Intellicheck
IDN
#8862
Rank
A$0.22 B
Marketcap
A$11.31
Share price
3.72%
Change (1 day)
182.07%
Change (1 year)

Intellicheck - 10-Q quarterly report FY


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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-15465

Intelli-Check, Inc.
(Exact name of the issuer as specified in its charter)

Delaware 11-3234779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

246 Crossways Park West, Woodbury, New York 11797
(address of principal executive offices) (Zip Code)

Issuer's Telephone number, including area code: (516) 992-1900

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

Yes |X| No |_|

Number of shares outstanding of the issuer's Common Stock:

Class Outstanding at November 09, 2001
----- --------------------------------
Common Stock, $.001 par value 8,176,775
Intelli-Check, Inc.

Index

Part I Financial Information Page
----

Item 1. Financial Statements

Balance Sheets -September 30, 2001 (Unaudited)
and December 31, 2000 1

Statements of Operations for the three and nine months
ended September 30, 2001 (Unaudited) and
September 30, 2000 (Unaudited) 2

Statements of Cash Flows for the nine months ended
September 30, 2001 (Unaudited) and September 30, 2000
(Unaudited) 3

Notes to Financial Statements 4-6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10


Part II Other Information

Item 1. Legal Proceedings 10

Item 4. Submission of Matters to a Vote of Security Holders 10-11

Item 6. Exhibits and Reports on Form 8 11

Signatures 11
Intelli-Check, Inc.

Balance Sheets

ASSETS
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)

CURRENT ASSETS:
Cash and cash equivalents $ 2,251,467 $ 4,091,689
Accounts receivable 91,879 44,795
Inventory 2,340,226 2,536,338
Deposits 200,000 --
Other current assets 142,548 511,638
------------ ------------
Total current assets 5,026,120 7,184,460

CERTIFICATE OF DEPOSIT 266,456 250,000

PROPERTY AND EQUIPMENT, net 403,730 438,021

PATENT COSTS, net 62,769 67,426
------------ ------------
Total assets $ 5,759,075 $ 7,939,907
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 217,451 $ 180,792
Accrued expenses 700,434 489,229
Current portion of deferred revenue 195,417 545,334
Current portion of capital lease obligations 31,232 48,767
------------ ------------
Total current liabilities 1,144,534 1,264,122
------------ ------------

CAPITAL LEASE OBLIGATIONS 22,974 42,738

DEFFERRED REVENUE 49,690 --
------------ ------------
Total liabilities 1,217,198 1,306,860

STOCKHOLDERS' EQUITY:
Series A convertible preferred stock -
$.01 par value; 250,000 shares authorized;
0 shares issued and outstanding -- --
Common stock-$.001 par value; 20,000,000
shares authorized; 7,928,306 and 7,696,236
shares issued and outstanding, respectively;
10,000 shares held in the treasury 7,928 7,696
Additional paid-in capital 15,311,647 13,561,362
Accumulated deficit (10,777,698) (6,936,011)
------------ ------------
Total stockholders' equity 4,541,877 6,633,047
------------ ------------
Total liabilities and stockholders' equity $ 5,759,075 $ 7,939,907
============ ============

See accompanying notes to financial statements


1
Intelli-Check, Inc.

Statements of Operations
(Unaudited)



<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 2001 Sept.30, 2000 Sept. 30, 2001 Sept. 30, 2000
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ 280,266 $ 109,676 $ 755,113 $ 156,996
COST OF REVENUE 154,437 63,452 413,696 86,967
----------- ----------- ----------- -----------
Gross profit 125,829 46,224 341,417 70,029
----------- ----------- ----------- -----------

OPERATING EXPENSES
Selling 156,707 158,176 531,560 379,941
General and administrative 617,698 403,231 1,694,412 1,222,414
Research and development 288,049 253,923 902,857 762,037
----------- ----------- ----------- -----------
Total operating expenses 1,062,454 815,330 3,128,829 2,364,392
----------- ----------- ----------- -----------

Loss from operations (936,625) (769,106) (2,787,412) (2,294,363)

