently use such intellectual property.
Accordingly,  at times we may be required to bring legal proceedings to preclude
such  unauthorized use. We are mindful that such measures can be costly and time
consuming and undertake such measures only as a last resort.

      These  policies and practices  with respect to our  intellectual  property
rights do not prevent our competitors  from  independently  developing  products
similar or superior to our products  and  technologies.  It merely  protects our
property  rights created as a result of our allocating  significant  portions of
our  technical  and  monetary  resources.  Further,  an  inability or failure to
protect  this  property  could  have a  material  adverse  effect on our  future
business and financial condition.

If our future products  incorporate  technologies  that infringe the proprietary
rights of third  parties,  and we do not secure  licenses from them, we could be
liable for substantial damages.

      We are not aware  that our  current  products  infringe  the  intellectual
property  rights of any third parties.  We also are not aware of any third party
intellectual  property  rights  that may  hamper our  ability to provide  future
products  and  services.  However,  we  recognize  that the  development  of our
services or products may require that we acquire intellectual  property licenses
from third parties so as to avoid  infringement  of those parties'  intellectual
property  rights.  These  licenses  may not be  available  at all or may only be
available on terms that are not commercially reasonable. We recognize that third
parties could make infringement claims against us which, whether or not they are
upheld,  could have a negative  impact on our business and financial  condition,
by:

      o     consuming substantial time and financial resources;

      o     diverting the attention of management  from growing our business and
            managing operations; and

      o     disrupting product sales and shipments.

      If any third party  prevails in an action against us for  infringement  of
its  proprietary  rights,  we could be required to pay damages and either  enter
into costly licensing arrangements or redesign our products so as to exclude any
infringing use. As a result, we would incur substantial costs, delays in product
development,  sales and shipments, our revenues may decline substantially and we
may not be able to achieve  the  minimum,  necessary  growth  for our  continued
success.

Failure to attract  and retain  management  and other  personnel  may damage our
operations and financial results and cause our stock price to decline.

      We depend to a significant degree on the skills, experience and efforts of
our executive officers and other key management,  technical,  finance, sales and
other personnel. Our failure to attract, integrate, motivate and retain existing
or additional  personnel  could  disrupt or otherwise  harm our  operations  and
financial  results.  Although we have  employment  agreements with each of Frank
Mandelbaum,  our Chairman and Chief Executive  Officer,  and Edwin Winiarz,  our
Senior Vice President - Treasurer and Chief  Financial  Officer,  securing their
employment  until December 31, 2005 and December 31, 2006,  respectively,  we do
not carry key man life insurance  policies  covering any employees.  The loss of
services  of certain of our key  employees,  an  inability  to attract or retain
qualified  personnel  in the future,  or delays in hiring  additional  personnel
could delay the  development  of our business and could have a material  adverse
effect on our business, financial condition, and results of operations.


                                       12
<PAGE>


Changes in accounting standards or our accounting policy relating to stock-based
compensation may negatively affect our operating results.

      We currently are not required to record stock-based  compensation  charges
if the employee's  stock option exercise price equals or exceeds the deemed fair
value  of our  common  stock at the date of  grant  and the  award  has not been
modified.  However,  several  companies  have  recently  elected to change their
accounting  policies  and begun to record the fair value of stock  options as an
expense. However, during December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123 (revised 2004) requiring that the compensation cost
relating  to  share  based  payment  transactions  be  recognized  in  financial
statements.  This will require a change in our accounting  policy and the amount
of our operating  expenses  could  increase and our  operating  results could be
adversely affected.

Our share price may be volatile and could decline substantially

      The  market  price of our  common  stock,  like the  price  of  shares  of
technology companies generally,  has been and may continue to be volatile.  From
January 1, 2002 to March 25, 2005, the closing bid price of our common stock has
varied  from a high of $19.45 to a low of $2.10 per share,  as  reported  on the
American Stock Exchange.  Many factors may cause the market price for our common
stock to decline, including:

      o     shortfalls  in  revenues,   cash  flows  or  continued  losses  from
            operations;

      o     conversions  of  preferred  stock  into  common  stock;   delays  in
            development or roll-out of any of our products;

      o     announcements by one or more competitors of new product acquisitions
            or technological innovations; and

      o     unfavorable outcomes from outstanding litigation.

      In addition,  the stock market experiences  extreme  fluctuations in price
and volume  that  particularly  affect the  market  price of shares of  emerging
technology  companies,  such as ours.  These price and volume  fluctuations  are
often unrelated or disproportionate to the operating performance of the affected
companies.  Because of this volatility,  we may fail to meet the expectations of
our shareholders or of securities  analysts and our stock price could decline as
a result.  Declines in our stock price for any  reason,  as well as  broad-based
market  fluctuations or fluctuations  related to our financial  results or other
developments,  may adversely  affect your ability to sell your shares at a price
equal to or above the price at which you purchased them.  Decreases in the price
of our common stock may also lead to de-listing of our common stock.

Risks Related to Arthur Andersen LLP

The absence of Arthur Andersen LLP's consent to the use of its opinion may limit
the remedies available to stockholders.

      Our  inability to obtain Arthur  Andersen  LLP's consent to the use of its
opinion  for our  financial  statements  for the 2001 year and the  absence of a
signed opinion may limit the remedies available to you since your claims against
Arthur Andersen LLP under the Securities Act of 1933, as amended, based on these
financial  statements  may be limited.  Moreover,  even if claims against Arthur
Andersen  LLP are  permitted,  Arthur  Andersen  LLP may not have the  financial
resources to satisfy any judgment. In addition, notwithstanding that we have not
filed the written  consent of Arthur  Andersen,  LLP, our directors and officers
may still be able to establish a due diligence  defense to any claim relating to
those financial  statements on the basis that they were made on the authority of
our expert which could limit your ability to assert a claim against them.

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.  In March 2002,  we signed a two year lease in
Connecticut to operate our IDentiScan division,  which expired on March 1, 2004.
Payments under these leases were $242,083 for 2002,  $252,386 for 2003, $243,577
for 2004 and will be $1,594,104 for the remaining  years of the leases.

Item 3. Legal Proceedings

      On August 1, 2003,  we filed a summons and complaint  against  Tricom Card
Technologies,  Inc. alleging  infringement on our patent and seeking  injunctive
and monetary  relief.  On October 23, 2003,  we amended our complaint to include
infringement on an additional patent. On May 18, 2004, we filed a Second Amended
Complaint  alleging  infringement  and  inducement to infringe  against  certain
principals of Tricom in their  personal  capacities,  as well as alleging in the
alternative  false  advertising  claims  under the  Lanham Act  against  all the
defendants.  These principals have moved to dismiss the claims against them, and
Tricom  has moved to dismiss  the false  advertising  claims.  The  Company  has
opposed the motions.  We filed the proposed Joint Pretrial Order on November 19,
2004, which has not yet been executed and a conference is scheduled for April 1,
2005.


                                       13
<PAGE>


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

      During the fourth quarter of our fiscal year ended December 31, 2004 there
were no matters submitted to a vote of security holders.

                                       14
<PAGE>

                                    PART III

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

      (a) Our 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.

                                               Low       High
                                               ---       ----

               2003
               First Quarter                 $ 6.35     $ 8.44
               Second Quarter                $ 5.80     $ 7.66
               Third Quarter                 $ 6.70     $11.85
               Fourth Quarter                $ 6.30     $ 7.32

               2004
               First Quarter                 $ 3.90     $ 8.00
               Second Quarter                $ 4.40     $ 7.50
               Third Quarter                 $ 4.60     $ 6.25
               Fourth Quarter                $ 3.91     $ 5.72

               2005
               January 1 - March 25, 2005*   $ 4.36     $ 6.95

               * Portion of first fiscal quarter of 2005.

      (b) Number of Holders of Common Stock.  The number of holders of record of
our Common  Stock on March 25, 2005 was 67,  which does not  include  individual
participants in security position  listings.

      (c) Dividends.  There were no cash  dividends or other cash  distributions
made by us during the fiscal  year ended  December  31,  2004.  Future  dividend
policy  will be  determined  by our 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

      On January 21, 2004, we entered into a one year agreement with  Alexandros
Partners LLC, an accredited  investor,  to act as  consultants in advising us in
financial and investor  relation  matters.  We agreed to pay a consulting fee of
$50,000  payable in 12 equal  monthly  installments.  In  addition,  we issued a
warrant  granting the right to purchase  100,000 shares of our common stock at a
purchase  price of $7.54  per  share,  which  vested  ratably  over the 12 month
period.  A principal  of  Alexandros  Partners  LLC is currently a member of our
Board of  Directors.  No sales  commissions  were paid in  connection  with this
transaction. The warrant to purchase shares of the Company's common stock issued
to  Alexandros   Partners  was  issued  in  reliance  upon  the  exemption  from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

      On  December  7,  2004,  we  entered  into  a one  year  agreement  with a
consulting  firm, an accredited  investor,  to help with our investor  relations
activities.  We agreed to pay a consulting fee of $100,000 payable in 12 monthly
installments.  In addition,  we issued  11,500  restricted  shares of our common
stock at a market price of $4.25 per share.  No sales  commissions  were paid in
connection  with this  transaction.  The shares of the  Company's  common  stock
issued  to the  consultant  were  issued in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

      On December 8, 2004,  we issued  1,500  shares of our common  stock to our
Chief Financial  Officer for 50% of its then market value under the terms of his
employment  agreement,  which expired on December 31, 2004. We received proceeds
of $3,188 and recorded  $3,188 as additional  compensation  for the period ended
December  31,  2004.  No sales  commissions  were paid in  connection  with this
transaction.  The  shares  of the  Company's  common  stock  issued to our Chief
Financial  Officer were issued in reliance upon the exemption from  registration
provided by Section 4(2) of the Securities Act of 1933, as amended.


                                       15
<PAGE>


      (e) Repurchases of Equity Securities

      In March  2001,  our Board of  Directors  authorized,  subject  to certain
business and market  conditions,  the purchase of up to $1,000,000 of our common
stock. As of December 31, 2004, we cumulatively purchased 40,200 shares totaling
approximately  $222,000 and  subsequently  retired these  shares.  None of these
shares  were  purchased  during the  fourth  quarter  of 2004.  We may  purchase
additional  shares  when  warranted  by  certain  conditions.

Item 6. Selected Financial Data

      The  following  selected  financial  data  presented  under  the  captions
"Statement of Operations Data" and "Balance Sheet Data" as of the end of each of
the five  years  ended  December  31,  2004,  are  derived  from  the  financial
statements  of  Intelli-Check,  Inc. The financial  statements  for fiscal years
ended  December  31,  2000  through  December  31,  2001 were  audited by Arthur
Andersen LLP,  independent public accountants;  the financial statements for the
fiscal years ended  December  31, 2002 and 2003 were audited by Grant  Thornton,
LLP independent  certified public  accountants and the financial  statements for
the fiscal year ended  December  31, 2004 were  audited by Amper,  Politziner  &
Mattia,  P.C. The selected financial data should be read in conjunction with the
financial  statements as of December 31, 2004 and 2003 and for each of the three
years in the period  ended  December 31, 2004,  the  accompanying  notes and the
report of independent  registered  public  accounting  firms thereon,  which are
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                            --------------------------------------------------------
                                              2000        2001        2002        2003        2004
                                            --------    --------    --------    --------    --------
                                                                 (In thousands)
<S>                                         <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Revenue                                     $    343    $    886    $  1,139    $  1,236    $  1,119
Loss from operations                          (3,379)     (4,090)     (5,936)     (5,537)     (7,017)
Net Loss                                      (3,133)     (3,963)     (5,550)     (6,451)     (6,923)
Net loss per common share - basic and
    diluted                                    (0.47)      (0.52)      (0.64)      (0.74)      (0.79)
Common shares used in computing per share
    amounts - basic and diluted                6,648       7,911       8,686       9,218      10,225

<CAPTION>
                                                                As of December 31,
                                            --------------------------------------------------------
                                              2000        2001        2002        2003        2004
                                            --------    --------    --------    --------    --------
                                                                 (In thousands)
<S>                                         <C>         <C>         <C>         <C>         <C>
Balance sheet data:
Cash and cash equivalents                      4,092       4,061       1,911       3,307       1,750
Working capital                                5,920       5,303       2,634       8,350       3,629
Total assets                                   7,940       8,423       5,415      10,732       5,615
Stockholders equity                            6,633       7,030       3,873       6,901         868
</TABLE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Overview

      Intelli-Check  was formed in 1994 to address a growing need for a reliable
document  and age  verification  system that could be used to detect  fraudulent
driver   licenses  and  other  widely   accepted   forms  of   government-issued
identification documents.  Since then, our technology has been further developed
for  application  in  the  commercial  fraud  protection,   access  control  and
governmental  security  markets.  Additionally,  it is  currently  being used to
address  inefficiencies and inaccuracies  associated with manual data entry. The
core of Intelli-Check's product offerings is our proprietary software technology
that verifies the authenticity of driver licenses,  state issued  non-driver and
military   identification  cards  used  as  proof  of  identity.   Our  patented
ID-Check(R)  software  technology  instantly reads,  analyzes,  and verifies the
encoded  data in magnetic  stripes and  barcodes  on  government-issue  IDs from
approximately  60  jurisdictions  in the U.S.  and  Canada to  determine  if the
content and format is valid. We have served as the national  testing  laboratory
for the American Association of Motor Vehicle  Administrators (AAMVA) since 1999
and have access to all the currently  encoded driver license formats.  After the
tragic  events that  occurred on September 11, 2001, we believe there has been a
significant  increase in awareness of our  software  technology  to help improve
security across many industries,  including  airlines,  rail  transportation and
high profile  buildings  and  infrastructure,  which we believe  should  enhance
future  demand  for our  technology.  We have also  begun to  market to  various
government and state agencies,  which have long sales cycles including  extended
test periods. Since inception,  we have incurred significant losses and negative
cash flow from  operating  activities  and, as of December 31,  2004,  we had an
accumulated  deficit of  $35,671,379.  We will  continue to fund  operating  and
capital  expenditures  from  proceeds  that we received from sales of our equity
securities.  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.


                                       16
<PAGE>


      Our  ID-Check's  unique  technology  provides  the  ability  to verify the
validity of military ID's,  driver licenses and state issued non-driver ID cards
that  contain  magnetic  stripes,  bar codes and SMART  chips  that  conform  to
AAMVA/ANSI/ISO standards, which enables us to target three distinct markets. The
original target market was focused on resellers of age-restricted products, such
as alcohol and tobacco,  where the  proliferation  of high-tech  fake IDs expose
merchants to fines and penalties for the  inadvertent  sale of these products to
underage  purchasers.  We now  also  target  commercial  fraud,  which  includes
identity  theft and our technology is designed to help prevent losses from these
frauds.  We believe that the tragic  events that  occurred on September 11, 2001
have created  increased  awareness of our  technology  in security  applications
involving access control.  As a result of its applicability in these markets, we
have sold our products to some of the largest  companies in the gaming industry,
a state port authority, military establishments,  airports, nuclear power plants
and  high  profile  buildings  and  have  successfully  completed  tests  of our
technology in one of the largest mass  merchandisers  in the United  States.  We
currently  are testing our products  with some large public  companies.  We have
entered into strategic alliances with several biometric companies; Lenel Systems
International, a provider of integrated security solutions; and Northrop Grumman
and  Anteon,  integrators  in the defense  industry,  to utilize our systems and
software  as  the  proposed  or  potential  enrollment   application  for  their
technologies and to jointly market these security applications.  In addition, we
have executed agreements with some high profile organizations to promote the use
of our  technology  and  our  products.  We  believe  these  relationships  have
broadened  our  marketing  reach  through  their sales  efforts and we intend to
develop   additional   strategic   alliances   with   additional   high  profile
organizations and providers of security solutions.

      We have developed  additional  software products that utilize our patented
software  technology.  Our latest products include ID-Traveler and ID-Prove.  ID
Traveler electronically verifies and matches two forms of government issued ID's
instantaneously  while the ID Prove  product  offering  provides "out of wallet"
questions to assist in proving a users  claimed  identity.  Additional  software
solutions  include  ID-Check(R)  PC and  ID-Check(R)  PDA,  which  replicate the
features of ID-Check. These products are designed to be platform-independent and
compatible with both stationary and mobile  hardware  applications.  Another new
application  is the next version of  C-Link(R),  the company's net workable data
management software. Additionally, ID-Check(R) PC and the next release of C-Link
are designed to read the smart chip contained on the military Common Access Card
(CAC). These products are all designed for use with  Intelli-Check's  new DCM, a
compact, self-contained two-dimensional bar code and magnetic stripe reader. The
DCM  enables  the  new  software  applications  to  be  used  on  a  variety  of
commercially  available  data  processing  devices,   including  PDAs,  Tablets,
Laptops,  Desktops and Point-of-Sale  Computers,  therefore negating the need to
replace the IDC-1400 platform.  Our C-Link(R) software product,  which runs on a
personal  computer and was created to work in conjunction with the ID-Check unit
allows a user to instantly  view the encoded data for further  verification,  to
analyze the data and to generate  various  reports  where  permitted  by law. To
date,  we have  entered  into  thirteen  (13)  licensing  agreements  and are in
discussions  with  additional  companies  to license our software to be utilized
within  other  existing  systems.  The  revenue  received  from  such  licensing
agreements has not been significant through the period ended December 31, 2004.

Critical Accounting Policies and the Use of Estimates

      The preparation of our financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the amounts reported in
our financial  statements and  accompanying  notes.  Actual results could differ
materially from those estimates.

