<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
                                   FORM 10-Q


(Mark one)
   X  Quarterly report pursuant to Section 13 or 15(d) of the Securities
 -----
Exchange Act of 1934.

For the quarterly period ended March 31, 2000 or

_______Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ______________________ to ______________________

Commission File Number: 1-9641
                        ------

                             IDENTIX INCORPORATED
                             --------------------
            (Exact name of registrant as specified in its charter)


              Delaware                                    94-2842496
----------------------------------------   -------------------------------------
   (State or other jurisdiction of           (IRS Employer Identification No.)
   incorporation of organization)


510 N. Pastoria Avenue, Sunnyvale, California               94086
----------------------------------------------              -----
  (Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code (408) 731-2000
                                                   --------------

     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 requirement for the past 90 days.  YES   X    NO _____
                                              -----

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                       32,994,643 shares of Common Stock
                               as of May 4, 2000
<PAGE>

                              IDENTIX INCORPORATED

                                     INDEX


PART I         FINANCIAL INFORMATION

     Item 1    Unaudited Financial Statements

               Consolidated Balance Sheets -
               March 31, 2000 and June 30, 1999

               Consolidated Statements of Operations -
               Three and nine months ended March 31, 2000 and 1999

               Consolidated Statements of Cash Flows -
               Nine months ended March 31, 2000 and 1999

               Notes to Consolidated Financial Statements

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

     Item 3    Quantitative and Qualitative Disclosures about Market Risk

PART II        OTHER INFORMATION

     Item 1    Legal Proceedings

     Item 6    Exhibits


     Signature

                                       2
<PAGE>

                             IDENTIX INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

Item 1. Financial Statements

<TABLE>
<CAPTION>
                                                                        March 31, 2000           June 30,1999
                                                                       ----------------     --------------------

                                    ASSETS
<S>                                                                    <C>                  <C>
Current assets:
    Cash and cash equivalents.......................................       $  7,727,000             $  3,013,000
    Accounts receivable, less allowance for doubtful accounts
        of $937,000 and $809,000                                             26,694,000               25,993,000
    Inventories.....................................................          5,597,000                5,275,000
    Prepaid expenses and other assets...............................          1,460,000                1,043,000
                                                                           ------------             ------------
        Total current assets........................................         41,478,000               35,324,000

Property and equipment, net.........................................          2,736,000                2,141,000
Intangibles and other assets, net...................................         31,030,000               33,981,000
                                                                           ------------             ------------
        Total assets................................................       $ 75,244,000             $ 71,446,000
                                                                           ============             ============

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Notes payable...................................................       $  1,255,000             $  4,796,000
    Accounts payable................................................          7,724,000                9,767,000
    Accrued compensation............................................          2,455,000                1,940,000
    Other accrued liabilities.......................................          1,345,000                1,324,000
    Deferred revenue................................................          2,928,000                1,784,000
                                                                           ------------             ------------
        Total current liabilities...................................         15,707,000               19,611,000

Deferred revenue..................................................                    -                  156,000
Other liabilities.................................................               90,000                   90,000
                                                                           ------------             ------------
        Total liabilities...........................................         15,797,000               19,857,000
                                                                           ------------             ------------


Shareholders' equity:
    Common stock, $0.01 par value; 50,000,000 shares authorized;
        31,818,251 and 28,625,958 shares issued and outstanding             113,133,000               94,625,000
    Accumulated deficit.............................................        (53,505,000)             (42,855,000)
    Accumulated other comprehensive loss                                       (181,000)                (181,000)
                                                                           ------------             ------------
           Total shareholders' equity...............................         59,447,000               51,589,000
                                                                           ------------             ------------

                   Total liabilities and shareholders' equity.......       $ 75,244,000             $ 71,446,000
                                                                           ============             ============
</TABLE>


   The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>

                             IDENTIX INCORPORATED
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                        Three months ended                   Nine months ended
                                                            March 31,                            March 31,
                                                  --------------------------------      ------------------------------------
                                                       2000               1999              2000               1999
                                                       ----               ----              ----               ----
<S>                                               <C>                 <C>              <C>                 <C>
Revenues:
   Product revenues                                $ 7,569,000        $ 6,541,000      $ 22,066,000        $25,188,000
   Services revenues                                10,011,000         12,883,000        30,507,000         34,559,000
                                                   -----------        -----------      ------------        -----------
       Total revenues                               17,580,000         19,424,000        52,573,000         59,747,000
                                                   -----------        -----------      ------------        -----------