OTHER INCOME (EXPENSES):
Interest income 25,280 55,645 121,062 216,653
Interest expense (1,774) (2,683) (8,337) (11,078)
----------- ----------- ----------- -----------
(913,119) (716,144) (2,674,687) (2,088,788)

INCOME TAX BENEFIT -- -- -- --

Net loss $ (913,119) $ (716,144) $(2,674,687) $(2,088,788)
=========== =========== =========== ===========

PER SHARE INFORMATION:
Net loss per common share -
Net loss $ (913,119) $ (716,144) $(2,674,687) $(2,088,788)
Dividend on warrant modification (55,000) -- (140,000) --

Net loss attributable to common
shareholders $ (968,119) $ (716,144) $(2,814,687) $(2,088,788)
=========== =========== =========== ===========

Basic and diluted $ (.12) $ (.11) $ (.36) $ (.32)

Common shares used
in computing per share amounts -
Basic and diluted 7,863,382 6,635,560 7,820,442 6,563,172
</TABLE>

See accompanying notes to financial statements


2
Intelli-Check, Inc.

Statements of Cash Flows
(Unaudited)

Nine months ended Nine months ended
September 30, 2001 September 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,674,687) $(2,088,788)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 86,542 62,693
Stock options issued for services 842 --
Changes in assets and liabilities-
(Increase) in certificate of deposit (16,456) --
(Increase) in accounts receivable (47,084) (53,269)
Decrease(Increase) in inventory 196,112 (1,712,276)
Decrease (Increase) in other
current assets 369,090 (58,081)
(Increase) in deposits (200,000) (401,700)
Increase in other assets -- 8,766
Increase in accounts payable and
accrued expenses 222,764 618,221
(Decrease) Increase in
deferred revenue (300,227) 18,121
----------- -----------
Net cash used in operating
activities (2,363,104) (3,606,313)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (47,594) (76,156)
----------- -----------

Net cash used in investing
activities (47,594) (76,156)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock 660,375 489,375
Purchase of treasury stock (52,600) --
Repayment of capital lease obligation (37,299) (27,587)
----------- -----------
Net cash provided by financing
activities 570,476 461,788
----------- -----------

Net (decrease) in cash (1,840,222) (3,220,681)

CASH AND CASH EQUIVALENTS, beginning
of period 4,091,689 6,380,548
----------- -----------
CASH AND CASH EQUIVALENTS, end of
period $ 2,251,467 $ 3,159,867
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest $ 8,337 $ 11,087
=========== ===========

See accompanying notes to financial statements


3
Intelli-Check, Inc.

Notes to Financial Statements
(Unaudited)

Note 1. Significant Accounting Policies

Basis of Presentation

The financial information provided herein was prepared from the books and
records of the Company without audit. The information furnished reflects all
normal recurring adjustments, which, in the opinion of the Company, are
necessary for a fair statement of the balance sheets, statement of operations,
and statements of cash flows, as of the dates and for the periods presented. The
Notes to Financial Statements included in the Company's 2000 Annual Report on
Form 10-KSB should be read in conjunction with these financial statements.

Revenue Recognition

The Company sells its product directly through its sales force and through
distributors. Revenue earned from direct sales of the Company's product is
recognized upon shipment to the customer. The Company's product requires
continuing service or post contract customer support and performance by the
Company, and 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. Currently,
with respect to sales to distributors, 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 July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS 141") and
No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Under FAS 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). The amortization
provisions of SFAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt SFAS 142 effective January 1,
2002. The Company is currently evaluating the effect that adoption of the
provisions of SFAS 142 that are effective January 1, 2002 will have on its
results of operations and financial position.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 will be effective for financial statements of fiscal years beginning
after December 15, 2001. We do not anticipate that it will have a material
impact on the Company's financial results.

Reclassifications

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

Note 2. Net Loss Per Common Share

Basic and diluted net loss per common share was computed by dividing the net
loss attributable to common shareholders by the weighted average number of
shares of common stock. In accordance with the requirements of Statement of
Financial Accounting Standards No. 128, common stock equivalents have been
excluded from the calculation, as their inclusion would be antidilutive.