      We believe that there are several accounting policies that are critical to
understanding  our historical and future  performance,  as these policies affect
the  reported  amounts  of  revenue  and the more  significant  areas  involving
management's  judgments and estimates.  These  significant  accounting  policies
relate to revenue  recognition,  valuation  of  inventory  and  commitments  and
contingencies.  These policies and our procedures  related to these policies are
described in detail below.

REVENUE RECOGNITION

      We sell  our  products  directly  through  our  sales  force  and  through
distributors.  Revenue  from  direct  sales of our  product is  recognized  when
shipped to the customer and title has passed.  Our products  require  continuing
service or post contract customer support and performance by us; accordingly,  a
portion of the revenue  pertaining to the service and support is deferred  based
on its fair  value and  recognized  ratably  over the period in which the future
service,  support and  performance  are  provided,  which is generally one year.
Currently,  with  respect to sales of certain  of our  products,  we do not have
enough experience to identify the fair value of each element and 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.


                                       17
<PAGE>


      In addition, we recognize sales from licensing of our patented software to
customers.  Our licensed software requires  continuing  service or post contract
customer support and performance by us; accordingly, a portion of the revenue is
deferred based on its fair value and recognized ratably over the period in which
the future service, support and performance are provided, which is generally one
year.

      During the second  quarter of fiscal 2003,  we began  receiving  royalties
from  licensing our  technology,  which are recognized as revenues in the period
they are earned.

INVENTORY VALUATION

      Our inventory  consists  primarily of our ID-Check  terminals that run our
patented  software  and  input  devices  purchased  in 2004.  We  acquired  such
inventory  in December  1999 and,  shortly  thereafter;  it was  returned to the
manufacturer  for upgrade and became available for sale in the fourth quarter of
2000. We periodically evaluate the current market value of our inventory, taking
into  account any  technological  obsolescence  that may occur due to changes in
hardware technology and the acceptance of the product in the marketplace.  Based
on ongoing  evaluation of our inventory,  we recorded an inventory write down of
$990,000  during  2003 and an  additional  write down of $357,332  during  2004.
Should we determine in a future period that an adjustment to market value of the
inventory is  necessary,  we would record such  adjustment  at that time,  which
could  have  a  material  adverse  effect  on our  results  of  operations.  The
manufacturer  discontinued the production of the ID-Check terminals in 2003. The
ID-Check  terminal  is fully  capable of running  our  patented  software  as it
utilizes  a high  quality  imager/scanner  and  magnetic  stripe  reader  and is
currently being marketed for sale.

      The above listing is not intended to be a comprehensive list of all of our
accounting  policies.  In many cases,  the accounting  treatment of a particular
transaction  is   specifically   dictated  by  generally   accepted   accounting
principles,  with no need for management's judgment in their application.  There
are  also  areas in which  management's  judgment  in  selecting  any  available
alternative would not produce a materially different result.

STOCK-BASED COMPENSATION

      Options, warrants and stock awards issued to non-employees and consultants
are recorded at their fair value as determined in accordance  with  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation,"  and EITF No. 96-18,  "Accounting for Equity  Instrument That are
Issued to Other Than  Employees for Acquiring,  or in Conjunction  with Selling,
Goods or Services" and recognized as expense over the related vesting period.

DEFERRED 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.  We
have recorded a full  valuation  allowance for our net deferred tax assets as of
December 31, 2004, due to the uncertainty of the realizability of those assets.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      See footnote 2 of financial statements attached hereto following beginning
on Page F-1

Results of Operations

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2004 TO THE YEAR ENDED  DECEMBER 31,
2003.

      REVENUE.  Revenue  decreased  $116,262 from  $1,235,611 for the year ended
December 31, 2003 to $1,119,349 for the year ended  December 31, 2004.  Revenues
for the period ended December 31, 2004 consisted of revenue from distributors of
$314,166, revenues from direct sales to customers of $738,070 and royalty income
of  $67,113.  Sales,  which  represent  shipments  of  products  and  contracted
services,  increased  22.3% from $1,172,056 for the year ended December 31, 2003
to  $1,433,381  for the year ended  December  31,  2004.  Sales  growth has been
limited due to our change in  marketing  focus from  smaller  customers to large
commercial  customers and  government  agencies  which require an extended sales
cycle.  We believe  that the time frame of the sales cycle  associated  with the
refocus of our  marketing  efforts  will  continue  to impact our sales.  We are
optimistic  that sales  opportunities  should increase as a result of certain of
our recent  marketing  tests and  agreements,  our  introduction  of  additional
products this year, as well as legislative  efforts to enhance security and deal
with the problem of under-age access to alcoholic products.


                                       18
<PAGE>


      GROSS PROFIT. Gross profit,  excluding an inventory write down of $357,332
for 2004 and $990,000 for 2003,  would have  decreased by $55,814 from  $781,579
for the year ended December 31, 2003 to $725,765 for the year ended December 31,
2004. Our gross profit  excluding the inventory write downs for 2004 and 2003 as
a  percentage  of  revenues  would  have  increased  to 64.8% in the year  ended
December 31, 2004 from 63.3% for the year ended  December  31,  2003.  Our gross
profit  percentage  was  positively  impacted by an  increase  in revenues  from
licensing our patented technology at higher gross margins.

      OPERATING EXPENSES.  Operating expenses, which consist of selling, general
and administrative and research and development  expenses,  increased 38.6% from
$5,328,742 for the year ended December 31, 2003 to $7,385,394 for the year ended
December 31, 2004.  Selling  expenses,  which consist  primarily of salaries and
related costs for marketing,  decreased 13.0% from $1,352,274 for the year ended
December 31, 2003 to $1,176,911  for the year ended  December 31, 2004 primarily
due to decreased travel and convention  expenses of approximately  $81,000 and a
reduction of  non-recurring  expenses of $94,000 from the hiring of professional
consultants.  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
111% from  $2,386,088 for the year ended December 31, 2003 to $5,032,207 for the
year ended  December 31, 2004,  primarily as a result of an increase in non-cash
expenses from the extension of stock options totaling $1,347,000 and an increase
in  legal  fees  of  approximately   $1,630,000  primarily  relating  to  patent
infringement   litigation,   which  were  partially  offset  by  a  decrease  in
depreciation and amortization  expense of approximately  $323,000 as a result of
the write-off of intangible  assets  relating to the  IDentiScan  acquisition in
2003. Research and development expenses, which consist primarily of salaries and
related  costs  for  the  development  of  our  products,  decreased  4.1%  from
$1,226,725 for the year ended December 31, 2003 to $1,176,276 for the year ended
December 31, 2004  primarily as a result of a decrease in employee  salaries and
related expenses of approximately $75,000. During the fourth quarter of 2003, we
determined that as a result of discontinuing the selling of IDentiScan products,
certain of our intangible  assets with a remaining book value of $363,655 should
be written off. No charges of a similar nature occurred in 2004. We believe that
we  will  require   additional   investments   in   development   and  operating
infrastructure  as the Company  grows.  Therefore,  we expect that expenses will
continue to  incrementally  increase in line with increases in the growth of the
business as we may  increase  expenditures  for  advertising,  brand  promotion,
public  relations  and other  marketing  activities.  Research  and  development
expenses may also  increase as we complete  and  introduce  additional  products
based upon our patented ID-Check technology.

      INTEREST  EXPENSE.  We did not incur  interest  expense for the year ended
December 31, 2004 compared to the interest  expense of $43,487 in the year ended
December 31, 2003, which resulted  primarily from interest accrued in 2003 on an
arbitration decision awarding Early Bird Capital settlement on their demand.

      INTEREST INCOME. Interest income increased from $51,437 for the year ended
December 31, 2003 to $94,030 for the year ended  December  31, 2004,  which is a
result of a higher  average  annual  balance  in our cash and cash  equivalents,
marketable securities and short term investments available for investment during
this  period  resulting  from  additional  cash  received  from  the  successful
completion of our secondary offering in October 2003.

      INCOME TAXES. We have incurred net losses to date and, therefore,  we have
paid nominal income taxes.

      NET LOSS. As a result of the factors noted above,  our net loss  increased
from  $6,450,943  which  included  $2,314,627 of non-cash  expenses for the year
ended  December  31, 2003 to  $6,922,931  for the year ended  December 31, 2004,
which included $2,231,544 of non-cash expenses.

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER 31,
2002.

      REVENUE.  Revenue  increased  $97,024 from  $1,138,587  for the year ended
December 31, 2002 to $1,235,611 for the year ended  December 31, 2003.  Revenues
for the period ended December 31, 2003 consisted of revenue from distributors of
$290,022, revenues from direct sales to customers of $880,423 and royalty income
of  $65,165.  Sales,  which  represent  shipments  of  products  and  contracted
services,  decreased  11.7% from $1,326,829 for the year ended December 31, 2002
to  $1,172,056  for the year  ended  December  31,  2003.  This  slow  growth is
primarily  as a result of our  change  in focus to  market  to large  commercial
customers and  government  agencies which require an extended sales cycle rather
than to smaller  customers.  This refocus of our marketing efforts will continue
to impact our sales as a result of the extended time frame associated with these
sales  cycles.  We believe  that based upon the results of certain of our recent
marketing  tests,  recent marketing  agreements,  the introduction of additional
products  in 2004 as well as  legislative  efforts  to enhance  security,  these
events should result in increased sales opportunities.


                                       19
<PAGE>


      GROSS PROFIT. Gross profit, excluding an inventory write down of $990,000,
would have  increased by $144,421 from $637,158 for the year ended  December 31,
2002 to  $781,579  for the year  ended  December  31,  2003.  Our  gross  profit
excluding the inventory write down of $990,000 as a percentage of revenues would
have  increased  to 63.3% in the year ended  December  31, 2003 from 56% for the
year ended  December  31,  2002.  Our gross  profit  percentage  was  positively
impacted by an increase in revenues from  licensing  our patented  technology at
higher gross margins.

      OPERATING EXPENSES.  Operating expenses, which consist of selling, general
and administrative and research and development  expenses,  decreased 18.9% from
$6,573,129 for the year ended December 31, 2002 to $5,328,742 for the year ended
December 31, 2003.  Selling  expenses,  which consist  primarily of salaries and
related costs for marketing,  decreased 5.9% from  $1,437,509 for the year ended
December 31, 2002 to $1,352,274  for the year ended  December 31, 2003 primarily
due to a reduction of non-recurring  expenses of approximately $123,000 from the
hiring of  professional  consultants  to promote our product and a reduction  in
sales  demonstration  equipment  expenses of  approximately  $19,000,  which was
partially  offset by an increase in salaries and employee costs of approximately
$34,000  and  marketing   expenses  of   approximately   $13,000.   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,  decreased 28.9% from $3,355,549 for
the year ended  December 31, 2002 to $2,386,088  for the year ended December 31,
2003,   primarily  as  a  result  of  a  reduction  of  non-recurring   fees  of
approximately  $355,000 incurred in the prior year for the hiring of consultants
primarily relating to the recognized non-cash expense of the granting of options
to this group in the prior year, a decrease of salaries and related  expenses of
approximately  $12,000,  a decrease in miscellaneous and office related expenses
of  approximately  $36,000  and a  decrease  in  legal  and  accounting  fees of
approximately  $568,000  primarily  related to the  reversal  of legal  accruals
resulting from the settlement of prior litigation  matters,  which was partially
offset by an increase in insurance costs of approximately $20,000.  Research and
development expenses,  which consist primarily of salaries and related costs for
the development of our products, increased 4% from $1,180,071 for the year ended
December 31, 2002 to $1,226,725  for the year ended  December 31, 2003 primarily
as a result  of  additional  expenses  incurred  in the  development  of our new
products.  During the fourth quarter of 2003, we determined  that as a result of
discontinuing  the selling of  IDentiScan  products,  certain of our  intangible
assets with a remaining book value of $363,655 should be written off. During the
fourth quarter of 2002, we recorded a reserve on inventory  deposit of $600,000,
which represents the deposit we paid the manufacturer on an open purchase order,
which we  subsequently  decided  to  cancel.  We  believe  that we will  require
additional  investments  in  development  and  operating  infrastructure  as the
Company grows. Therefore, we expect that expenses will continue to incrementally
increase in line with increases in the growth of the business as we may increase
expenditures  for  advertising,  brand  promotion,  public  relations  and other
marketing activities.  Research and development expenses may also increase as we
complete and  introduce  additional  products  based upon our patented  ID-Check
technology.

      INTEREST  EXPENSE.  Interest  expense  increased  from $4,878 for the year
ended  December  31,  2002 to  $43,487  for the year  ended  December  31,  2003
primarily  as a result of interest  incurred on the Early Bird award  granted on
April 8, 2003.

      INTEREST INCOME. Interest income decreased from $53,871 for the year ended
December  31,  2002 to  $51,437  for the year ended  December  31,  2003,  which
primarily  resulted from a decrease in our cash and cash  equivalents  available
for  investment  through  the third  quarter  of 2003 and lower  interest  rates
available  on our  investments  which was  partially  offset  by the  additional
interest  income on the cash  received  from the  successful  completion  of our
secondary offering in October 2003.

      OTHER  EXPENSES.  Other  expenses  for the year ended  December  31,  2003
totaling  $921,730 is a result of a non-  recurring  charge from an  arbitration
decision in favor of Early Bird Capital as a settlement on their demand.

      INCOME TAXES. We have incurred net losses to date and, therefore,  we have
paid nominal income taxes.

      NET LOSS. As a result of the factors noted above,  our net loss  increased
from  $5,550,234,  which included  $1,773,131 of non-cash  expenses for the year
ended  December  31, 2002 to  $6,450,943  for the year ended  December 31, 2003,
which  included  $2,314,627 of non-cash  expenses,  accounting  for 60.1% of the
increase in our net loss.



                                       20
<PAGE>


Liquidity and Capital Resources

      Prior to our initial  public  offering in November  1999,  we financed our
operations  primarily  through  several  private  placements  of equity and debt
securities. 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.  During 2001 and 2002, we received $3,231,174 and
$1,742,466, respectively, from the issuance of common stock from the exercise of
warrants, stock options and rights. During 2003, we received net proceeds before
legal expenses of $2,850,000,  from the issuance of convertible  preferred stock
and we received  net proceeds of  approximately  $7,906,000  from our  secondary
public  offering of 1,100,000  shares of common stock. We funded the purchase of
hardware terminals for resale and working capital primarily from these proceeds.
On November 2, 2004, we entered into an exclusive  agreement  with an investment
banking  firm for the  purpose of  investigating  the  opportunities  in raising
additional capital for us. There can be no assurances that we will be successful
in raising additional capital on acceptable terms.

      Cash used in operating  activities for the year ended December 31, 2004 of
$3,773,646 was primarily attributable to the net loss of $6,922,931,  a decrease
in litigation  settlement  payable of $921,700  resulting from the payout of the
legal award matter with Early Bird  Capital  recorded in 2003 and an increase in
accounts receivable of $288,946 resulting from credit sales made towards the end
of the year,  which was offset  primarily  by an  increase  in  certificates  of
deposit,  restricted of $1,283,118  resulting  primarily  from the payout of the
legal award,  an increase in accounts  payable and accrued  expenses of $667,086
primarily from legal accruals resulting from the patent litigation, an inventory
reserve of $357,332,  depreciation and amortization of $111,743,  recognition of
non cash stock based compensation expense resulting primarily from the extension
of stock options of $1,350,187  and  amortization  of deferred  compensation  of
$363,407  from the  granting  of stock  options  to  consultants.  Cash  used in
operating  activities  for the year ended  December 31, 2003 of  $4,612,915  was
primarily   attributable  to  the  net  loss  of  $6,450,943,   an  increase  in
certificates  of deposit,  restricted of $1,009,801  resulting from the award in
the legal matter with Early Bird Capital,  an increase in accounts receivable of
$155,636  resulting  from  credit  sales  made  towards  the end of the year,  a
decrease in accounts payable and accrued expenses of $464,354 primarily from the
reversal of legal accruals  resulting  from the  settlement of prior  litigation
matters,  which was offset  primarily by a decrease of inventory of $259,130 and
an inventory reserve of $990,000,  an increase in litigation  settlement payable
of  $921,700  resulting  from the legal award  recorded in the first  quarter of
2003, depreciation and amortization of $436,778,  write off of intangible assets
of $363,655  and  amortization  of deferred  compensation  of $357,194  from the
granting of stock options to consultants.  Cash used in investing activities was
$2,125,151 for the year ended December 31, 2004 and resulted  primarily from the
net result of the  investment  in and sales of marketable  securities  and short
term investments of $2,147,592. Cash used in investing activities was $4,860,740
for the year ended  December 31, 2003 and  consisted of purchases of  marketable
securities and short term investments of $4,856,388 using cash received from our
secondary  offering.  Cash provided by financing  activities was $91,989 for the
year ended  December 31, 2004 and was primarily  related to proceeds of $431,167
from the issuance of common stock from the exercise of stock options,  which was
partially  offset by the payment of  dividends  to  preferred  stock  holders of
$240,000.  Cash provided by financing  activities was  $10,870,067  for the year
ended  December 31, 2003 and was primarily  related to the issuance of 1,100,000
shares of our common stock in connection with our secondary public offering, the
issuance  of our  Series A 8%  Convertible  Redeemable  Preferred  Stock and the
exercise of stock options.