Cost and expenses:
   Cost of product revenues                          3,912,000          3,439,000        10,995,000         12,641,000
   Cost of services revenues                         8,983,000         11,037,000        26,717,000         29,924,000
   Research, development and engineering             2,249,000          1,339,000         6,213,000          4,143,000
   Marketing and selling                             3,390,000          2,375,000        10,087,000          7,521,000
   General and administrative                        2,363,000          2,102,000         6,899,000          5,481,000
   Amortization of acquired intangible assets          825,000             28,000         2,573,000            115,000
                                                   -----------        -----------      ------------        -----------

       Total costs and expenses                     21,722,000         20,320,000        63,484,000         59,825,000
                                                   -----------        -----------      ------------        -----------

Loss from operations                                (4,142,000)          (896,000)      (10,911,000)           (78,000)

Interest and other income, net                          88,000            169,000           460,000            229,000
Interest expense                                       (31,000)           (97,000)         (108,000)          (332,000)
                                                   -----------        -----------      ------------        -----------

Loss before taxes and equity
 interest in joint venture                          (4,085,000)          (824,000)      (10,559,000)          (181,000)

(Provision) benefit for income taxes                         -             69,000                 -            (21,000)
Equity interest in joint venture                       (36,000)           (84,000)          (91,000)          (243,000)
                                                   -----------        -----------      ------------        -----------

Net loss                                           $(4,121,000)       $  (839,000)     $(10,650,000)       $  (445,000)
                                                   ===========        ===========      ============        ===========

Net loss per share:
       Basic                                       $     (0.13)       $     (0.03)     $      (0.34)       $     (0.02)
                                                   ===========        ===========      ============        ===========
       Diluted                                     $     (0.13)       $     (0.03)     $      (0.34)       $     (0.02)
                                                   ===========        ===========      ============        ===========

Shares used in computing net loss
 per share:
       Basic                                        31,398,000         25,437,000        30,977,000         25,359,000
       Diluted                                      31,398,000         25,437,000        30,977,000         25,359,000
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>

                             IDENTIX INCORPORATED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Nine months ended
                                                                                     March 31,
                                                                        ---------------------------------------
                                                                                2000                    1999
                                                                                ----                    ----
<S>                                                                     <C>                        <C>
Cash flows from operating activities:
    Net loss                                                               $(10,650,000)           $   (445,000)
    Adjustments to reconcile net income (loss) to net
        cash provided by (used for) operating activities:
        Depreciation                                                            760,000                 959,000
        Amortization of intangibles                                           3,027,000                 551,000
        Amortization of deferred revenue                                     (3,518,000)             (2,399,000)
        Equity interest in joint venture                                         91,000                 243,000
        Increase in inventory reserve                                           665,000                  78,000
        Write-off of capitalized software                                       154,000                       -
        Changes in assets and liabilities:
        Accounts receivable                                                    (701,000)               (740,000)
        Inventories                                                            (987,000)               (329,000)
        Prepaid expenses and other assets                                      (417,000)               (531,000)
        Accounts payable                                                     (2,043,000)                713,000
        Accrued compensation                                                    515,000                  10,000
        Other accrued liabilities                                               (70,000)                107,000
        Deferred revenue                                                      4,506,000               2,625,000
                                                                           ------------            ------------
    Net cash provided by (used for) operating activities                     (8,668,000)                842,000
                                                                           ------------            ------------

Cash flows used for investing activities:
    Capital expenditures                                                     (1,355,000)               (839,000)
    Investment in joint venture                                                       -                (182,000)
    Additions to intangibles and other assets                                  (230,000)               (450,000)
                                                                           ------------            ------------
    Net cash used for investing activities                                   (1,585,000)             (1,471,000)
                                                                           ------------            ------------

Cash flows provided by financing activities:
    Borrowings under bank lines of credit                                     1,849,000              18,316,000
    Payments under bank lines of credit                                      (5,190,000)            (18,741,000)
    Principal payments on short-term notes                                     (200,000)                      -
    Proceeds from sale of common stock and warrants                          18,508,000               1,130,000
                                                                           ------------            ------------
    Net cash provided by financing activities                                14,967,000                 705,000
                                                                           ------------            ------------

Net increase in cash and cash equivalents                                     4,714,000                  76,000

Cash and cash equivalents at beginning of period                              3,013,000                 753,000
                                                                           ------------            ------------

Cash and cash equivalents at end of period                                 $  7,727,000            $    829,000
                                                                           ============            ============


Supplemental disclosures of cashflow information:
      Cash paid during the period for interest                             $    108,000            $    332,000
      Cash paid during the period for income taxes                                    -            $     21,000
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       5
<PAGE>

                             IDENTIX INCORPORATED

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)

1. Basis of Presentation

   These accompanying consolidated financial statements and related notes are
   unaudited. However, in the opinion of management, all adjustments (consisting
   only of normal recurring adjustments) which are necessary for a fair
   presentation of the financial position and results of operations for the
   interim periods presented have been included. These consolidated financial
   statements should be read in conjunction with the audited consolidated
   financial statements and notes thereto for the fiscal year ended June 30,
   1999 included in the Company's Form 10-K. The results of operations for the
   three and nine months ended March 31, 2000 are not necessarily indicative of
   results to be expected for the entire fiscal year, which ends on June 30,
   2000.