4
The following table  summarizes the equivalent  number of common shares assuming
the related securities that were outstanding as of September 30, 2001 and 2000
had been converted:

2001 2000
---- ----
Stock options 1,584,269 1,466,750
Warrants 310,975 479,600
--------- ---------
Total dilutive securities 1,913,244 1,946,350
--------- ---------

Note 3. Stockholders' Equity

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 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 will expire on October 4, 2002, which is one year after the
effective date of the registration statement related to the shares of common
stock underlying the rights. As a result of certain conditions being met, the
Company has the right to redeem the outstanding rights for $.01 per right. 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.

In March 2001, the Company extended the expiration date of its warrants that
were due to expire on various dates through June 30, 2001, until September 30,
2001. During the three months ended March 31, 2001, the Company recorded the
$85,000 difference between the fair value of the warrants prior and subsequent
to this extension as a dividend. In September 2001, the Company further extended
the expiration of these warrants until October 31, 2001 and recorded the $55,000
difference between the fair value of the warrants prior and subsequent to this
extension as a dividend during the three months ended September 30, 2001. These
dividends were calculated using the Black-Scholes valuation method and are
included in net loss attributable to common shareholders.

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 November 12, 2001, we purchased 10,000 shares totaling approximately $53,000.

Note 4. Letters of Intent

In February 2001, the Company signed a letter of intent to acquire certain
assets of NeoTilt Corp., a Canadian developer of software for hand held age and
document verification units in exchange for 50,000 shares of the Company's
common stock valued at the closing price on the day prior to closing plus
additional incentives. The letter of intent expired on March 31, 2001 and the
Company, subsequently, terminated negotiations with NeoTilt Corporation.

In September 2001, the Company signed a letter of intent to acquire all of the
assets of the IDentiScan Company, a privately held company that designs and
sells age verification terminals in exchange for $1,000,000 of the Company's
restricted common stock, plus additional contingent incentives over the next
three years. The letter of intent originally due to expire October 31, 2001 was
extended to November 30, 2001.

Note 5. Employment agreements

On May 7, 2001, The Board of Directors accepted the resignation of its Senior
Executive Vice President and Chief Technology Officer. Accordingly, all of the
obligations under the employment agreement, including the payment of salary and
incentives, ceased as of this date.

On September 7, 2001, the Company renewed the employment agreement of its Senior
Executive Vice President and Chief Financial Officer. The agreement, which
expires December 31, 2004, provides for a base salary of $135,000 with annual
increases of 5% per annum. In addition, the Company granted 75,000 stock options
at an exercise price of $8.04 vesting on September 7, 2006 with earlier vesting
incentives.

On October 25, 2001, the Company renewed the employment agreement with its
Senior Executive Vice President of Sales under the same terms and conditions
until October 24, 2003.


5
Note 6. Legal Matters

On October 18, 2001, the Company was informed that an action was filed in the
United State District Court of New Jersey on behalf of a purported class of
short-sellers of the securities of Intelli-Check, Inc. against the Company and
certain of its officers and directors and a former officer/director. As outlined
in a press release issued by the plaintiff's attorney, the complaint alleges
violations of Sections 10 (b) and 20 (a) of the Securities and Exchange Act of
1934 and Rule 10 (b)-5. The Company has not been served with the complaint. The
Company believes that the allegations are without merit and it has complied with
all applicable securities laws.

On October 19, 2001, a former officer and director of the Company filed a
lawsuit against the Company to force the Company to permit him to sell his
restricted shares. The complaint also seeks damages of $29,350 for miscellaneous
compensation and punitive damages of $3,000,000. The Company considers this
former officer an "insider" subject to the rules under Section 144 of the
Securities and Exchange Act of 1934. The Company feels it is acting properly and
will defend itself vigorously. In addition, the Company intends to file a
counter claim.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