      During 2004,  we received  net  proceeds of $427,979  from the exercise of
142,700  options.  During 2003,  we received  net proceeds of $679,611  from the
exercise of 175,209 options.  As of December 31, 2004,  there remained  warrants
outstanding to purchase 110,000 and 100,000 shares of the Company's common stock
at an exercise price of $8.80 and $7.54, respectively.

      On March 27, 2003, pursuant to a Securities  Purchase  Agreement,  we sold
30,000 shares of our Series A 8% Convertible  Redeemable  Preferred  Stock,  par
value $.01 per share,  for  $3,000,000  before  expenses to Gryphon Master Fund,
L.P. Each share of Preferred  Stock entitled the holder to receive  dividends of
8% per annum and is  currently  convertible  into  15.1515  shares of our common
stock for a total of 454,545 shares of common stock. Additionally, the investors
were issued five year warrants to purchase  113,636 shares of common stock at an
exercise  price  of  $6.78.  Dividend  payments  of  $120,000  in  cash  are due
semi-annually beginning September 30, 2003 and, accordingly, we paid $122,958 on
September  30, 2003. In connection  with this  financing,  we paid agent fees of
$150,000  and issued  warrants  and options to purchase  8,854  shares of common
stock at a price of $6.78.  Shares of  Preferred  Stock are  convertible  at the
option of Gryphon  Master  Fund,  L.P. at any time prior to  redemption.  We may
redeem  any or all of the  Preferred  Stock at any time  after one year from the
closing date at a cash redemption price of $100 per share,  providing the volume
weighted average price of our Common Stock for 20 out of 30 consecutive  trading
days  exceeds  $13.20  per share.  We must  redeem  all of the  Preferred  Stock
outstanding on the fifth  anniversary of the closing date at a redemption price,
in cash,  equal to the purchase  price of the Preferred  Stock.  A  registration
statement  covering the common stock  issuable upon  conversion of the preferred
stock and  exercise of the warrants  was  declared  effective  in June 2003.  On
February  25,  2005,  Gryphon  converted  the  30,000  shares  of  Series  A  8%
Convertible  Redeemable  Preferred Stock into 454,545 shares of common stock. We
paid dividends through February 25, 2005.



                                       21
<PAGE>


      In March 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  continuously held from the record date to the date of exercise,
as well as common stock  underlying  vested stock options and warrants,  held of
record on March 30, 2001, at an exercise price of $8.50.  The rights were due to
expire on October 4, 2002,  which was one year after the  effective  date of the
registration  statement  related to the shares of common  stock  underlying  the
rights.  We first  extended  the  expiration  date until April 4, 2003;  we then
extended the rights until December 31, 2003; we further  extended the expiration
date to June 30, 2004; and subsequently extended the expiration date to June 30,
2005.  We have the right to redeem  the  outstanding  rights  for $.01 per right
under certain  conditions,  which were not met as of March 25, 2005. We reserved
970,076 shares of common stock for future  issuance under this rights  offering.
Cumulatively,  as of December 31, 2004, we received  $2,482,009  before expenses
from the exercise of 292,001 of these rights.

      In March  2001,  our Board of  Directors  authorized,  subject  to certain
business and market  conditions,  the purchase of up to $1,000,000 of our common
stock. As of December 31, 2004, we cumulatively purchased 40,200 shares totaling
approximately  $222,000 and  subsequently  retired these  shares.  None of these
shares  were  purchased  during the  fourth  quarter  of 2004.  We may  purchase
additional shares when warranted by certain conditions.

      During 2004, the Company's cash expense burn rate,  which does not include
dividend  payments made on our Preferred Stock, was  approximately  $430,000 per
month and we expect that it will not  materially  change for 2005.  We currently
anticipate  that our available cash in hand and  marketable  securities and cash
resources from expected revenues from the sale of the units in inventory and the
licensing of our technology 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 inventory,
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.

      We are currently involved in certain legal proceedings as discussed in the
"Commitments and  Contingencies"  note in the Notes to the Financial  Statements
filed in our form 10-K for the year ended  December 31, 2004.  We do not believe
these legal  proceedings  will have a material  adverse  effect on our financial
position, results of operations or cash flows.

      As of December  31, 2004,  we had a net  operating  loss carry  forward of
approximately  $27  million,  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 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.

Contractual Obligations

      The table below presents our  contractual  obligations  and commitments at
December 31, 2004:

<TABLE>
<CAPTION>
                                          Payments Due by Period

                                                 Less than
     Contractual Obligations           Total      One Year    1-3 years    4-5 years    After 5 years
---------------------------------   ----------   ----------   ----------   ----------   -------------
<S>                                 <C>          <C>          <C>          <C>          <C>
Operating Leases                    $1,609,943   $  247,552   $  786,277   $  576,114              --
Consulting contracts                   138,000      138,000           --           --              --
Employment contracts                   574,172      412,086      162,086           --              --
                                    ----------   ----------   ----------   ----------   -------------
Total Contractual Cash Obligation   $2,322,115   $  797,638   $  948,363   $  576,114              --
</TABLE>

Off-Balance Sheet Arrangements

      We have never entered into any off-balance  sheet  financing  arrangements
and have never established any special purpose entities.  We have not guaranteed
any debt or  commitments  of other  entities  or  entered  into any  options  on
non-financial assets.



                                       22
<PAGE>


Forward Looking Statements

      The foregoing contains certain forward-looking statements. Due to the fact
that our business is characterized by rapidly changing technology,  high capital
requirements  and an  influx of new  companies  trying to  respond  to  enhanced
security  needs as a result of current  events,  actual results and outcomes may
differ  materially from any such forward looking  statements and, in general are
difficult to forecast.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

None

Item 8. Financial Statements and Supplementary Data

      Financial statements are attached hereto following beginning on Page F-1.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure


      On April 21, 2004, the Company dismissed its independent  auditors,  Grant
Thornton LLP ("Grant  Thornton"),  and engaged  Amper,  Politziner & Mattia P.C.
("Amper") as its new independent  registered  public accounting firm. The change
in auditors  became  effective  immediately.  This  determination  followed  the
Company's  decision to seek proposals from independent  accountants to audit the
financial  statements of the Company, and was approved by the Company's Board of
Directors upon the recommendation and approval of its Audit Committee. The audit
reports of Grant  Thornton on the Company's  financial  statements for the years
ended  December  31,  2003 and 2002  did not  contain  any  adverse  opinion  or
disclaimer of opinion,  nor were they  qualified or modified as to  uncertainty,
audit scope or accounting principles. During our fiscal years ended December 31,
2003 and 2002, and through the date of Grant  Thornton's  dismissal on April 21,
2004, there were no disagreements  between the Company and Grant Thornton on any
matter of accounting principles or practices, financial statement disclosure, or
auditing  scope or  procedure,  which  disagreements,  if not  resolved to Grant
Thornton's  satisfaction,  would have caused Grant Thornton to make reference to
the subject matter of the disagreement in connection with its reports.

Item 9A. Controls and Procedures

      We maintain disclosure controls and procedures (as defined in Exchange Act
Rules  13a-15(e) and 15d-15(e)) that are designed (i) to collect the information
we are  required to  disclose  in the reports we file with the SEC,  and (ii) to
process,  summarize  and  disclose  this  information  within  the time  periods
specified  in the  rules  of  the  SEC.  Under  the  supervision  and  with  the
participation of our management, including our Chief Executive Officer and Chief
Financial  Officer,  we have  evaluated  the  effectiveness  of the  design  and
operation  of our  disclosure  controls  and  procedures.  Such  evaluation  was
conducted  as of the end of the  period  covered by this  report.  Based on such
evaluation,  our Chief Executive and Chief Financial Officer have concluded that
these procedures are effective.

      Additionally,  there were no significant  changes in our internal controls
or in other factors that could significantly affect these controls subsequent to
the end of the  period  covered  by this  report.  We have  not  identified  any
significant  deficiencies or material  weaknesses in our internal controls,  and
therefore there were no corrective actions taken.

      Compliance with Section 404 of the Sarbanes-Oxley Act of 2002

      Pursuant  to  Section  404 of the  Sarbanes-Oxley  Act of 2002 (the  Act),
beginning  with our  Annual  Report  on Form  10-K for the  fiscal  year  ending
December 31, 2006, we will be required to furnish a report by our  management on
our internal control over financial reporting.  This report will contain,  among
other matters,  an assessment of the  effectiveness of our internal control over
financial  reporting as of the end of our fiscal year,  including a statement as
to whether or not our internal  control over  financial  reporting is effective.
This  assessment  must  include  disclosure  of any material  weaknesses  in our
internal  control over  financial  reporting  identified  by  management.  If we
identify one or more material  weaknesses in our internal control over financial
reporting,  we will be unable to assert  our  internal  control  over  financial
reporting  is  effective.  This  report will also  contain a statement  that our
independent  registered public  accountants have issued an attestation report on
management's  assessment  of  such  internal  controls  and  conclusion  on  the
operating effectiveness of those controls.

      Management  acknowledges  its  responsibility  for internal  controls over
financial reporting and seeks to continually improve those controls. In order to
achieve  compliance with Section 404 of the Act within the prescribed period, we
are currently  performing  the system and process  documentation  and evaluation
needed to comply with  Section  404,  which is both costly and  challenging.  We
believe  our  process,  which  will  begin  in 2005  and  continue  in 2006  for
documenting,  evaluating  and  monitoring  our internal  control over  financial
reporting is consistent with the objectives of Section 404 of the Act.

Item 9B. Other Information

None


                                       23
<PAGE>


                                    PART IV

Item 10. Directors and Executive Officers of the Company

      As of March 30, 2005, the Company's  directors and executive officers were
as follows:

<TABLE>
<CAPTION>
                                     Position With the Company
         Name                         And Principal Occupation                  Held Office Since
---------------------    --------------------------------------------------     -----------------
<S>                      <C>                                                           <C>
Frank Mandelbaum         Chairman, Chief Executive Officer and Director                1996

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

Russell T. Embry         Senior Vice President and Chief Technology Officer            2001

Todd Liebman             Senior Vice President, Marketing and Operations               2004

Ashok Rao                Vice Chairman, Director                                       2004

John N. Hatsopoulos      Director                                                      2003

Arthur L. Money          Director                                                      2003

Charles McQuinn          Director                                                      1999

Thomas Prendergast       Director                                                      2004

Jeffrey Levy             Director                                                      1999

Evelyn Berezin           Director                                                      1999
</TABLE>

      Frank  Mandelbaum,  age 71,  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.

      Edwin Winiarz, age 47, 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.

      Russell T. Embry,  age 41, was elected  Senior  Vice  President  and Chief
Technology Officer in July 2001 and was Vice President,  Information Technology,
since July 1999.  From  January 1998 to July 1999,  Mr. Embry was Lead  Software
Engineer  with RTS  Wireless.  From  April 1995 to  January  1998,  he served as
Principal  Engineer  at  GEC-Marconi  Hazeltine  Corporation.  From  August 1994
through April 1995, he was a staff software engineer at Periphonics Corporation.
From September 1989 to August 1994, Mr. Embry served as Senior Software Engineer
at  MESC/Nav-Com.  From July 1985  through  September  1989,  he was a  software
engineer at Grumman  Aerospace.  Mr. Embry holds a B.S. in Computer Science from
Stony  Brook  and an M.S.  in  Computer  Science  from  Polytechnic  University,
Farmingdale.



                                       24
<PAGE>


      Todd Liebman, age 31, joined  Intelli-Check,  Inc. in December 2004 as its
Senior  Vice   President  of  Marketing   and   Operations.   Prior  to  joining
Intelli-Check,  Mr.  Liebman  served as  President  of Quick  Kiosk,  a Kinetics
Company,  LLC (QK), a self-service  solution provider focused on the quick serve
restaurant market industry.  In September 2004 Mr. Liebman completed the sale of
QK to NCR  Corporation  (NYSE:NCR).  Prior to founding QK, Mr. Liebman served as
Director of Business Development of Trex Communications Corporation (TrexCom), a
telecommunications  start-up  focused on  satellite  communications  systems and
multi-media  interactive response systems, which was sold to L-3 Communications,
Inc. in February 2000. TrexCom grew from a complete start-up and losing money in
1997 to $50 million in revenues and profitable in less than two years.  Prior to
joining  Trex  Communications,  Mr.  Liebman was  Associate  Director,  Business
Development  for  Thermo   Electron   Corporation   (NYSE:TMO),   a  $4  billion
conglomerate  and parent company of Trex  Communications.  From 1996 to 1997, he
worked as a  Management  Consultant  at EMI  Strategic  Marketing,  a  strategic
consulting  firm. Mr.  Liebman  received his Bachelor's of Science in Management
from Tulane  University's A.B. Freeman School of Business.  Mr. Liebman has also
participated   in  an  Executive   Education   program  at  the   University  of
Pennsylvania's Wharton School of Business.

      Ashok Rao,  age 55, was  appointed a director  in  December  2004 and Vice
Chairman in January  2005.  Mr. Rao is currently  an angel  investor in numerous
high-tech  start-ups as well as the producer of a major motion picture scheduled
for  worldwide   release  in  April  2005.   Mr.  Rao  was  CEO  of  Prime  Wave
Communications,  a broadband  wireless access  technology  subsidiary of L3 from
2000 to 2003. Previously, he was the founder and chief executive officer of Trex
Communications ("TrexCom"), a Thermo Electron satellite communications business,
which  reached  annual  revenues  of $60  million  in the  second  year.  He was
instrumental  in the sale of TrexCom to L3 in 2000.  Mr. Rao holds a  bachelor's
degree in mechanical  engineering from the Indian  Institute of Technology,  New
Delhi, a master's degree in systems engineering from Marquette University, and a
diploma in Financial Management from the London School of Economics.  Mr. Rao is
also a trustee of numerous charitable organizations.

      John N. Hatsopoulos,  age 71, was elected a director in December 2003. Mr.
Hatsopoulos  is currently the chief  executive  officer of American  Distributed
Generation Inc. He is the co-founder of Thermo Electron  Corporation  (NYSE:TMO)
and the  retired  president  and vice  chairman of its Board of  Directors.  Mr.
Hatsopoulos is also managing partner of Glen Rose Capital LLC, a leverage buyout
investment  fund, and managing  partner of Alexandros  Partners LLC, a financial
advisory  firm.  Prior to his role at  American  Distributed  Generation,  which
provides a range of products and services in support of the emerging  market for
on-site   generation  of   electricity,   heating  and  cooling  at  commercial,
institutional  and light  industrial  facilities,  Mr.  Hatsopoulos  held a wide
variety  of  positions  at  Thermo  Electron  Corporation.  Over  more than four
decades,  Mr. Hatsopoulos  served,  among other positions,  as vice president of
corporate strategy, handling acquisitions,  financial and investor relations and
corporate investments, chief financial officer and, at retirement, president and
vice chairman of the Board of Directors.  Mr. Hatsopoulos  graduated from Athens
College in Athens,  Greece in 1953.  He holds a B.S. in history and  mathematics
from  Northeastern  University,  together with  Honorary  Doctorates in Business
Administration from Boston College and Northeastern University. He served on the
Board of Directors of the American  Stock Exchange from 1994 through 2000. He is
currently  a member of the Board of  Directors  of TEI  BioSciences  Inc.  and a
"Member of the Corporation" for Northeastern University.

      Arthur L. Money,  age 65, was elected a director  in  February  2003.  Mr.
Money was  confirmed  by the  Senate and served as the  Assistant  Secretary  of
Defense for Command, Control,  Communications and Intelligence from 1999 to 2001
and was also the Chief  Information  Officer for the  Department of Defense from
1998 until 2001. Prior to that he served as the Senior Civilian Official, Office
of the  Assistant  Secretary  of  Defense,  from  1998 to 1999  and was  earlier
confirmed  by the Senate as Assistant  Secretary of the Air Force for  Research,
Development and Acquisition and served as Chief Information  Officer,  from 1996
to 1998. Mr. Money currently serves as a member of the advisory board of several
corporations  including  the Boeing  Company  (NYSE:  BA). He also serves on the
Board of Directors of numerous companies including Silicon Graphics, Inc. (NYSE:
SGI) and CACI International  (NYSE: CAI) and has been recognized for his vision,
leadership and  commitment to excellence in systems and process  re-engineering.
Mr. Money,  who holds a Master of Science Degree in Mechanical  Engineering from
the  University  of Santa Clara  (Calif.)  and a Bachelor  of Science  Degree in
Mechanical  Engineering  from San Jose (Calif.) State  University also currently
serves on several U.S. Government Boards and Panels such as NIMA Advisory Board,
Defense Science Board, US Air Force AC2ISR Center Advisory Board and the US Navy
"DSAP"  Special  Advisory  Panel.  Prior  to his  government  service,  he had a
distinguished  business  career  having  served  as  President  of ESL  Inc.,  a
subsidiary of TRW, Inc., from 1990 to 1994 prior to its  consolidation  with its
Avionics and Surveillance Group when he became Vice President and Deputy General
Manager of the Group.



                                       25
<PAGE>


      Charles  McQuinn,  age 64, 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  held  various   product   development/marketing/management   positions  with
Burroughs  Corporation.  Mr.  McQuinn  holds a BS in  marketing  from Ball State
University and an MBA in management from Central Michigan University.