(a) Overview

Our company was formed in 1994 to address a growing need for a reliable
document and age verification system to detect fraudulent driver licenses and
other widely accepted forms of government-issued identification documents. Our
sales through September 30, 2000 had been minimal since through 1998 we had
previously produced only a limited pre-production run of our product for testing
and market acceptance. In late 1999, we received a limited number of ID-Check
terminals, which were then available for sale. Shortly thereafter, these
terminals were returned to the manufacturer to be upgraded to contain an
advanced imager/scanner, which allows our software to currently read the
encoding on over 50 jurisdictions as opposed to 32 jurisdictions on the original
scanner. During the fourth quarter of 2000, we experienced a material increase
in sales as a result of product availability and establishing marketing and
distributor agreements with resellers. During 2001, sales were limited due to
the refocus of our marketing efforts towards the larger customers in the retail
market, in which the sales cycle normally requires an extended time frame
involving multiple meetings, presentations and a test period, which has been
further extended by the rapid slowing of the economy, whereby decisions for
capital expenditures are being delayed. However, after the tragic events that
occurred on September 11, 2001, there has been a significant increase in
awareness and demand for our technology to help improve security across many
industries, including airlines, rail transportation and high profile buildings
and facilities. Since inception, we have incurred significant losses and
negative cash flow from operating activities, and as of September 30, 2001 we
had an accumulated deficit of approximately $10,780,000. We will continue to
fund operating and capital expenditures from proceeds that the company received
from its initial public offering ("IPO") as well as the exercising of warrants
and options. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of
revenues and operating results are not necessarily meaningful and should not be
relied upon as indications of future performance.

The Company's initial marketing focus was targeted towards retailers of
age-restricted products such as alcohol and tobacco. Because of the Company's
enhanced ability to verify the validity of military ID's, driver licenses and
State issued ID cards, containing either magnetic stripes or bar codes that
conform to AAMVA/ANSI/ISO standards, the Company has refocused its marketing
efforts to address the market being affected by the cost to industry of
"Identity Theft." Additionally, during 2000, it entered into a marketing
agreement with Sensormatic Electronics Corporation, a leading supplier of
electronic security systems. As a result of the Company's ID-Check product
having the ability to verify the encoded formats of the documents described
above, it has already sold its ID-Check unit to some of the largest companies in
the gaming industry, military establishments, high profile buildings and has
placed test units in some of the largest military bases, State Motor Vehicle
Bureaus, a major railroad, a major grocery chain, a major hospital complex and a
large tobacco company. In addition, our ID-Check unit will play a key role in a
program organized by Mothers Against Drunk Driving (MADD) to deter the use of
fake ID's used for the purchase of alcoholic beverages.

(b) Results of Operations


6
The Company sells its product directly through its sales force and through
distributors. Revenue from direct sales of the Company's product is recognized
upon shipment to the customer. The Company's product requires continuing service
or post contract customer support and performance by the Company, and
accordingly a portion of the revenue based on its fair value is deferred 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 to distributors, 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.

Comparison of the nine months ended September 30, 2001 to the nine months
ended September 30, 2000.

Revenues increased $598,117 from $156,996 recorded for the nine months
ended September 30, 2000 to $755,113 recorded for the nine months ended
September 30, 2001. Revenues from distributors totaled $659,318 and revenues
from direct customers totaled $95,795. Revenues for the period ended September
30, 2000 included initial sales of a limited number of ID-Check terminals prior
to the return of our inventory of these terminals to the manufacturer for
upgrading. Sales for the period ended September 30, 2001 were limited by the
recent refocus of our marketing efforts towards the larger customers within the
retail market, in which the sales cycle normally requires an extended time frame
involving multiple meetings, presentations and a test period, which has been
further extended by the rapid slowing of the economy, resulting in decisions for
capital expenditures being delayed. In addition, the roll-out of Sensormatic's
sales and marketing initiatives first began in April 2001.

Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 32.3% from $2,364,392 for the
nine months ended September 30, 2000 to $3,128,829 for the nine months ended
September 30, 2001. Selling expenses, which consist primarily of salaries and
related costs for marketing, increased 40.0% from $379,941 for the nine months
ended September 30, 2000 to $531,560 for the nine months ended September 30,
2001 primarily due to the hiring of a Director of Corporate sales totaling
approximately $85,000 and increased travel expenses of approximately $50,000.
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, increased 38.6% from
$1,222,414 for the nine months ended September 30, 2000 to $1,694,412 for the
nine months ended September 30, 2001, primarily as a result of an increase in
rent expense of approximately $97,000 as we moved to a larger facility and
increased professional fees for accounting and public relations counsel of
approximately $106,000 and increased legal fees of approximately $250,000,
resulting from the defense of our patent law suit. Research and development
expenses, which consist primarily of salaries and related costs for the
development of our products, increased 18.5% from $762,037 for the nine months
ended September 30, 2000 to $902,857 for the nine months ended September 30,
2001. This increase is primarily attributable to net increases in salaries and
related expenses in hiring additional programmers totaling $148,000. We believe
that we will require additional investments in development and operating
infrastructure. Therefore, we expect that expenses will continue to increase for
the foreseeable future as we may increase expenditures for advertising, brand
promotion, public relations and other marketing activities. We expect that we
will incur additional general and administrative expenses as we continue to hire
personnel and incur incremental costs related to the growth of the business.
Research and development expenses will also increase as we complete and
introduce additional products based upon our patented ID-Check technology.
Should the Company successfully complete the acquisition of IDentiScan, expenses
would further increase.

Interest expense decreased from $11,078 for the nine months ended
September 30, 2000 to $8,337 for the nine months ended September 30, 2001 as we
have paid down certain capital leases which had higher interest rates than those
currently prevailing.

Interest income decreased from $216,653 for the nine months ended
September 30, 2000 to $121,062 for the nine months ended September 30, 2001,
which is a result of a decrease in our cash and cash equivalents available for
investment and lower interest rates in effect during this period.

We have incurred net losses to date; therefore we have paid nominal income
taxes.


7
As a result  of the  factors  noted  above,  our net loss  increased  from
$2,088,788 for the nine months ended September 30, 2000 to $2,674,687 for the
nine months ended September 30, 2001.

Comparison of the three months ended September 30, 2001 to the three
months ended September 30, 2000.

Revenues increased $170,590 from $109,676 recorded for the three months
ended September 30, 2000 to $280,266 recorded for the three months ended
September 30, 2001. Revenues from distributors totaled $243,014 and revenues
from direct customers totaled $37,252. Revenues for the period ended September
30, 2000 included limited sales from the initial release of our enhanced product
during the later part of this period. Sales for the period were limited by the
recent refocus of our marketing efforts towards the larger retail market, in
which the sales cycle normally requires an extended time frame involving
multiple meetings, presentations and a test period, which has been further
extended by the rapid slowing of the economy, whereby decisions for capital
expenditures are being delayed. In addition, the roll out of Sensormatic's sales
and marketing initiatives first began in April 2001.

Operating expenses, which consist of selling, general and administrative
and research and development expenses, increased 30.3% from $815,330 for the
three months ended September 30, 2000 to $1,062,454 for the three months ended
September 30, 2001. Selling expenses, which consist primarily of salaries and
related costs for marketing, decreased 1.0% from $158,176 for the three months
ended September 30, 2000 to $156,707 for the three months ended September 30,
2001 primarily due to the hiring of a Director of Corporate sales totaling
approximately $29,000 and increased travel expenses of approximately $25,000,
offset by a decrease in advertising expenses of approximately $67,000. 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, increased 53.2% from
$403,231 for the three months ended September 30, 2000 to $617,698 for the three
months ended September 30, 2001, primarily as a result of an increase in rent
expense of approximately $33,000 as we moved to a larger facility and increased
professional fees for accounting and public relations counsel of approximately
$57,000 and increased legal fees of approximately $108,000 resulting from the
defense of our patent law suit. Research and development expenses, which consist
primarily of salaries and related costs for the development of our products,
increased 13.4% from $253,923 for the three months ended September 30, 2000 to
$288,049 for the three months ended September 30, 2001. This increase is
primarily attributable to increases in salaries and related expenses in hiring
additional programmers totaling approximately $35,000. We believe that we will
require additional investments in development and operating infrastructure.
Therefore, we expect that expenses will continue to increase for the foreseeable
future as we may increase expenditures for advertising, brand promotion, public
relations and other marketing activities. We expect that we will incur
additional general and administrative expenses as we continue to hire personnel
and incur incremental costs related to the growth of the business. Research and
development expenses will also increase as we complete and introduce additional
products based upon our patented ID-Check technology. Should the Company
successfully complete the acquisition of IDentiScan, expenses would further
increase.