      Thomas A.  Prendergast,  age 71, was elected a director in March 2004. Mr.
Prendergast is currently an investment and management  consultant.  He presently
serves as  chairman  of the board for The Steel  Corporation  of Texas,  Texzona
Industries,  Inc.  and Scot  Holding,  Inc.  and as  director  for Double  Eagle
Petroleum, Inc. Throughout his career, Mr. Prendergast has served as a member of
the board of directors for more than seventeen  publicly traded companies across
a broad range of industries. He has worked with companies in special situations,
including  the  initial  public  offering of Farah  Manufacturing,  where he was
executive  vice  president  for ten years.  He has been  involved in a number of
turnaround situations and various high-profile transactions,  including the sale
of Market Guide, Inc. to Multex,  the global provider of institutional  research
products,  which has since been integrated into Reuters Products & Services. Mr.
Prendergast was the founding member and President of the Board of Trustees of El
Paso Community  College from 1962 to 1982. He is a certified  public  accountant
and holds a Bachelor of Science degree from Fordham University.

      Jeffrey  Levy,  age 62, 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 company. 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.

      Evelyn  Berezin,  age 79, 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  has  served on the  boards of a number  of public  companies  including
Bionova Corp., Cigna Corp.,  Datapoint Corp., Koppers Company,  Inc. and Genetic
Systems Inc., as well as more than fourteen private technology-based  companies.
She also serves on the boards of Sion Energy Inc.  and  BioPhotonics  Corp.  Ms.
Berezin holds honorary  doctorates from Adelphi  University and Eastern Michigan
University  and is on the Board of the Stony  Brook  Foundation  of Stony  Brook
University  and  Brookhaven  Science  Associates,   the  manager  of  Brookhaven
Laboratories.

Audit Committee of the Board of Directors

      The board of directors has established a separately designated stand alone
Audit  Committee  established  in  accordance  with Section  3(a)(58)(A)  of the
Exchange Act, which is currently  comprised of Mr.  Prendergast,  chairman,  Mr.
McQuinn and Ms.  Berezin.  They are all considered  "independent"  under Section
121(A) of the  listing  standards  of the  American  Stock  Exchange.  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  determined  that we have at least one audit
committee financial expert serving on our audit committee. Mr. Prendergast,  who
is a certified  public  accountant  and holds a Bachelor of Science  degree from
Fordham  University,  is  an  "audit  committee  financial  expert"  and  is  an
independent member of the board of directors.



                                       26
<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance

      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 the review of Forms 3,
it was determined that Mr. Prendergast failed to file a timely report concerning
the grant of 7,500  stock  options on April 1, 2004 due to his not having  EDGAR
access  codes;  however,  such  failure was  remedied by the  reporting  of this
transaction on April 7, 2004. It was also determined that Mr. Rao failed to file
a timely report concerning the grant of 75,000 stock options on December 3, 2004
due to his not having EDGAR access codes;  however, such failure was remedied by
the  reporting  of  this  transaction  on  December  14,  2004.  It was  further
determined that Mr. Liebman failed to file a timely report  concerning the grant
of 175,000 stock options on December 10, 2004 due to his not having EDGAR access
codes;  however,  such failure was remedied by the reporting of this transaction
on December 17, 2004.  During the review of Forms 4, it was determined  that Mr.
Hatsopoulos  failed to file a timely  report  concerning  the  purchase of 1,000
shares of common stock on January 12, 2004 and the grant of 2,500 stock  options
on May 10, 2004; however,  such failures were remedied by the reporting of these
transactions  on January 15, 2004 and May 20,  2004,  respectively.  It was also
determined  that Mr. Levy failed to file a timely report  regarding the purchase
of 500 shares on common  stock on December 1, 2004;  however,  such  failure was
remedied by the  reporting of this  transaction  on December 7, 2004.  All other
transactions were reported in a timely fashion.

Code of Ethics

      On March 22,  2004,  we adopted a code of ethics that applies to our Chief
Executive  Officer and Chief  Financial  Officer,  and other persons who perform
similar functions.  A copy of our Code of Ethics is incorporated by reference as
an exhibit to this Annual Report on Form 10-K. Our Code of Ethics is intended to
be a codification of the business and ethical  principles which guide us, and to
deter wrongdoing,  to promote honest and ethical conduct,  to avoid conflicts of
interest,  and  to  foster  full,  fair,  accurate,  timely  and  understandable
disclosures,   compliance  with   applicable   governmental   laws,   rules  and
regulations,  the prompt internal reporting of violations and accountability for
adherence to this Code. Item 11. 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, 2004. No other executive  officers  received total salary and
bonus compensation in excess of $100,000 during any of such fiscal years.

                           SUMMARY COMPENSATION TABLE


                                                 Annual           Long-Term
                                              Compensation       Compensation
                                              ------------       ------------
                                                                  Securities
                                                                  Underlying
Name and Principal Position          Year       Salary($)      Options/SARS (#)
---------------------------          ----       ---------      ----------------

Frank Mandelbaum                     2004        250,000            75,000
Chairman and                         2003        250,000           100,000
Chief Executive Officer              2002        250,000           350,000

Edwin Winiarz                        2004        151,318            65,000
Senior Executive Vice President      2003        141,750            30,000
Chief Financial Officer              2002        135,000              --

Russell T. Embry                     2004        152,063            10,000
Senior Vice President                2003        150,000            12,500
Chief Technology Officer             2002        150,000            12,500

Ralph Thomas                         2004        103,855              --
Former Senior Vice President Sales   2003         11,060            50,000

W. Robert Holloway                   2004           --                --
Former Senior Vice President         2003        108,728              --
Sales                                2002        115,000              --



                                       27
<PAGE>


Option Grants

      The  following  table  summarizes  options  granted  during the year ended
December 31, 2004 to the named executive officers:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------

                                           Individual Grants
---------------------------------------------------------------------------------------------------------
                       Number of
                       Securities     % of Total
      Name             Underlying   Options Granted                           Potential Realizable Value
                        Options     to Employees In   Exercise  Expiration     Assumed Annual Rates of
                        Granted     2004 Fiscal Year    Price       Date      Appreciation for Option (1)
---------------------------------------------------------------------------------------------------------
                                                                                   5%              10%
                                                                              ---------------------------
<S>                     <C>              <C>            <C>      <C>           <C>              <C>
Russell T. Embry          5,000           1.3%          $4.37    12/03/09      $  6,037         $ 13,340

Russell T. Embry          5,000           1.3%          $4.37    06/03/10      $  6,037         $ 13,340

Frank Mandelbaum         25,000           6.6%          $4.37    01/01/15      $ 30,184         $ 66,698

Frank Mandelbaum         25,000           6.6%          $4.37    01/01/16      $ 30,184         $ 66,698

Frank Mandelbaum         25,000           6.6%          $4.37    01/01/17      $ 30,184         $ 66,698

Todd Liebman             25,000           6.6%          $4.57    12/10/09      $ 31,565         $ 69,751

Todd Liebman             25,000           6.6%          $4.57    12/10/10      $ 31,565         $ 69,751

Todd Liebman             25,000           6.6%          $4.57    12/10/11      $ 31,565         $ 69,751

Todd Liebman            100,000          26.5%          $4.57    12/10/14      $126,261         $279,003

Edwin Winiarz            15,000           4.0%          $5.25    07/08/14      $ 21,757         $ 48,078

Edwin Winiarz            25,000           6.6%          $4.37    01/01/15      $ 30,184         $ 66,698

Edwin Winiarz            25,000           6.6%          $4.37    01/01/16      $ 30,184         $ 66,698
---------------------------------------------------------------------------------------------------------
</TABLE>

      (1) 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.

Aggregated Option Exercises and Fiscal Year-End Option Value Table

      The following  table  summarizes  unexercised  options granted through the
year-end December 31, 2004 to the named executive officers:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                             Aggregate                                        Value of Unexercised
                          No. of Shares    Dollar Value          No. of Securities                In-the-Money
         Name             Received Upon    Received Upon      Underlying Unexercised           Options At Fiscal
                            Exercise         Exercise           Options / Warrants             Year End 12/31/04
---------------------------------------------------------------------------------------------------------------------
                                                            Exercisable  Unexercisable    Exercisable   Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>          <C>           <C>            <C>           <C>
Frank Mandelbaum
Chairman & CEO                  0                0            900,000        75,000        $ 675,000     $   9,750


Edwin Winiarz Senior
Executive VP & CFO              0                0            165,000        50,000             0        $   6,500


Russell T. Embry Senior
VP & CTO                        0                0             82,500         5,000        $   9,150     $     650


Todd Liebman, Senior
VP Marketing &
Operations                      0                0             25,000       150,000              0             0
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       28
<PAGE>


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.  Through  December 2002,
non-employee  directors received 15,000 options for each full year of service on
the Company's  board of directors.  In July 2003, the board increased the amount
of options  granted to  non-employee  directors for each full year of service to
25,000  options.  In  addition,  non-employee  directors  who are  members  of a
committee are entitled to receive  grants of stock options for each year served.
The chairperson of the audit committee receives options to purchase 7,500 shares
of our common  stock and audit  committee  members  receive  options to purchase
3,000 shares of our common stock. Of the remaining committees,  each chairperson
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.  These
options are  immediately  exercisable  during the  committee  members'  term and
expire ten years from date of grant.

      On January 11, 2005,  we issued  options to purchase  60,000 shares of our
common  stock,  at a price  of  $4.55,  to our  Vice  Chairman,  Ashok  Rao,  as
compensation  for providing us with advice in certain  strategic and operational
aspects of the business.  Of these options,  10,000 vested  immediately  and the
balance vest upon meeting certain goals.

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

      On November 9, 2004,  we entered into a new one-year  employment  contract
with our Chairman  and Chief  Executive  Officer,  Frank  Mandelbaum,  effective
January 1, 2005.  The agreement  provides for an annual base salary of $250,000.
In addition, we granted to Mr. Mandelbaum an option to purchase 75,000 shares of
common stock at an exercise  price of $4.37 per share,  of which 25,000  options
became  exercisable on January 1, 2005; 25,000 options shall become  exercisable
on January 1, 2006 and the remaining 25,000 options shall become  exercisable on
January 1, 2007.

      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.

      On November 9, 2004, we entered into a new  employment  agreement with our
Senior  Executive Vice  President and Chief  Financial  Officer,  Edwin Winiarz,
effective  January 1, 2005.  The  agreement,  which  expires  December 31, 2006,
provides for a fixed base annual salary of $162,086.  In addition, we granted to
Mr.  Winiarz an option to purchase  50,000 shares of common stock at an exercise
price of $4.37 per share, of which 25,000 options became  exercisable on January
1, 2005 and the remaining 25,000 options shall become  exercisable on January 1,
2006.

      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.

Compensation Committee Interlocks and Insider Participation

      The board of directors has  established a compensation  committee which is
currently comprised of Mr. Levy,  chairman,  Mr. Hatsopoulos,  Mr. Money and Mr.
Rao.  No member of the  Compensation  Committee  has a  relationship  that would
constitute an interlocking  relationship with Executive Officers or Directors of
the Company or another entity.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

      The following  table sets forth,  as of March 1, 2005 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.



                                       29
<PAGE>


      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  10,290,418  shares
outstanding as of March 1, 2005.

              Name                      Shares Beneficially Owned    Percent
-----------------------------------------------------------------------------
Frank Mandelbaum (1)                            1,603,505             14.17

Edwin Winiarz (2)                                 192,000              1.83

Todd Liebman (3)                                   25,000               *

Russell T. Embry (4)                               86,500               *

Evelyn Berezin (5)                                136,400              1.31

Charles McQuinn (6)                               145,600              1.40

Jeffrey Levy (7)                                  113,380              1.09

Arthur L. Money (8)                                78,000               *

John  Hatsopoulos (9)                              72,600               *

Thomas Prendergast (10)                            70,000               *

Ashok Rao (11)                                     38,000               *

Empire State Development formerly
 New York State Science and
Technology Foundation (12)                        605,000              5.85

All Executive Officers & Directors as
a group (11 persons)                            2,560,985              23.41


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

(1)   Includes   1,024,928  shares  issuable  upon  exercise  of  stock  options
      exercisable  within 60 days.  Does not  include  12,100  shares  and 1,190
      rights held by Mr.  Mandelbaum's wife, for which Mr. Mandelbaum  disclaims
      beneficial ownership

(2)   Includes   192,000   shares   issuable  upon  exercise  of  stock  options
      exercisable within 60 days.

(3)   Includes 25,000 shares issuable upon exercise of stock options exercisable
      within 60 days.

(4)   Includes 86,500 shares issuable upon exercise of stock options exercisable
      within 60 days.

(5)   Includes   127,900   shares   issuable  upon  exercise  of  stock  options
      exercisable within 60 days.

(6)   Includes   130,600   shares   issuable  upon  exercise  of  stock  options
      exercisable within 60 days.

(7)   Includes   110,980   shares   issuable  upon  exercise  of  stock  options
      exercisable within 60 days.

(8)   Includes 77,800 shares issuable upon exercise of stock options exercisable
      within 60 days.

(9)   Includes 56,500 shares issuable upon exercise of stock options exercisable
      within 60 days.

(10)  Includes 40,000 shares issuable upon exercise of stock options exercisable
      within 60 days.

(11)  Includes 38,000 shares issuable upon exercise of stock options exercisable
      within 60 days.

(12)  Frances  A.  Walton,  the Chief  Financial  Officer  exercises  voting and
      dispositive  power over the shares.  The address is 633 Third Avenue,  New
      York, NY 10017



                                       30
<PAGE>


Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                      Number of Securities      Weighted average
                                        to be issued upon       exercise price of            Number of securities remaining
                                           exercise of             outstanding            available for future issuance under
                                       outstanding options,     options, warrants        equity compensation plans (excluding
Plan Category                          warrants and rights          and rights             securities reflected in column a)
                                               (a)                     (b)                               (c)
------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                       <C>                               <C>
Equity compensation plans approved          1,953,049                 $7.03                             774,842
by security holders
------------------------------------------------------------------------------------------------------------------------------

Equity compensation plans not                824,425                  $7.30                              None
approved by security holders
------------------------------------------------------------------------------------------------------------------------------

Total                                       2,777,474                 $7.11                             774,842
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      From time to time the Board of Directors of the Company approves the grant
of  non-plan  options to  officers  and  employees  of, or  consultants  to, the
Company.  The shares of common stock listed under equity  compensation plans not
approved by  stockholders  in the above table  consist of shares of common stock
issuable  pursuant to such options.  The vesting schedule of the options varies,
with some vesting  immediately  and some vesting upon the  completion of certain
performance  objectives.  The non-plan options  currently  outstanding have been
granted to eleven (11) persons.  These options have a weighted  average exercise
price per share equal to $7.30 and options to purchase  687,500 shares of common
stock are currently exercisable.

Item 13. Certain Relationships and Related Transactions

      On January 1, 2005, we renewed our agreement with Alexandros  Partners LLC
to act as consultants in advising us in financial and investor relation matters.
We  agreed  to pay a  consulting  fee of  $50,000  payable  in 12 equal  monthly
installments.   The  agreement   terminates  on  December  31,  2005.  Mr.  John
Hatsopoulos,  a principal of  Alexandros  Partners LLC, is currently a member of
our Board of Directors.  This transaction was approved by all of the independent
directors of our Board of Directors.

Item 14. Principal Accountant Fees and Services

      During  fiscal years ended  December  31, 2003 until April 21,  2004,  our
principal independent auditor was Grant Thornton LLP. Thereafter,  our principal
independent  auditor was Amper,  Politziner & Mattia,  P.C. The services of each
were provided in the following categories and amount:

AUDIT FEES

      The aggregate fees billed by Grant Thornton LLP for professional  services
rendered for the audit of the  Company's  annual  financial  statements  for the
fiscal  years  ended  December  31,  2003,  for  the  reviews  of the  financial
statements  included in the Company's  Quarterly Reports on Form 10-Q for fiscal
year 2003 and for services  performed in connection with the Company's Forms S-2
and S-3  registration  statements  filed in 2003, were $252,660.  We were billed
$10,000 by Grant  Thornton  LLP for fees  relating to the  transition  to Amper,
Politziner and Mattia, P.C. as our auditors during 2004.

      The  aggregate  fees  billed by Amper,  Politziner  and Mattia,  P.C.  for
professional  services  rendered for the audit of the Company's annual financial
statements  for the fiscal year ended  December  31, 2004 and for the reviews of
the financial  statements  included in the Company's  Quarterly  Reports on Form
10-Q for fiscal year 2004 amounted to $78,400.

AUDIT RELATED FEES

      Other than the fees described under the caption "Audit Fees" above,  Grant
Thornton  LLP did not bill any fees for  services  rendered to us during  fiscal
year 2003 for  assurance and related  services in  connection  with the audit or
review of our financial statements.  Amper,  Politziner and Mattia, P.C. did not
bill any fees for services  rendered to us during fiscal year 2004 for assurance
and related  services in  connection  with the audit or review of our  financial
statements.


                                       31
<PAGE>


TAX FEES

      There were no tax fees  billed by Grant  Thornton  LLP during  fiscal year
2003.  Amper,  Politziner  and Mattia,  P.C.  has not billed us for tax fees for
fiscal 2004, but they did perform tax related  services for us which we estimate
to be approximately $3,000.

ALL OTHER FEES

      There were no fees  billed by Grant  Thornton  LLP for other  professional
services rendered during the fiscal year ended December 31, 2003.

      There were no fees billed by Amper,  Politziner and Mattia, P.C. for other
professional services rendered during the fiscal year ended December 31, 2004.