Interest expense, which totaled $2,683 for the three months ended
September 30, 2000 compared to $1,774 for the three months ended September 30,
2001, did not materially change.

Interest income decreased from $55,645 for the three months ended
September 30, 2000 to $25,280 for the three months ended September 30, 2001,
which is a result of a decrease in our cash and cash equivalents available for
investment and lower interest rates in effect during this period.

We have incurred net losses to date; therefore we have paid nominal income
taxes.

As a result of the factors noted above, our net loss increased from
$716,144 for the three months ended September 30, 2000 to $913,119 for the three
months ended September 30, 2001.

(c) Liquidity and Capital Resources


8
Prior to our IPO, which became effective on November 18, 1999, we financed
our operations primarily through several private placements of stock and debt
financings. We used the net proceeds of these financings for the primary purpose
of funding working capital and general corporate purposes and for the purchase
of hardware terminals. As a result of our IPO and the underwriters exercise of
their over allotment option, we received approximately $6,907,000 in net
proceeds after deducting underwriters commissions and offering expenses. During
2000 and the first three quarters of 2001, we received $3,426,374 and $660,375,
respectively, from the issuance of common stock from the exercise of warrants
and stock options. We funded the purchase of hardware terminals for resale and
working capital primarily from these proceeds. We will continue to use these
proceeds to fund working capital until we reach profitability.

Cash used in operating activities for the nine months ended September 30,
2001 of $2,363,104 was primarily attributable to the net loss of $2,674,687, an
increase in deposits of $200,000 for future purchases of inventory and a net
decrease in deferred revenues of $300,227, which was primarily offset by a
decrease of inventory of $196,112, an increase in accounts payable and accrued
expenses of $222,764, and a net decrease in other current assets of $369,090
primarily consisting of the related deferred costs of revenues. Cash used in
operating activities for the nine months ended September 30, 2000 of $3,606,313
resulted primarily from the net loss of $2,088,788,an increase in inventory of
$1,712,276, an increase in deposits on hardware purchases of $401,700 which was
partially offset by an increase in accounts payable and accrued expenses of
$618,221. This increase in accounts payable and accrued expenses resulted
primarily from our increased inventory, which was received at the end of the
quarter ended September 30, 2000. Cash used in investing activities was $47,594
for the nine months ended September 30, 2001 and $76,156 for the nine months
ended September 30, 2000. Net cash used in investing activities for both periods
consisted primarily of capital expenditures for computer equipment and furniture
and fixtures. Cash provided by financing activities was $570,476 for the nine
months ended September 30, 2001 and was primarily related to the exercise of
outstanding warrants and stock options. Cash provided by financing activities
was $461,788 for the nine months ended September 30, 2000 and was primarily
related to the exercise of outstanding warrants and stock options.

As of September 30, 2001, there were warrants outstanding to purchase
310,975 shares of our common stock at an exercise price of $3.00, except for
10,000 underwriter's warrants that carry an exercise price of $8.40. If certain
conditions occur, we have the right to redeem the outstanding warrants on not
less than 20 days written notice for $0.01 per warrant, except for the
Underwriter's warrants. As of November 12, 2001, the conditions for redeeming
the warrants have been met. Of these warrants, 279,100 originally due to expire
on September 30, 2001 were extended to October 31, 2001. During October 2001,
189,100 warrants were exercised and the Company received $567,300 as of October
31, 2001. 90,000 warrants expired and the remaining 31,875 warrants expire on
various dates up to November 2004.

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 exercise date, 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 entitle the
holders to acquire up to approximately 970,076 shares of common stock. The
rights will expire on October 4, 2002, which is one year after the effective
date of the registration statement relating to the shares of common stock
underlying the rights. If certain conditions occur, we have the right to redeem
the outstanding rights for $.01 per right. These conditions have been met and
the Company has the right to redeem the rights at any time with 30 days notice
to the rights holders.

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 November 12, 2001, we purchased 10,000 shares totaling $53,000.