PRE-APPROVAL OF SERVICES

      The Audit Committee  pre-approves  all services,  including both audit and
non-audit services, provided by our independent accountants. For audit services,
each  year  the  independent  auditor  provides  the  Audit  Committee  with  an
engagement letter outlining the scope of proposed audit services to be performed
during the year,  which must be formally  accepted by the  Committee  before the
audit  commences.  The  independent  auditor also submits an audit  services fee
proposal,  which  also  must be  approved  by the  Committee  before  the  audit
commences. Item 15. Exhibits and Financial Statement Schedules

      (a)(1) Financial Statements

             Balance Sheets as of December 31, 2003 and 2004
             Statements of Operations for the years ended December 31, 2002,
             2003 and 2004
             Statements of Stockholders' Equity for the years ended December 31,
             2002, 2003 and 2004
             Statements of Cash Flows for the years ended December 31, 2002,
             2003 and 2004

         (2) Schedule II - Valuation and Qualifying Accounts

      (b)    Exhibits

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)

3.3              Certificate of Designation of Preferred Stock of Intelli-Check,
                 Inc. (7)

4.1              Specimen Stock Certificate (2)

4.2              Form of Underwriters' Warrant Agreement (1)

4.3              Warrant to Gryphon Master Fund LLP (7)

4.4              Form of Underwriters Warrant Agreement including form of
                 Warrant Certificate(8)

10.1             1998 Stock Option Plan (1) *

10.5             Agreement of Lease between the Company and Industrial and
                 Research Associates, dated as of October 15, 2000 (5)

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)

10.9             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 AAMVAnet, Inc. and Intelli
                 -Check, Inc. effective  November 15, 2000 (5)

10.12            2001 Stock Option Plan (4)

10.15            Memorandum of Understanding between AAMVAnet, Inc. and
                 Intelli-Check, Inc. effective January 29, 2002 (5)

10.16            Securities Purchase Agreement between Intelli-Check, Inc. and
                 Gryphon Master Fund dated March 27, 2003. (7)


                                       32
<PAGE>


10.17            Registration Rights Agreement between Intelli-Check, Inc. and
                 Gryphon Master Fund dated March 27, 2003. (7)

10.18            Employment Agreement between Frank Mandelbaum and the Company,
                 dated as of December 15, 2004* (6)

10.19            Employment Agreement between Edwin Winiarz and the dated as of
                 December 15, 2004* (6)

14.1             Code of Business Conduct and (7)

21               List of Subsidiaries (1)

31.1             Certification of Chief Executive pursuant to Section 302 of The
                 Sarbanes-Oxley Act of 2002

31.2             Certification of Chief Financial Officer pursuant to Section
                 302 of The Sarbanes-Oxley Act of 2002 32 Certification of Chief
                 Executive Officer and Chief Financial pursuant to Section 906
                 of The Sarbanes-Oxley Act of 2002

----------

*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.
(4)   Incorporated by reference to Registrant's  Proxy Statement on Schedule 14A
      filed May 31, 2001.
(5)   Incorporated by reference to Registrant's Annual Report on Form 10-K filed
      March 29, 2001.
(6)   Incorporated by reference from the Registrant's Current Report on Form 8-K
      filed on December 16, 2004.
(7)   Incorporated by reference to Registrant's Annual Report of Form 10-K filed
      March 31, 2003.
(8)   Incorporated by reference to Registration  Statement on Form S-2 (File No.
      333-108043) filed September 30, 2003.



                                       33
<PAGE>


                                   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 30, 2005          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 30, 2005       INTELLI-CHECK, INC.

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

Date:        March 30, 2005       /s/  Edwin Winiarz
                                  ------------------
                                  Edwin Winiarz
                                  Senior Executive Vice President, Treasurer and
                                  Chief Financial Officer

Date:        March 30, 2005       /s/  Ashok Rao
                                  --------------
                                  Ashok Rao, Vice Chairman and Director

Date:        March 30, 2005       /s/  Evelyn Berezin
                                  -------------------
                                  Evelyn Berezin, Director

Date:        March 30, 2005       /s/  John Hatsopoulos
                                  John Hatsopoulos, Director

Date:        March 30, 2005       /s/  Jeffrey Levy
                                  -----------------
                                  Jeffrey Levy, Director

Date:        March 30, 2005       /s/  Charles McQuinn
                                  --------------------
                                  Charles McQuinn, Director

Date:        March 30, 2005       /s/  Arthur L. Money
                                  --------------------
                                  Arthur L. Money, Director

Date:        March 30, 2005       /s/  Thomas Prendergast
                                  -----------------------
                                  Thomas Prendergast, Director


<PAGE>

INDEX



                                                                         Page
                                                                         ----

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS              F-1 - F-2

FINANCIAL STATEMENTS:
    Balance Sheets as of December 31, 2003 and 2004                       F-3

    Statements of Operations for the Years Ended December 31, 2002,
    2003 and 2004                                                         F-4

    Statements of Stockholders' Equity for the Years Ended
    December 31, 2002, 2003 and 2004                                      F-5

    Statements of Cash Flows for the Years Ended December 31, 2002,
    2003 and 2004                                                         F-6

NOTES TO FINANCIAL STATEMENTS                                         F-7 - F-20

Schedule II - Valuation and Qualifying Accounts                          F-21


<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Intelli-Check, Inc.

We have audited the  accompanying  balance  sheet of  Intelli-Check,  Inc. as of
December 31,  2003,  and the related  statements  of  operations,  stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2003.  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 the standards of the Public  Company
Accounting Oversight Board (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.  The Company is not  required to
have,  nor were we  engaged to perform  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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, 2003, and the results of its operations and its cash flows for each
of the two years in the  period  ended  December  31,  2003 in  conformity  with
accounting principles generally accepted in the United States of America.

Our audits  were  conducted  for the  purpose of forming an opinion on the basic
financial  statements  taken as a whole.  The  accompanying  schedule II for the
years ended  December 31, 2003 and 2002 is presented  for purposes of additional
analysis  and is not a required  part of the basic  financial  statements.  Such
information has been subjected to the auditing  procedures  applied in the audit
of the basic financial  statements and, in our opinion,  is fairly stated in all
material  respects  in  relation to the basic  financial  statements  taken as a
whole.



/s/ Grant Thornton LLP
----------------------
New York, New York
March 5, 2004



                                                                             F-1
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Intelli-Check, Inc.



We have audited the  accompanying  balance  sheet of  Intelli-Check,  Inc. as of
December 31, 2004 and the related statements of operations, stockholders' equity
and cash  flows for the year then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (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  statements  presentation.  We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects, the financial position of Intelli-Check,  Inc. as of December 31, 2004
and the results of its  operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

We have also audited the  financial  statement  schedule  listed in the index at
item 15(a)(2), schedule II for the year ended December 31, 2004. In our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.



/s/Amper, Politziner & Mattia, P.C.
-----------------------------------
New York, New York
March 4, 2005


                                                                             F-2
<PAGE>



INTELLI-CHECK, INC.

BALANCE SHEETS
DECEMBER 31, 2003 and 2004

<TABLE>
<CAPTION>
                                                          ASSETS
                                                                                         2003             2004
                                                                                         ----             ----
<S>                                                                                 <C>               <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                       $    3,306,991    $    1,750,485
    Certificate of deposit, restricted (Note 10)                                         1,007,310              --
    Marketable securities and short-term investments                                     4,856,388         2,708,796
    Accounts receivable, net of allowance of $20,000 for 2004                              249,166           454,112
    Inventory                                                                              553,709           211,163
    Other current assets                                                                   217,387           314,466
                                                                                    --------------    --------------
                 Total current assets                                                   10,190,951         5,439,022

CERTIFICATE OF DEPOSIT (Note 10)                                                           275,808              --

PROPERTY AND EQUIPMENT, net (Note 3)                                                       210,407           132,905

PATENT COSTS, net (Notes 4 and 9)                                                           48,798            42,589

OTHER INTANGIBLES, net (Notes 4 and 9)                                                       5,590              --
                                                                                    --------------    --------------

                 Total assets                                                       $   10,731,554    $    5,614,516
                                                                                    ==============    ==============

                                           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                                                $      183,712    $      759,218
    Accrued expenses (Note 5)                                                              482,464           574,043
    Litigation settlement payable (Note 10)                                                921,700              --
    Deferred revenue                                                                       252,705           476,387
    Current portion of capital lease obligations (Note 10)                                     427              --
                                                                                    --------------    --------------
                 Total current liabilities                                               1,841,008         1,809,648
                                                                                    --------------    --------------

OTHER LIABILITIES                                                                          114,898            97,266
                                                                                    --------------    --------------

                 Total liabilities                                                       1,955,906         1,906,914
                                                                                    --------------    --------------

COMMITMENTS AND CONTINGENCIES (Note 10)

SERIES A 8% CONVERTIBLE REDEEMABLE PREFERRED STOCK,
net of beneficial conversion feature, warrants issued and issuance
costs - $.01 par value; 1,000,000 shares authorized; 30,000 shares
issued and outstanding - liquidation preference of $3,000,000 (Note 7)                   1,874,940         2,839,278
                                                                                    --------------    --------------

STOCKHOLDERS' EQUITY:
    Common stock - $.001 par value; 20,000,000 shares authorized; 10,154,918 and
       10,290,418 shares issued and outstanding as of 2003 and 2004, respectively           10,154            10,290
    Deferred compensation                                                                 (377,967)         (126,469)
    Additional paid-in capital                                                          34,287,631        36,655,882
    Accumulated deficit                                                                (27,019,110)      (35,671,379)
                                                                                    --------------    --------------
                 Total stockholders' equity                                              6,900,708           868,324
                                                                                    --------------    --------------
                 Total liabilities and stockholders' equity                         $   10,731,554    $    5,614,516
                                                                                    ==============    ==============
</TABLE>


The accompanying notes are an integral part of these statements.



                                                                             F-3
<PAGE>


INTELLI-CHECK, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

<TABLE>
<CAPTION>
                                                                      2002             2003             2004
                                                                      ----             ----             ----
<S>                                                             <C>               <C>               <C>
REVENUE                                                         $    1,138,587    $    1,235,611    $    1,119,349
COST OF REVENUE                                                       (501,429)         (454,032)         (393,584)
INVENTORY WRITEDOWN (Note 2)                                              --            (990,000)         (357,332)
                                                                --------------    --------------    --------------
                 Gross profit (loss)                                   637,158          (208,421)          368,433
                                                                --------------    --------------    --------------

OPERATING EXPENSES:
    Selling                                                          1,437,509         1,352,274         1,176,911
    General and administrative                                       3,355,549         2,386,088         5,032,207
    Research and development                                         1,180,071         1,226,725         1,176,276
    Write off of intangible assets (Notes 2 and 9)                        --             363,655              --
    Reserve on inventory deposit (Notes 2 and 10)                      600,000              --                --
                                                                --------------    --------------    --------------
                 Total operating expenses                            6,573,129         5,328,742         7,385,394
                                                                --------------    --------------    --------------

                 Loss from operations                               (5,935,971)       (5,537,163)       (7,016,961)
                                                                --------------    --------------    --------------

OTHER INCOME (EXPENSE):
    Interest income                                                     53,871            51,437            94,030
    Interest expense                                                    (4,878)          (43,487)             --
    Other income (expense) (Note 10)                                   336,744          (921,730)             --
                                                                --------------    --------------    --------------
                                                                       385,737          (913,780)          (94,030)
                                                                --------------    --------------    --------------

                 Net loss                                           (5,550,234)       (6,450,943)       (6,922,931)

    Accretion of convertible redeemable preferred stock costs             --            (198,540)         (964,338)
    Dividend on convertible redeemable  preferred stock                   --            (183,451)         (240,000)
                                                                --------------    --------------    --------------

    Net loss attributable to common stockholders                $   (5,550,234)   $   (6,832,934)   $   (8,127,269)
                                                                ==============    ==============    ==============

PER SHARE INFORMATION:
    Net loss per common share -
       Basic and diluted                                        $        (0.64)   $        (0.74)   $        (0.79)
                                                                ==============    ==============    ==============

    Weighted average common shares used in computing
      per share amounts -
       Basic and diluted                                             8,685,656         9,217,856        10,224,730
                                                                ==============    ==============    ==============

</TABLE>


The accompanying notes are an integral part of these statements.



                                                                             F-4
<PAGE>


INTELLI-CHECK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004


<TABLE>
<CAPTION>
                                                                        Common Stock        Additional
                                                                   ---------------------      Paid-in        Deferred
                                                                      Shares     Amount       Capital      Compensation
                                                                   ----------    -------    -----------    -----------
<S>                                                                 <C>          <C>        <C>            <C>
BALANCE, December 31, 2001                                          8,470,762    $ 8,470    $19,331,004    $  (189,000)

Exercise of warrants                                                    1,250          1          3,749           --
Exercise of options                                                   273,700        274        825,576           --
Effect on extension of expiration of options                             --         --            8,500           --
Effect on extension of expiration of rights dividend                     --         --          515,000           --
Issuance of common stock for exercise of rights                       107,396        107        912,759           --
Purchase and retirement of common stock                               (10,000)       (10)       (70,054)          --
Issuance of additional common stock for prior year's acquisition
   of certain assets                                                   32,194         32            (32)          --
Recognition of deferred compensation                                     --         --        1,469,327     (1,469,327)
Amortization of deferred compensation                                    --         --             --          713,051
Valuation adjustment of deferred compensation                            --         --         (596,800)       596,800
Net loss                                                                 --         --             --             --
                                                                   ----------    -------    -----------    -----------

BALANCE, December 31, 2002                                          8,875,302      8,874     22,399,029       (348,476)

Effect on extension of expiring options                                  --         --          167,000           --
Exercise of stock options                                             175,209        175        679,436           --
Exercise of rights                                                      4,407          5         37,455           --
Issuance of common stock in connection with secondary offering      1,100,000      1,100      7,580,326
Effect on extension of expiring rights dividend                          --         --        2,000,000           --
Warrants issued in connection with the issuance of
   convertible redeemable preferred stock                                --         --          497,700           --
Beneficial conversion feature embedded in
   convertible redeemable preferred stock issued                                                540,000           --
Amortization of deferred compensation                                    --         --             --          357,194
Dividend on convertible redeemable preferred stock                       --         --             --             --
Recognition of deferred compensation                                     --         --          319,904       (319,904)
Accretion of convertible redeemable preferred stock                                                               --
Valuation adjustment of deferred compensation                            --         --           66,781        (66,781)
Net loss                                                                 --         --             --             --
                                                                   ----------    -------    -----------    -----------

BALANCE, December 31, 2003                                         10,154,918     10,154     34,287,631       (377,967)

Effect on extension of expiring options                                  --         --        1,347,000           --
Exercise of stock options                                             142,700        143        427,836           --
Issuance of common stock under employment agreement                     1,500          2          6,373           --
Effect on extension of expiring rights dividend                          --         --          525,000           --
Purchase and retirement of common stock                               (20,200)       (20)       (98,731)          --
Issuance of common stock for services rendered                         11,500         11         48,864           --
Amortization of deferred compensation                                    --         --             --          363,407
Dividend on convertible redeemable preferred stock                       --         --             --             --
Recognition of deferred compensation                                     --         --          542,648       (542,648)
Accretion of convertible redeemable preferred stock                      --         --             --             --
Valuation adjustment of deferred compensation                            --         --         (430,739)       430,739
Net loss                                                                 --         --             --             --
                                                                   ----------    -------    -----------    -----------

BALANCE, December 31, 2004                                         10,290,418    $10,290    $36,655,882    $  (126,469)
                                                                   ==========    =======    ===========    ===========

<CAPTION>
                                                                   Accumulated
                                                                      Deficit         Total
                                                                   ------------    -----------
<S>                                                                <C>             <C>
BALANCE, December 31, 2001                                         $(12,120,942)   $ 7,029,532

Exercise of warrants                                                       --            3,750
Exercise of options                                                        --          825,850
Effect on extension of expiration of options                               --            8,500
Effect on extension of expiration of rights dividend                   (515,000)          --
Issuance of common stock for exercise of rights                            --          912,866
Purchase and retirement of common stock                                    --          (70,064)
Issuance of additional common stock for prior year's acquisition
of certain assets                                                          --             --
Recognition of deferred compensation                                       --             --
Amortization of deferred compensation                                      --          713,051
Valuation adjustment of deferred compensation                              --             --
Net loss                                                             (5,550,234)    (5,550,234)
                                                                   ------------    -----------

BALANCE, December 31, 2002                                          (18,186,176)     3,873,251

Effect on extension of expiring options                                    --          167,000
Exercise of stock options                                                  --          679,611
Exercise of rights                                                         --           37,460
Issuance of common stock in connection with secondary offering                       7,581,426
Effect on extension of expiring rights dividend                      (2,000,000)          --
Warrants issued in connection with the issuance of
   convertible redeemable preferred stock                                  --          497,700
Beneficial conversion feature embedded in
   convertible redeemable preferred stock issued                           --          540,000
Amortization of deferred compensation                                      --          357,194
Dividend on convertible redeemable preferred stock                     (183,451)      (183,451)
Recognition of deferred compensation                                       --             --
Accretion of convertible redeemable preferred stock                    (198,540)      (198,540)
Valuation adjustment of deferred compensation                              --             --
Net loss                                                             (6,450,943)    (6,450,943)
                                                                   ------------    -----------

BALANCE, December 31, 2003                                          (27,019,110)     6,900,708

Effect on extension of expiring options                                    --        1,347,000
Exercise of stock options                                                  --          427,979
Issuance of common stock under employment agreement                        --            6,375
Effect on extension of expiring rights dividend                        (525,000)          --
Purchase and retirement of common stock                                    --          (98,751)
Issuance of common stock for services rendered                             --           48,875
Amortization of deferred compensation                                      --          363,407
Dividend on convertible redeemable preferred stock                     (240,000)      (240,000)
Recognition of deferred compensation                                       --             --
Accretion of convertible redeemable preferred stock                    (964,338)      (964,338)
Valuation adjustment of deferred compensation                              --             --
Net loss                                                             (6,922,931)    (6,922,931)
                                                                   ------------    -----------

BALANCE, December 31, 2004                                         $(35,671,379)   $   868,324
                                                                   ============    ===========
</TABLE>


The accompanying notes are an integral part of these statements.