We currently anticipate that our available cash resources from the IPO,
expected revenues from the sale of the units in inventory and the exercise of
the warrants combined with either the exercise of outstanding rights before
expiration or the exercise of outstanding rights if we decide to redeem them,
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next twelve months. These requirements
are expected to include the purchase of 2,850 terminals, which would complete
the initial purchase order of 7000 terminals, to run our patented software,
product development, sales and marketing, working capital requirements and other
general corporate purposes. We may need to raise additional funds, however, to
respond to


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business  contingencies which may include the need to fund more rapid expansion,
fund additional marketing expenditures, develop new markets for our ID-Check
technology, enhance our operating infrastructure, respond to competitive
pressures, or acquire complementary businesses or necessary technologies.

(d) Net Operating Loss Carry forwards

As of September 30, 2001, we had a net operating loss carry forward of
approximately $9,200,000, which expires beginning in the year 2013. The issuance
of equity securities in the future, together with our recent financings and our
IPO, could result in an ownership change and, thus could limit our use of our
prior net operating losses. If we achieve profitable operations, any significant
limitation on the utilization of our net operating losses would have the effect
of increasing our tax liability and reducing net income and available cash
reserves. We are unable to determine the availability of these net-operating
losses since this availability is dependent upon profitable operations, which we
have not achieved in prior periods.

The foregoing contains certain forward-looking statements. Due to the fact
that the Company could face intense competition in a business characterized by
rapidly changing technology and high capital requirements, actual results and
outcomes may differ materially from any such forward looking statements and, in
general are difficult to forecast.

Part II Other Information

Item 1. Legal Proceedings

On October 18, 2001, the Company was informed that an action was filed in the
United State District Court of New Jersey on behalf of a purported class of
short-sellers of the securities of Intelli-Check, Inc. against the Company and
certain of its officers and directors and a former officer/director. As outlined
in a press release issued by the plaintiff's attorney, the complaint alleges
violations of Sections 10 (b) and 20 (a) of the Securities and Exchange Act of
1934 and Rule 10 (b)-5. The Company has not been served with the complaint. The
Company believes that the allegations are without merit and it has complied with
all applicable securities laws.

On October 19, 2001, a former officer and director of the Company filed a
lawsuit against the Company to force the Company to permit him to sell his
restricted shares. The complaint also seeks damages of $29,350 for miscellaneous
compensation and punitive damages of $3,000,000. The Company considers this
former officer an "insider" subject to the rules under Section 144 of the
Securities and Exchange Act of 1934. The Company feels it is acting properly and
will defend itself vigorously. In addition, the Company intends to file a
counter claim.

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

The annual meeting of stockholders was held on July 11, 2001.

A proposal to elect two (2) directors to serve for a three-year term and one (1)
director to serve for a two-year term was approved by the stockholders. The
nominees received the following votes:

Name Votes For Votes Against
---- --------- -------------
Frank Mandelbaum (three-year term) 5,805,089 983,500
Charles McQuinn (three-year term) 5,805,089 983,500
Howard Davis (two-year term) 5,805,089 983,500

A proposal was introduced to approve the Intelli-Check, Inc. 2001 Stock Option
Plan, which authorizes the issuance of options to purchase up to 500,000 of our
common shares. The proposal was approved with the following votes:

For Against Abstain Not Voted
--- ------- ------- ---------
4,650,717 40,974 18,400 2,078,498


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In addition, stockholders ratified the appointment of Arthur Andersen LLP as the
independent public accountants for the Company for the year ended December 31,
2001. This proposal received the following votes:

For Against Abstain
--- ------- -------
6,761,989 24,100 2,500

Item 6. Exhibits and Reports on Form 8-K

None

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to he signed on its behalf by the
undersigned thereunto duly authorized.

Date - November 12, 2001

Intelli-Check, Inc.
(Registrant)

By: /s/ Frank Mandelbaum
--------------------------------
Frank Mandelbaum
Chairman/CEO

By: /s/ Edwin Winiarz
--------------------------------
Edwin Winiarz
Senior Executive Vice President/CFO
Principal Accounting Officer


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