                                                                             F-5
<PAGE>


INTELLI-CHECK, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

<TABLE>
<CAPTION>
                                                                                           2002            2003           2004
                                                                                           ----            ----           ----
<S>                                                                                   <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                          $ (5,550,234)   $ (6,450,943)   $ (6,922,931)
    Adjustments to reconcile net loss to net cash used in operating activities-
          Depreciation and amortization                                                    451,580         436,778         111,743
          Write off of intangible assets                                                      --           363,655            --
          Non cash stock based compensation expense                                          8,500         167,000       1,350,187
          Issuance of common stock for services rendered                                      --              --            48,875
          Amortization of deferred compensation                                            713,051         357,194         363,407
          Writedown of inventory                                                              --           990,000         357,332
          Reserve on inventory deposit                                                     600,000            --              --
          Changes in assets and liabilities-
              (Increase) decrease in certificates of deposit, restricted                    (4,823)     (1,009,801)      1,283,118
              (Increase) in accounts receivable                                            (67,994)       (155,636)       (288,946)
              Decrease (increase) in inventory                                             365,849         259,130         (14,786)
              (Increase) decrease (increase) in other current assets                      (502,890)         56,383         (97,081)
              Increase (decrease) increase in accounts payable and accrued expenses         18,482        (464,354)        667,086
              Increase (decrease) in litigation settlement payable                            --           921,700        (921,700)
              Increase (decrease) increase in deferred revenue                             197,347         (84,021)        290,050
                                                                                      ------------    ------------    ------------
                    Net cash used in operating activities                               (3,771,132)     (4,612,915)     (3,773,646)
                                                                                      ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                                    (29,187)         (4,352)        (22,441)
    Investment in marketable securities and short-term investments                            --        (4,856,388)    (10,294,803)
    Sales of marketable securities and short-term investments                                 --              --        12,442,395
                                                                                      ------------    ------------    ------------
                    Net cash (used in) provided by investing activities                    (29,187)     (4,860,740)      2,125,151
                                                                                      ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from issuance of common stock                                           1,742,466         717,071         431,167
    Net proceeds from issuance of common stock from secondary offering                        --         7,581,426            --
    Net proceeds from issuance of convertible redeemable preferred stock                      --         2,714,100            --
    Payment of dividend to preferred stockholders                                             --          (122,958)       (240,000)
    Repayment of capital lease obligations                                                 (22,739)        (19,572)           (427)
    Treasury stock purchased                                                               (70,064)           --           (98,751)
                                                                                      ------------    ------------    ------------
                    Net cash provided by financing activities                            1,649,663      10,870,067          91,989
                                                                                      ------------    ------------    ------------

                    Net (decrease) increase (decrease) in cash and cash equivalents     (2,150,656)      1,396,412      (1,556,506)

CASH AND CASH EQUIVALENTS, beginning of year                                             4,061,235       1,910,579       3,306,991
                                                                                      ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, end of year                                                $  1,910,579    $  3,306,991    $  1,750,485
                                                                                      ============    ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
       Cash paid during the year for interest                                         $      4,878    $      1,487    $       --
                                                                                      ============    ============    ============

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
    Stock options issued for services rendered                                        $  1,469,327    $    319,904    $    542,648
    Beneficial conversion feature and warrants issued in connection
      with issuance of convertible redeemable preferred stock                                 --         1,037,700            --
   Accretion of convertible redeemable preferred stock cost                                   --           198,540         964,338
</TABLE>


The accompanying notes are an integral part of these statements.



                                                                             F-6
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND LIQUIDITY

Business

Intelli-Check  ("the  Company"  or "we") was formed in 1994 to address a growing
need for a reliable  document and age verification  system that could be used to
detect   fraudulent   driver   licenses  and  other  widely  accepted  forms  of
government-issued  identification documents. Since then, our technology has been
further  developed for application in the commercial  fraud  protection,  access
control and governmental security markets.  Additionally,  it is currently being
used to address  inefficiencies  and  inaccuracies  associated  with manual data
entry. The core of Intelli-Check's product offerings is our proprietary software
technology  that  verifies the  authenticity  of driver  licenses,  state issued
non-driver  and military  identification  cards used as proof of  identity.  Our
patented ID-Check(R) software technology instantly reads, analyzes, and verifies
the encoded data in magnetic stripes and barcodes on  government-issue  IDs from
approximately  60  jurisdictions  in the U.S.  and  Canada to  determine  if the
content and format is valid. We have served as the national  testing  laboratory
for the American Association of Motor Vehicle  Administrators (AAMVA) since 1999
and have access to all the currently encoded driver license formats.

Our patented ID-Check(TM) software technology provides the ability to verify the
validity of driver licenses,  state issued non-driver ID cards and military ID's
that  contain  magnetic  stripes  or bar codes,  which in most cases  conform to
AAMVA/ANSI/ISO  standards.  The ID-Check  software is contained in our platforms
and some of our other software products.  Our C-Link(R) software product,  which
runs on a personal computer was created to work in conjunction with the ID-Check
unit, allows a user to instantly view the encoded data for further verification,
analyze the data and generate various reports where permitted by law.

We recently announced two new products,  ID-Traveler(TM) and ID-Prove(TM), which
provide  "in-person   proofing"  to  meet  the  credentialing   requirements  of
Presidential  Directive HSPD-12, a policy for a Common  Identification  Standard
for Federal Employees and Contractors and help in Patriot Act compliance. All of
our new innovations and product roll-outs are designed for use with our new data
capture module (DCM),  a compact,  self-contained  two-dimensional  bar code and
magnetic stripe reader,  which enables the new software technology  applications
to be used on a variety  of  commercially  available  data  processing  devices,
including PDAs, Tablets, Laptops, Desktops and Point-of-Sale Computers.

Liquidity

Since inception,  the Company has incurred  significant losses and negative cash
flow  from  operating  activities,  and  as of  December  31,  2004  we  had  an
accumulated  deficit of $35,671,379.  The Company  anticipates  that its current
available  cash on hand  and  marketable  securities  and  cash  resources  from
expected  revenues  from the sale of the units in inventory and the licensing of
its technology  will be sufficient to meet its  anticipated  working capital and
capital  expenditure  requirements  for at least the next twelve  months.  These
requirements  are  expected  to  include  the  purchase  of  inventory,  product
development,  sales and marketing  expenses,  working capital  requirements  and
other general corporate purposes. The Company may need to raise additional funds
to respond to  business  contingencies  which may  include the need to fund more
rapid expansion, fund additional marketing expenditures, develop new markets for
its  ID-Check  technology,  enhance  its  operating  infrastructure,  respond to
competitive  pressures,   or  acquire  complementary   businesses  or  necessary
technologies.

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.  As of December 31,
2003 and 2004, cash  equivalents  included money market funds,  commercial paper
and  other  liquid  short-term  debt  instruments  (with  maturities  at date of
purchase of three months or less) of $3,280,691 and $1,723,810, respectively.

Marketable Securities

The Company has classified its marketable  securities as held-to-maturity as the
Company has the intent and ability to hold these  securities  to  maturity.  The
securities  are  carried at  amortized  cost using the  specific  identification
method.  Interest income is recorded using an effective  interest rate, with the
associated  premium  or  discount  amortized  to  interest  income.  All  of the
Company's  marketable  securities  have  maturities  of less  than 1 year with a
weighted  average  interest rate of 1.97%.  The carrying value of the marketable
securities as of December 31, 2003 and 2004 approximated the fair market value.



                                                                             F-7
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

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.

Inventory Valuation

The Company's  inventory  consists  primarily of its ID-Check terminals that run
its  patented  software and input  devices  purchased  during 2004.  The Company
acquired its ID-Check  terminals in December 1999 and, shortly  thereafter,  was
returned to the  manufacturer  for upgrade and became  available for sale in the
fourth  quarter of 2000. The Company  periodically  evaluates the current market
value of its inventory,  taking into account any technological obsolescence that
may occur due to  changes  in  hardware  technology  and the  acceptance  of the
product in the  marketplace.  Based on the ongoing  evaluation  of the Company's
inventory,  the Company recorded an inventory write down of $990,000 during 2003
and an  additional  write down of  $357,332  during  2004.  Should  the  Company
determine in a future period that an adjustment to market value of the inventory
is necessary, an adjustment would be recorded at that time, which would not have
a  material  adverse  effect  on  the  Company's  results  of  operations.   The
manufacturer  discontinued the production of the ID-Check terminals in 2003. The
ID-Check terminal is fully capable of running the Company's patented software as
it utilizes a high  quality  imager/scanner  and magnetic  stripe  reader and is
currently being marketed for sale.

Long-Lived Assets and Impairment of Long-Lived Assets

The  Company's  long-lived  assets  include  property  and  equipment,  acquired
software, patents, goodwill and other intangibles.

As of January 1, 2002,  the Company has adopted SFAS No. 142 "Goodwill and Other
Intangible  Assets".  Under SFAS No. 142,  goodwill and  intangible  assets with
indefinite  lives are no longer  amortized  but are  reviewed  annually (or more
frequently if impairment indicators arise) for impairment.  Separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized  over their useful lives (but with no maximum  life).  Pursuant to the
adoption of SFAS No.  142,  the Company has  evaluated  its  goodwill  and other
intangibles  to identify  additional  separately  identifiable  intangibles;  no
adjustment was warranted.  Intangible assets that will continue to be classified
as goodwill will no longer be amortized.  This provision had no material  impact
on the Company's  financial position and results of operations.  At December 31,
2003,  the Company  performed an impairment  test of its goodwill and determined
that there was an impairment of the recorded  goodwill,  which resulted from the
Company's decision to discontinue the selling of its IDentiScan  products.  As a
result,  the Company wrote off the original  recorded value of goodwill totaling
$181,447 as of December 31, 2003,  which  affected the results of operations for
the period then ended.

As of January 1, 2002,  the Company  adopted SFAS No. 144,  "Accounting  for the
Impairment or Disposal of  Long-lived  Assets"  which  supersedes  SFAS No. 121,
"Accounting  for the Impairment or Disposal of Long-lived  Assets to be Disposed
Of".  SFAS No. 144 requires  that  identifiable  intangible  assets that are not
deemed to have indefinite lives will be reviewed for impairment  whenever events
or changes in circumstances indicate that the carrying amounts of the assets may
be impaired.  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 as a result of  discontinuing  the
selling of its IDentiScan products,  certain of its intangible assets, including
patent costs,  with a remaining book value of $182,208 has been impaired and was
written off as of December 31, 2003,  which  affected the results of  operations
for the period then ended.

Property and Equipment

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

Intangible Assets

Patent costs,  primarily consisting of legal costs and allocated costs are being
amortized  over a period of 17 years using the  straight-line  method.  Acquired
Software was amortized over a period of 2 years using the straight-line  method.
Other  intangibles,  consisting of a covenant not to compete and copyrights were
amortized over a period of 2 and 3 years,  respectively  using the straight-line
method.  As discussed  above and in Note 9, certain of these  intangible  assets
were written off as of December 31, 2003.



                                                                             F-8
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

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.

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, 2002, 2003 and 2004.

Revenue Recognition

The  Company  sells its  products  directly  through its sales force and through
distributors.  Revenue from direct sales of the Company's  product is recognized
upon  shipment to the  customer  and title has passed.  The  Company's  products
require  continuing service or post contract customer support and performance by
the Company; accordingly, a portion of the revenue pertaining to the service and
support is  deferred  based on its fair value and  recognized  ratably  over the
period in which the future service,  support and performance are provided, which
is  generally  one year.  Currently,  with  respect  to sales of  certain of its
products, the Company does not have enough experience to identify the fair value
of each  element and 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.

In  addition,  the  Company  recognizes  sales from  licensing  of its  patented
software to  customers.  The Company's  licensed  software  requires  continuing
service or post  contract  customer  support  and  performance  by the  Company;
accordingly,  a portion of the revenue is  deferred  based on its fair value and
recognized  ratably  over the period in which the future  service,  support  and
performance are provided, which is generally one year.

During the second quarter of fiscal 2003, the Company began receiving  royalties
from  licensing its  technology,  which are recognized as revenues in the period
they are earned.

The  Company  has  adopted  EITF  00-21,  "Revenue  Arrangements  with  Multiple
Deliverables"  as of fiscal year ended December 31, 2003.  Revenue  arrangements
were allocated to the separate units of accounting  based on their relative fair
values and revenue is recognized in accordance  with its policy as stated above.
The impact of adopting EITF 00-21 on the financial statements was immaterial.

Research and Development Costs

Research and development costs are charged to expense as incurred.

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 net deferred tax assets
as of December 31, 2004, due to the  uncertainty of the  realizability  of those
assets.



                                                                             F-9
<PAGE>

INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

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.  The  Company's
financial  instruments  include  cash  and  cash  equivalents,   certificate  of
deposits,  marketable  securities,  accounts receivable and accounts payable. At
December  31,  2003 and 2004,  the  carrying  value of the  Company's  financial
instruments approximated fair value, due to their short-term nature.

Business Concentrations and Credit Risk

Financial  instruments,  which subject the Company to  concentrations  of credit
risk, consist primarily of cash, cash equivalents and marketable securities. The
Company  maintains  cash  between two  financial  institutions.  The  marketable
securities  consist of short term investment  grade corporate bonds. The Company
performs  periodic   evaluations  of  the  relative  credit  standing  of  these
institutions.

The  Company's  sales  to date  have  been  limited  due to the  refocus  of its
marketing  efforts and introduction of new products to a number of clients which
are  concentrated  in the United  States of America  and the long sales cycle to
government entities. 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.

The Company had one supplier for the production of its ID-Check 1400 product and
one supplier for the production of its IDentiScan products.  The agreements with
these  suppliers  have  terminated.  The Company has  modified  its  software to
operate in windows  based  systems and can  integrate  with  different  hardware
platforms that are readily  available in the  marketplace.  The Company does not
maintain a manufacturing facility of its own and is not dependent on maintaining
its production  relationships  due to the  flexibility of its software to run on
multiple existing platforms.

Net Loss Attributable to Common Shareholders

The Company  computes net loss per common share in accordance with SFAS No. 128,
"Earnings Per Share".  Under the  provisions of SFAS No. 128, basic net loss per
common  share  ("Basic  EPS") is computed by dividing  net loss by the  weighted
average number of common shares  outstanding.  Diluted net loss per common share
("Diluted EPS") is computed by dividing net 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,
2002,  2003 and 2004,  does not include the impact of stock options and warrants
then outstanding, as the effect of their inclusion would be antidilutive.

The following table  summarizes the equivalent  number of common shares assuming
the related  securities that were  outstanding as of December 31, 2002, 2003 and
2004 had been converted:

                                              2002         2003        2004
                                              ----         ----        ----

   Stock options                            2,333,866   2,701,124   2,777,474
   Convertible redeemable preferred stock                 454,545     454,545
   Warrants                                    10,000     233,636     323,636
                                            ---------   ---------   ---------
           Total                            2,343,866   3,389,305   3,555,655
                                            =========   =========   =========

Stock-Based Compensation

At December 31, 2004, the Company has stock based compensation  plans, which are
described  more fully in Note 8. As permitted  by the SFAS No. 123,  "Accounting
for Stock Based Compensation", the Company accounts for stock-based compensation
arrangements   with  employees  in  accordance  with  provisions  of  Accounting
Principles  Board  ("APB")  Opinion  No.  25  "Accounting  for  Stock  Issued to
Employees".  Compensation expense for stock options issued to employees is based
on the difference on the date of grant,  between the fair value of the Company's
stock and the exercise price of the option. No stock based employee compensation
cost is reflected in net loss,  as all options  granted under those plans had an
exercise price equal to the market value of the  underlying  common stock at the
date  of  grant.  The  Company  accounts  for  equity   instruments   issued  to
non-employees  in  accordance  with the  provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") Issue No. 96-18,  "Accounting for Equity  Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  With
Selling Goods or Services".  All transactions in which goods or services are the
consideration  received for the issuance of equity instruments are accounted for
based on the fair value of the  consideration  received or the fair value of the
equity instrument issued, whichever is more reliably measurable.


                                                                            F-10
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

In   accordance    with   SFAS   No.   148    "Accounting    for   Stock   Based
Compensation-Transition  and  disclosure",  the following table  illustrates the
effect on net loss and loss per share if the  Company had applied the fair value
recognition provisions of SFAS No. 123 to employees stock based compensation:

<TABLE>
<CAPTION>
                                                                       Years Ended
                                                December 31, 2002   December 31, 2003   December 31, 2004
                                                -----------------   -----------------   -----------------
<S>                                             <C>                 <C>                 <C>
Net loss attributable to common stockholders,
   as reported                                  $     (5,550,234)   $     (6,832,934)   $     (8,127,269)

Add:
Total stock based employee compensation
   expense determined under fair value based
   method for all awards                              (2,196,369)         (2,970,686)         (2,107,593)
                                                ----------------    ----------------    ----------------
Net loss, pro forma                             $     (7,746,603)   $     (9,803,620)   $    (10,234,862)

Basic and diluted loss per share, as reported   $          (0.64)   $          (0.74)   $          (0.79)

Basic and diluted loss per share, pro forma     $          (0.89)   $          (1.06)   $          (1.00)
</TABLE>

Comprehensive Loss

The  Company's  comprehensive  net loss is  equal to its net loss for the  years
ended December 31, 2002, 2003 and 2004.

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.

Use of Estimates

The  preparation  of the  Company's  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and  assumptions  that affect the amounts
reported in the Company's  financial  statements and accompanying  notes. Actual
results could differ materially from those estimates.

Recently Issued Accounting Pronouncements

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities" (FIN No. 46),  which  addresses  consolidation  by
business  enterprises  of variable  interest  entities  ("VIEs").  FIN No. 46 is
applicable immediately for VIEs created after January 31, 2003 and are effective
for reporting  periods ending after December 15, 2003, for VIEs created prior to
February 1, 2003.  In  December  2003,  the FASB  published a revision to FIN 46
("FIN 46R") to clarify some of the provisions of the interpretation and to defer
the effective date of implementation for certain entities. Under the guidance of
FIN 46R,  public  companies  that  have  interests  in VIE's  that are  commonly
referred to as special purpose  entities are required to apply the provisions of
FIN 46R for periods  ending after  December 15, 2003. A public company that does
not have any  interests  in special  purpose  entities  but does have a variable
interest in a VIE created before  February 1, 2003, must apply the provisions of
FIN 46R by the end of the first interim or annual  reporting period ending after
March 15, 2004.  The Company  adopted FIN 46R during the quarter ended March 31,
2004. The adoption of FIN 46 had no impact on the financial condition or results
of operations since the Company does not have investments in VIE's.



                                                                            F-11
<PAGE>

INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004) ("123R"),  "Share-Based  Payment."  Statement 123(R) will
provide investors and other users of financial statements with more complete and
neutral  financial  information by requiring that the compensation cost relating
to share based payment transactions be recognized in financial statements.  That
cost  will be  measured  based on the  fair  value of the  equity  or  liability
instruments  issued.  SFAS  No.  123(R)  covers  a  wide  range  of  share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance-based  awards, share appreciation rights and employee share purchase
plans.  SFAS No.  123(R)  replaces  SFAS No.  123,  "Accounting  for Stock Based
Compensation,"  and supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to  Employees."  SFAS No.  123, as  originally  issued in 1995,  established  as
preferable a  fair-value-based  method of  accounting  for  share-based  payment
transactions  with employees.  However,  that Statement  permitted  entities the
option of continuing to apply the guidance in APB Opinion No. 25, as long as the
footnotes to financial  statements disclosed what net income would have been had
the preferable  fair-value  based method been used.  Public entities (other than
those  filing as small  business  issuers)  will be  required  to apply SFAS No.
123(R) as of the first interim or annual reporting period that begins after June
15, 2005. We are in the process of  evaluating  whether the adoption of SFAS No.
123(R) will have a  significant  impact on our overall  results of operations or
financial position.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an Amendment
of ARB No. 43," Chapter 4 ("SFAS No. 151").  The amendments made by SFAS No. 151
clarify that abnormal amounts of idle facility expense, freight, handling costs,
and wasted materials  (spoilage) should be recognized as current-period  charges
and require the allocation of fixed  production  overheads to inventory based on
the normal  capacity  of the  production  facilities.  SFAS No. 151 will  become
effective beginning in fiscal 2006. The adoption of this Statement will not have
a significant impact on our financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchange of Nonmonetary Assets"
an amendment of APB Opinion No. 29,  "Accounting for Nonmonetary  Transactions."
The amendments made by SFAS No. 153 are based on the principle that exchanges on
nonmonetary  assets  should be  measured  based on the fair  value of the assets
exchanged.   Further,   the  amendments   eliminate  the  narrow  exception  for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception  for  exchanges  of  nonmonetary  assets  that do not have  commercial
substance.  SFAS No. 153 is effective for nonmonetary asset exchanges  occurring
in  fiscal  periods  beginning  after  June 15,  2005.  Earlier  application  is
permitted for nonmonetary asset exchanges  occurring in fiscal periods after the
date of issuance. The provisions of SFAS No. 153 shall be applied prospectively.
The  adoption  of this  Statement  will not  have a  significant  impact  on our
financial condition or results of operations.

3. PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following as of December 31, 2003
and 2004:

                                                         2003        2004
                                                         ----        ----

   Computer equipment                                 $ 485,989    $ 515,982
   Furniture and fixtures                               155,589      152,252
   Leasehold improvements                               143,253      143,253
   Office equipment                                      47,552       43,338
                                                      ---------    ---------
                                                        832,383      854,825

   Less - Accumulated depreciation and amortization    (621,976)    (721,920)
                                                      ---------    ---------
                                                      $ 210,407    $ 132,905
                                                      =========    =========

Depreciation  expense  for the years  ended  December  31,  2002,  2003 and 2004
amounted to $126,537, $118,057 and $99,944, respectively.

4. INTANGIBLE ASSETS

The following  summarize the carrying  amounts of intangible  assets and related
amortization:

<TABLE>
<CAPTION>
                                 As of December 31, 2003         As of December 31, 2004
                              -----------------------------   -----------------------------
                              Gross Carrying   Accumulated    Gross Carrying   Accumulated
                                  Amount       Amortization        Amount      Amortization
                              --------------   ------------   --------------   ------------
<S>                                  <C>             <C>             <C>             <C>
Amortized intangible assets
    Patents                          105,661         56,863          105,661         63,072
    Copyrights                        17,500         11,910           17,500         17,500
                              --------------   ------------   --------------   ------------

         Total                $      123,161   $     68,773   $      123,161   $     80,572
                              ==============   ============   ==============   ============
</TABLE>


                                                                            F-12
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Amortization  expense for years ended  December  31, 2002,  2003,  and 2004 were
$325,043, $318,724 and $11,799, respectively.

As of  December  31,  2004,  estimated  amortization  expense  for  each  of the
succeeding five years is $6,215.

5. ACCRUED EXPENSES

Accrued  expenses  are  comprised  of the  following as of December 31, 2003 and
2004:

                                          2003       2004
                                          ----       ----

                    Professional fees   $184,876   $302,360
                    Payroll              128,783    131,661
                    Rent                  23,943     20,523
                    Other                144,862    119,499
                                        --------   --------
                                        $482,464   $574,043
                                        ========   ========

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, 2003 and 2004 are as follows:

                                                  2003            2004
                                                  ----            ----
     Deferred tax assets, net:
         Net operating loss carryforwards     $  8,904,550    $ 10,682,000
         Depreciation                              (20,000)        (20,000)
         Reserves                                  636,000         779,000
         Less- Valuation allowance              (9,520,550)    (11,441,000)
                                              ------------    ------------
                   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, 2004 the Company had net operating loss carryforwards (NOL's)
for federal income tax purposes of  approximately  $27 million.  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
2024 if not  utilized.  Under Section 382 of the Internal  Revenue  Code,  these
NOL's may be limited due to ownership changes.

The effective tax rate for the years ended  December 31, 2002,  2003 and 2004 is
different from the tax benefit that would result from applying the statutory tax
rates mainly due to the additional valuation allowance that has been recognized.

7. SERIES A 8% CONVERTIBLE REDEEMABLE PREFERRED STOCK

On March 27, 2003, pursuant to a Securities  Purchase Agreement,  we sold 30,000
shares of our Series A 8% Convertible Redeemable Preferred Stock, par value $.01
per share,  for $3,000,000  before  expenses to Gryphon  Master Fund,  L.P. Each
share of  Preferred  Stock  entitles  the holder to receive  dividends of 8% per
annum and was convertible into 15.1515 shares of our common stock. Additionally,
each investor  received one (1) five year warrant to purchase 3.787875 shares of
common stock at an exercise  price of $6.78 with each share of  Preferred  Stock
purchased.  The total amount of shares that may be issued upon conversion of the
Preferred   Stock  and  exercise  of  the  warrants  are  454,545  and  113,636,
respectively.  Dividend  payments  of  $120,000  in cash  are due  semi-annually
beginning  September  30, 2003 and,  accordingly,  the Company paid  $122,958 on
September  30, 2003. In connection  with this  financing,  we paid agent fees of
$150,000 and issued  warrants and options to purchase 8,854 shares of our common
stock at a price of  $6.78.  We also  paid  professional  fees of  approximately
$136,000.  We recorded  the relative  fair value of all the  warrants  issued in
connection  with  this  transaction  of  $497,700  against  the  amount  of  the
Convertible  Redeemable  Preferred  Stock  as  of  March  27,  2003,  which  was
calculated  using the  Black-Scholes  valuation  method,  as well as $540,000 of
beneficial  conversion  feature in  accordance  with EITF 00-27 and such amounts
were being  accreted  along with  issuance  cost of $285,900  over the five year
period until the mandatory  redemption  date of the Preferred  Stock,  the fifth
anniversary of closing. We recorded dividend and accretion of $381,991 for 2003,
and dividends of $240,000 for 2004. On February 25, 2005,  Gryphon  Master Fund,
L.P.  converted  the  Company's  Preferred  Stock  into  454,545  shares  of the
Company's  common  stock  at a  conversion  price of $6.60  per  share.  A final
dividend  payment  of  $97,315  was  paid  for  the  period  up to the  date  of
conversion.  Additionally, as a result of this conversion, the period we used in
estimating the accretion of all of the costs associated with the issuance of the
Preferred Stock changed from 5 years to 1.9166 years. Accordingly, the accretion
was increased in the fourth quarter of 2004 by $669,618 and amounted to $964,338
for the year ended  December 31, 2004.  The effect of this change in  accounting
estimate in 2004 was a reduction in equity.  A registration  statement  covering
the common stock issued upon conversion of the preferred stock and issuable upon
the exercise of the warrants was declared effective on June 24, 2003.



                                                                            F-13
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

8. 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.  As of December  31, 2003 and 2004,  there were no  outstanding
shares of Series A Convertible Preferred Stock.

Secondary Offering

On October 8, 2003, the Company successfully  consummated its secondary offering
of 1,100,000 shares of common stock at $8.00 per share and received proceeds net
of underwriting  discounts and commissions and before other offering expenses of
approximately $7,906,000. Offering expenses totaled $324,574 and were fully paid
as of December 31, 2003. In connection  with this offering,  the Company granted
to its  underwriter an option to purchase up to an additional  165,000 shares of
its common stock at $8.00 per share less  underwriter  discounts and commissions
for the purpose of covering over-allotments, which expired on November 16, 2003.
In addition, the Company sold to the underwriter 110,000 warrants for a price of
$110 to  purchase  110,000  shares of its  common  stock at a price of $9.60 per
share and expire on October 8, 2008.

Common Stock, Warrants and Rights

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 continuous held from the record date
to the date of exercise, as well as common stock underlying vested stock options
and warrants,  held of record on March 30, 2001, at an exercise  price of $8.50.
The rights  were due to expire on October 4, 2002,  which was one year after the
effective  date of the  registration  statement  related to the shares of common
stock  underlying  the rights.  We extended the  expiration  date until April 4,
2003,  further  extended the rights until December 31, 2003, June 30, 2004, and,
finally,  extended the  expiration  date again to June 30, 2005.  Under  certain
conditions,  the Company has the right to redeem the outstanding rights for $.01
per  right.  Such  conditions  were not met as of March 25,  2005.  The  Company
reserved  970,076  shares of common stock for future  issuance under this rights
offering. The Company has recorded the fair value of the rights of $1,082,000 as
a dividend during the quarter ended March 31, 2001,  which was calculated  using
the  Black-Scholes  valuation  method and recorded as an increase in  additional
paid-in  capital and a  reduction  in  accumulated  deficit.  The  Company  also
recorded  the fair  value  of the  additional  rights  extensions  of  $515,000,
$2,000,000 and $525,000 during the years ended December 31, 2002, 2003 and 2004,
respectively,  using the Black-Scholes valuation method and recorded an increase
in additional  paid-in-capital  and a reduction in  accumulated  deficit.  As of
December  31,  2004,  292,001 of these  rights  were  exercised  and the Company
received cumulatively $2,482,009 before expenses of $133,834.

In March 2001, the Board of Directors  authorized,  subject to certain  business
and market conditions,  the purchase of up to $1,000,000 of our common stock. As
of December 31, 2004, the Company  cumulatively  purchased  40,200 shares of the
Company's common stock for approximately $222,000 and subsequently retired those
shares.

All warrants have been issued with an exercise price that is equal to or above
the fair market value of the Company's common stock on the date of grant.


                                                                            F-14
<PAGE>

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.

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.

At the Company's Annual Meeting held on July 11, 2001, the stockholders approved
the 2001 Stock  Option  Plan  covering  up to 500,000  of the  Company's  common
shares, pursuant to which the 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 2001 Stock Option Plan and  determines  the terms and  conditions of options
granted,  including the exercise price. The 2001 Stock Option Plan provides that
all stock options will expire  within ten years of the date of grant.  Incentive
stock  options  granted  under the 2001 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 the  grant  and the  exercise  price  must not be less  than 110% of the fair
market  value per share at the date of the grant for  grants to  persons  owning
more than 15% of the voting  stock of the  Company.  The 2001 Stock  Option Plan
also entitles  non-employee  directors to receive grants on non-qualified  stock
options as approved by the Board of Directors.

At the Company's Annual Meeting held on July 10, 2003, the stockholders approved
the 2003 Stock  Option  Plan  covering  up to 500,000  of the  Company's  common
shares, pursuant to which the 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 2003 Stock Option Plan and  determines  the terms and  conditions of options
granted,  including the exercise price. The 2003 Stock Option Plan provides that
all stock options will expire  within ten years of the date of grant.  Incentive
stock  options  granted  under the 2003 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 the  grant  and the  exercise  price  must not be less  than 110% of the fair
market  value per share at the date of the grant for  grants to  persons  owning
more than 15% of the voting  stock of the  Company.  The 2003 Stock  Option Plan
also entitles  non-employee  directors to receive grants on non-qualified  stock
options as approved by the Board of Directors.

At the Company's Annual Meeting held on July 8, 2004, the stockholders  approved
the 2004 Stock  Option  Plan  covering  up to 850,000  of the  Company's  common
shares, pursuant to which the 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 2004 Stock Option Plan and  determines  the terms and  conditions of options
granted,  including the exercise price. The 2004 Stock Option Plan provides that
all stock options will expire  within ten years of the date of grant.  Incentive
stock  options  granted  under the 2004 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 the  grant  and the  exercise  price  must not be less  than 110% of the fair
market  value per share at the date of the grant for  grants to  persons  owning
more than 15% of the voting  stock of the  Company.  The 2004 Stock  Option Plan
also entitles  non-employee  directors to receive grants on non-qualified  stock
options as approved by the Board of Directors.


                                                                            F-15
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

During 2002,  the Company  granted stock options to purchase  180,176  shares of
common  stock at  exercise  prices  ranging  from  $3.97 to $12.10  per share to
consultants under various  agreements,  of which 50,000 options expired.  During
2003, the Company granted  additional stock options to purchase 69,425 shares of
common  stock at  exercise  prices  ranging  from  $6.78 to $6.97  per  share to
consultants under various agreements.  During 2004, the Company granted warrants
to purchase  100,000  shares of common  stock at an exercise  price of $7.54 per
share to consultants (see footnote 10). The fair market value of each option was
estimated on the date of grant using the  Black-Scholes  option  pricing  model.
Accordingly,  we have  recorded  $1,469,327,  $319,904  and $542,648 as deferred
compensation  for  these  services  as of  December  31,  2002,  2003 and  2004,
respectively.  As a result of some of the granted options having varying vesting
periods,  the Company  revalued certain options either as of the vesting date or
as of the balance sheet date for those options  unvested using the Black Scholes
option pricing model. Accordingly,  the Company recorded a reduction of the fair
value of these options  totaling  $596,800 for the year ended December 31, 2002,
an increase in the fair value of $66,781  for the year ended  December  31, 2003
and a reduction  of the fair value of $430,739  for the year ended  December 31,
2004.  During  December  31,  2002,  2003  and  2004,  the  Company   recognized
amortization  of deferred  compensation  of  $713,051,  $357,194  and  $363,407,
respectively.

Stock option  activity under the 1998,  1999,  2001,  2003 and 2004 Stock Option
Plans during the periods indicated below is as follows:

                                         Number Of     Weighted Average
                                          Options       Exercise Price
                                         ---------     ----------------

      Outstanding at January 1, 2002     1,946,041         $6.26

          Granted                          693,176          9.86
          Canceled                         (31,651)         9.27
          Exercised                       (273,700)         3.02
                                         ---------         -----

      Outstanding at December 31, 2002   2,333,866          7.72

         Granted                           713,650          7.73
         Canceled                         (171,183)         8.86
         Exercised                        (175,209)         3.88
                                         ---------         -----

      Outstanding at December 31, 2003   2,701,124          7.97

          Granted                          655,550          5.07
          Canceled                        (436,500)         7.93
          Exercised                       (142,700)         3.00
                                         ---------         -----

      Outstanding at December 31, 2004   2,777,474         $7.11
                                         =========         =====

Included in the option schedule are 824,425 non-plan  options,  of which 699,925
are fully vested.

The  weighted-average  remaining life of the options outstanding at December 31,
2002, 2003 and 2004 is 3.54 years,  2.89 years and $4.42  respectively,  and the
weighted-average  fair  value of the  options  granted  during  the  year  ended
December 31, 2002, 2003 and 2004 is $6.62, $5.58 and $2.97 respectively.

As of December  31,  2002,  2003 and 2004,  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, 5 and 5 years;  risk free
interest rates of 4.50%, 4.50% and 4.0%; expected volatility of 90%, 90% and 60%
and a dividend yield of 0%, 0% and 0%, respectively.

As of December 31, 2004, the Company had 2,093,724  options  exercisable  with a
weighted  average  exercise price of $7.18. As of December 31, 2004, the Company
had 774,842 options  available for future grant under the 1998, 1999, 2001, 2003
and 2004 Stock Option Plans.

On November 12, 2003, a member of the Company's Board of Directors resigned. The
Company  agreed to extend the  expiration  date of his options to  November  11,
2004, which originally were due to expire on February 10, 2004. As a result, the
Company  recorded  the fair value of the  extension  of  $138,000  as a non cash
expense during the fourth quarter ended December 31, 2003,  which was calculated
using the Black-Scholes valuation method.



                                                                            F-16
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

On July 8,  2004,  the  Company's  Board  of  Directors  agreed  to  extend  the
expiration date of the Chief Executive Officer's options to July 15, 2008, which
originally  were due to  expire  on July 15,  2004.  As a  result,  the  Company
recorded  the fair value of the  extension of  $1,347,000  as a non cash expense
during the second  quarter ended December 31, 2004,  which was calculated  using
the Black-Scholes valuation method.

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.

9. ACQUISITION

On December 18, 2001, the Company  acquired  substantially  all of the assets of
the IDentiScan Company,  LLC, which was accounted for under the purchase method.
The aggregate purchase price totaled $1,032,947 which consisted of 59,774 of the
Company's  restricted  common stock valued at $980,000  based on the fair market
value  at the  date of  acquisition  and  transaction  costs  of  $52,947,  plus
additional  incentives  upon  meeting  specific  objectives  over the next three
years. The purchase agreement provided that if after one year from closing,  the
aggregate  current  market  price of the  shares  issued at closing is less than
$750,000,  the Company would pay additional cash or additional  common stock for
the short fall.  The Company  computed the market  value of the original  59,774
shares  issued as of  December  18,  2002 and it was  valued at  $487,457.  As a
result,  the  Company  issued  an  additional  32,194  shares  to the  owners of
IDentiScan in accordance  with the Asset Purchase  Agreement.  The allocation of
the   purchase   price  was  $430,000  to  acquired   technology,   $230,000  to
patents/trademarks,  $181,447 to goodwill, $167,500 for other intangible assets,
and $24,000 to tangible assets. All Intangible assets except goodwill were being
amortized on a straight-line  basis of between 2-10 years,  which represents the
estimated future period to be benefited.

As of December 31, 2003, the Company  decided to discontinue  the selling of its
IDentiScan products.  The Company has determined that there is no future benefit
from these intangibles related to the IDentiScan  acquisition and,  accordingly,
all of its intangible assets, except for $5,590 of copyrights,  with a remaining
book value of $363,655, were written off as of December 31, 2003, which affected
the results of operations for the period then ended.

10. 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 with  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 was  cancelled  and replaced  with a cash
security payment of $34,916 for the remaining lease term.

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:
                        2005                     247,552
                        2006                     252,991
                        2007                     261,444
                        2008                     271,842
                        2009                     282,660
                        Thereafter               293,454
                                              ----------
                                              $1,609,943
                                              ==========

Rent expense for the years ended  December 31, 2002,  2003 and 2004  amounted to
$242,083, $252,386 and $243,577, respectively.


                                                                            F-17
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Capital Lease Obligations

The Company leased  computer and office  equipment  under several capital leases
that expired in 2004.  As of December 31, 2004,  the Company had no  outstanding
Capital Lease obligations.

Royalty and License Agreements

The  Company  entered  into an  agreement  with a former  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 was
superceded by a new  agreement  which calls for payment of 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. As of December 31, 2004, total fees payable under this agreement
amounted to $148.

Employment Agreements

On November 9, 2004, the Company entered into a new one-year employment contract
with its Chairman  and Chief  Executive  Officer,  Frank  Mandelbaum,  effective
January 1, 2005.  The agreement  provides for an annual base salary of $250,000.
In addition,  the Company granted to Mr. Mandelbaum an option to purchase 75,000
shares of common stock at an exercise price of $4.37 per share,  of which 25,000
options  became  exercisable  on January 1, 2005;  25,000  options  shall become
exercisable  on January 1, 2006 and the  remaining  25,000  options shall become
exercisable on January 1, 2007.

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 the Company's common stock based on a valuation of $2.00 per share.

On November 9, 2004, the Company  entered into a new  employment  agreement with
our Senior Executive Vice President and Chief Financial Officer,  Edwin Winiarz,
effective  January 1, 2005.  The  agreement,  which  expires  December 31, 2006,
provides for a fixed annual base salary of  $162,086.  In addition,  the Company
granted to Mr. Winiarz an option to purchase 50,000 shares of common stock at an
exercise price of $4.37 per share, of which 25,000 options became exercisable on
January 1, 2005 and the remaining  25,000  options shall become  exercisable  on
January 1, 2006.

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.

Supplier Agreements

In connection with the acquisition of certain assets of the IDentiScan  Company,
LLC, on December 17, 2001, the Company  entered into a product supply  agreement
with Accu-Time Systems,  Inc. ("ATS").  ATS agreed to manufacture the IDentiScan
line of  products  for an  initial  period of three (3) years and  provides  for
automatic renewal periods of one year. As a result of the Company  discontinuing
the sale of these products, the product supply agreement was not renewed.

On January 2, 2004, the Company  entered into a 2 year product supply  agreement
with a  manufacturer  of input devices.  Under the terms of the  agreement,  the
Company  purchased  the minimum  required  number of units  during  2004.  These
devices,  which were private labeled, are programmed to work in conjunction with
the ID-Check technology.

Customer Agreement

Effective  January 30,  2002,  the  Company  mutually  agreed  with  Sensormatic
Electronics  Corporation  not to  renew  its  non-exclusive  Master  Distributor
agreement  which  was due to  expire on March 31,  2002.  The  Company  received
$412,000 from Sensormatic Electronics  Corporation and additionally  Sensormatic
agreed to return to the Company  all units  previously  purchased  and unsold in
their  inventory as  settlement  of its  obligations  under the  agreement.  The
Company  did not assign any value to these  units.  The Company  recognized  the
income,  net of refurbishment  costs,  totaling  $336,744 and it was recorded as
other  income on the  Company's  Statements  of  Operations  for the year  ended
December 31, 2002.


                                                                            F-18
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Investment Firm Relationships

Effective  March 28,  2002,  the Company  entered  into an  agreement  with KPMG
Corporate  Finance LLC to act as an exclusive  financial advisor to the Company.
The fee for such services was $100,000 of which $50,000 was paid as of March 31,
2002 and the balance  paid by June 30,  2002.  This  amount was  expensed in the
second quarter of 2002 as services were rendered.  In connection  with financing
described  in Note 7, KPMG agreed to receive  2.0% in cash and 1% of funds drawn
in warrants. Effective January 5, 2004, the Company terminated this agreement.

On  January  21,  2004,  the  Company  entered  into a one year  agreement  with
Alexandros  Partners  LLC to act as  consultants  in  advising  the  Company  in
financial and investor relation matters.  The Company agreed to pay a consulting
fee of $50,000  payable  in 12 equal  monthly  installments.  In  addition,  the
Company  issued a warrant  granting the right to purchase  100,000 shares of the
Company's  common  stock at a purchase  price of $7.54 per share,  which  vested
ratably  over the 12 month  period.  A principal of  Alexandros  Partners LLC is
currently a member of the  Company's  Board of Directors.  Effective  January 1,
2005,  the Company  renewed its agreement  with  Alexandros  Partners LLC for an
additional  year and agreed to pay a  consulting  fee of  $50,000  payable in 12
equal monthly installments.

On  December 7, 2004,  the  Company  entered  into a one year  agreement  with a
consulting  firm to help with our  investor  relations  activities.  The Company
agreed to pay a consulting fee of $100,000  payable in 12 monthly  installments.
In addition, the Company issued 11,500 restricted shares of its common stock.

On November 2, 2004,  the Company  entered into an exclusive  agreement  with an
investment  banking firm for the purpose of investigating  the  opportunities in
raising additional capital for the Company.  There can be no assurances that the
Company will be successful in raising additional capital on acceptable terms.

Legal Proceedings

On February 19, 2003,  the Company  filed a summons and  complaint  upon CardCom
Technology, Inc. alleging infringement on its patent. During September 2003, the
Company  settled this case with  CardCom  Technology,  Inc. The Company  granted
CardCom a three year royalty license to use certain of the Company's  patents in
connection  with the  manufacture,  use and sale of CardCom's  age  verification
products in the United States and Canada. It also provides that CardCom will pay
royalties of  approximately  10% on its net sales.  For the years ended December
31, 2003 and 2004, the Company  received  $65,165 and $67,113,  respectively  in
royalty fees pursuant to this agreement.

On  April  9,  2003,  the  Company  received   notification  from  the  American
Arbitration  Association  that it had awarded Early Bird Capital $921,730 on the
settlement  of their  demand.  The  Company  had filed  with the New York  State
Supreme Court an application for setting aside the confirmation of the award. On
October 14, 2003,  the court  confirmed  the award with interest at a rate of 9%
per annum beginning April 9, 2003. The Company  recorded a charge of $921,730 in
its  Statements of Operations  for the three month period ending March 31, 2003.
The  Company  secured a one year  letter of  credit  for the full  amount of the
charge along with interest in the form of a certificate of deposit.  On March 5,
2004, the Company paid $950,000, which included interest expense recorded in the
year ended  December 31, 2003, to Early Bird Capital as full  settlement in this
matter.

On August 1, 2003, the Company filed a summons and complaint against Tricom Card
Technologies,  Inc. alleging  infringement on its patent seeking  injunctive and
monetary  relief.  On October 23,  2003,  the Company  amended its  complaint to
include infringement on an additional patent. On May 18, 2004, the Company filed
a Second  Amended  Complaint  alleging  infringement  and inducement to infringe
against certain  principals of Tricom in their personal  capacities,  as well as
alleging  in the  alternative  false  advertising  claims  under the  Lanham Act
against all the  defendants.  These  principals have moved to dismiss the claims
against them, and Tricom has moved to dismiss the false advertising  claims. The
Company has opposed the motions.  The Joint  Pretrial Order is due for filing on
November  19,  2004.  The Company  filed the proposed  Joint  Pretrial  Order on
November 19, 2004, which has not yet been executed and a conference is scheduled
for April, 1, 2005.

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.


                                                                            F-19
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

The  following   table  sets  forth   unaudited   financial  data  for  each  of
Intelli-Check's last eight fiscal quarters.

<TABLE>
<CAPTION>
                                                 Year Ended December 31, 2003
                                                 ----------------------------
                                        First        Second         Third        Fourth
                                       Quarter       Quarter       Quarter       Quarter
                                       -------       -------       -------       -------
                                                    (Dollars in thousands)
<S>                                    <C>           <C>           <C>           <C>
Income Statement Data:
  Revenues                             $   264       $   342       $   345       $   285
  Gross profit                             160          (596)(2)       243           (15)(3)
  Loss from operations                  (1,101)       (2,061)       (1,042)       (1,333)
  Net loss                              (2,019)(1)    (2,050)       (1,078)(4)    (1,304)
  Net loss attributable to Common
    stockholders                        (2,018)       (2,178)       (1,204)       (1,433)
  Net loss per share attributable to
    Common stockholders:
      Basic and diluted                  (0.23)        (0.24)        (0.13)        (0.15)

<CAPTION>
                                                 Year Ended December 31, 2004
                                                 ----------------------------
                                        First        Second         Third        Fourth
                                       Quarter       Quarter       Quarter       Quarter
                                       -------       -------       -------       -------
                                                    (Dollars in thousands)
<S>                                    <C>           <C>           <C>           <C>
Income Statement Data:
  Revenues                             $   298       $   260       $   233       $   328
  Gross profit                             195           144           (57)(5)        86(6)
  Loss from operations                  (1,106)       (2,663)(7)    (1,694)       (1,554)
  Net loss                              (1,075)       (2,642)       (1,669)       (1,537)
  Net loss attributable to Common
    stockholders                        (1,201)       (2,768)       (1,796)       (2,362)(8)
  Net loss per share attributable to
    Common stockholders:
      Basic and diluted                  (0.12)        (0.27)        (0.17)        (0.23)
</TABLE>

(1)   During the first quarter, a litigation reserve of $921,730 was recorded.
(2)   During the second quarter, an inventory reserve of $800,000 was recorded.
(3)   During the fourth quarter, an additional inventory reserve of $190,000 was
      recorded.
(4)   Third  quarter  net loss was  reduced by  $126,000  to reflect  additional
      considerations which resulted in determining that adopting FASB No.150 had
      no effect on our  financial  position  and  results  of  operations.  This
      adjustment had no effect on net loss attributable to common  stockholders.
(5)   During the third quarter,  an inventory  reserve of $200,000 was recorded.
(6)   During the fourth quarter,  an inventory reserve of $157,000 was recorded.
(7)   During the second  quarter,  a non cash expense of $1,347,000 was recorded
      for extension of options
(8)   Effective in the fourth quarter,  due to the conversion of the Convertible
      Redeemable  Preferred Stock on February 25, 2005, the  amortization of the
      accretion costs was increased by $669,618.

      We have not  experienced  seasonality  in our sales  volume  or  operating
expenses.


                                                                            F-20
<PAGE>


INTELLI-CHECK, INC.

NOTES TO FINANCIAL STATEMENTS

Schedule II - Valuation and Qualifying Accounts

Year Ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                               Balance at                       Net Deductions       Balance at
Year ended December 31, 2004              Beginning of Period     Additions       and Other         End of Period
-----------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                 <C>            <C>
Doubtful accounts and allowances                  --             $   20,000          --             $    20,000
Deferred tax assets valuation allowance       $9,520,550          1,920,450          --              11,441,000
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------

                                               Balance at                       Net Deductions       Balance at
Year ended December 31, 2003              Beginning of Period     Additions       and Other         End of Period
-----------------------------------------------------------------------------------------------------------------
Doubtful accounts and allowances                  --                 --              --                  --
Deferred tax assets valuation allowance       $6,722,540         $2,798,010          --              $9,520,550
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------

                                               Balance at                       Net Deductions       Balance at
Year ended December 31, 2002              Beginning of Period     Additions       and Other         End of Period
-----------------------------------------------------------------------------------------------------------------
Doubtful accounts and allowances                  --                 --              --                  --
Deferred tax assets valuation allowance       $4,647,652         $2,074,888          --              $6,722,540
-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                            F-21
<PAGE>


                                  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)

3.3          Certificate  of Designation  of Preferred  Stock of  Intelli-Check,
             Inc. (7)

4.1          Specimen Stock Certificate (2)

4.2          Form of Underwriters' Warrant Agreement (1)

4.3          Warrant to Gryphon Master Fund LLP (7)

4.4          Form of Underwriters  Warrant  Agreement  including form of Warrant
             Certificate(8)

10.1         1998 Stock Option Plan (1) *

10.5         Agreement of Lease between the Company and  Industrial and Research
             Associates, dated as of October 15, 2000 (5)

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)

10.9         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  AAMVAnet,  Inc. and Intelli
             Check, Inc. effective November 15, 2000 (5)

10.12        2001 Stock Option Plan (4)

10.15        Memorandum   of   Understanding   between   AAMVAnet,    Inc.   and
             Intelli-Check, Inc. effective January 29, 2002 (5)

10.16        Securities  Purchase  Agreement  between  Intelli-Check,  Inc.  and
             Gryphon Master Fund dated March 27, 2003. (7)

10.17        Registration  Rights  Agreement  between  Intelli-Check,  Inc.  and
             Gryphon Master Fund dated March 27, 2003. (7)

10.18        Employment  Agreement  between  Frank  Mandelbaum  and the Company,
             dated as of December 15, 2004* (6)

10.19        Employment  Agreement between Edwin Winiarz and the Company,  dated
             as of December 15, 2004* (6)

14.1         Code of Business Conduct and Ethics (7)

21           List of Subsidiaries (1)

31.1         Certification of Chief Executive Officer pursuant to Section 302 of
             The Sarbanes-Oxley Act of 2002

31.2         Certification of Chief Financial Officer pursuant to Section 302 of
             The  Sarbanes-Oxley Act of 2002 32 Certification of Chief Executive
             Officer  and  Chief  Financial  pursuant  to  Section  906  of  The
             Sarbanes-Oxley Act of 2002

----------
*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.
(4)   Incorporated by reference to Registrant's  Proxy Statement on Schedule 14A
      filed May 31, 2001.
(5)   Incorporated by reference to Registrant's Annual Report on Form 10-K filed
      March 29, 2001.
(6)   Incorporated by reference from the Registrant's Current Report on Form 8-K
      filed on December 16, 2004.
(7)   Incorporated by reference to Registrant's Annual Report of Form 10-K filed
      March 31, 2003.
(8)   Incorporated by reference to Registration  Statement on Form S-2 (File No.
      333-108043) filed September 30, 2003.