   The consolidated financial statements include the accounts of Identix
   Incorporated ("Identix" or the "Company") and its wholly owned subsidiaries:
   ANADAC, Inc. ("ANADAC"), Identix Australia Pty Limited ("Identix Australia"),
   Biometric Applications and Technologies, Inc. ("BA&T") and Identicator
   Technology, Inc., ("Identicator Technology"). The Company also owns a 50%
   interest in Sylvan/Identix Fingerprinting Centers, L.L.C. ("SIFC")


2. Inventories

   Inventories are stated at the lower of cost (determined on the first-in,
   first-out method) or market and consisted of the following:

<TABLE>
<CAPTION>
                                                     March 31,           June 30,
                                                       2000                1999
                                                  ------------         -----------
          <S>                                     <C>                  <C>
          Purchased parts and materials             $2,730,000          $1,713,000
          Work-in-process                            1,047,000             706,000
          Finished goods, including spares           1,820,000           2,856,000
                                                    ----------          ----------
                                                    $5,597,000          $5,275,000
                                                    ==========          ==========
</TABLE>

   The Company provides for obsolete, slow moving or excess inventories in the
   period when obsolescence or inventory in excess of expected demand is first
   identified. During the nine months ended March 31, 2000, the Company
   physically disposed of $1,118,000 of inventory, of which $1,018,000 had been
   provided for at June 30, 1999. During the nine months ended March 31, 2000,
   the Company provided $524,000 to write-down to market certain Biometric
   Security products and $141,000 for certain other products.


3. Net Loss Per Share

   Basic net loss per share is computed using the weighted average number of
   common shares outstanding during the period. Diluted net loss per share is
   computed using the weighted average number of common shares outstanding
   during the period after considering the effect of dilutive common stock
   options and warrants under the treasury stock method.

   The following is a reconciliation of the shares used in the calculation of
   basic and diluted net loss per share amounts for the periods presented:

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                               Three months ended                   Nine months ended
                                                                    March 31,                           March 31,
                                                                    ---------                           ---------
                                                              2000               1999              2000              1999
                                                           -----------        -----------      ------------       -----------
 <S>                                                    <C>               <C>                <C>               <C>
Net loss                                                   $(4,121,000)       $  (839,000)     $(10,650,000)      $ (445,000)
                                                           ===========        ===========      ============       ===========

Shares used in computing net loss per share:
     Basic                                                  31,398,000         25,437,000        30,977,000        25,359,000
     Dilutive effect of stock options and warrants                   -                  -                 -                 -
                                                           -----------        -----------      ------------       -----------
     Diluted                                                31,398,000         25,437,000        30,977,000        25,359,000
                                                           ===========        ===========      ============       ===========

Net loss per share:
     Basic                                                 $     (0.13)       $     (0.03)     $      (0.34)      $     (0.02)
                                                           ===========        ===========      ============       ===========
     Diluted                                               $     (0.13)       $     (0.03)     $      (0.34)      $     (0.02)
                                                           ===========        ===========      ============       ===========
</TABLE>

     Options and warrants outstanding during the three and nine months ended
     March 31, 2000 and the three and nine months ended March 31, 1999, were not
     included in the computation of diluted net loss per share as their effect
     was anti-dilutive.

4.   Comprehensive Income

     Other comprehensive income (loss) includes charges or credits to equity
     that are not the result of transactions with owners. Accumulated other
     comprehensive income (loss) consisted of a foreign currency translation
     adjustment. As the Company substantially liquidated its foreign operation
     in February 1998, there has been no other comprehensive income (loss) from
     that date.

5.   Operating Segments Data

     Revenues are attributed to the operating segment of the sales or service
     organizations, and costs directly and indirectly incurred in generating
     revenues are similarly assigned. The factors used to identify the operating
     segments are: the nature of the product and service; the type of customer
     for the product or service; the distribution method and the way in which
     management has organized the Company for making operating decisions and
     assessing performance. Management has organized the Company on product and
     service lines rather than geographical or regulatory lines.

<TABLE>
<CAPTION>
                                           For the three months ended              For the nine months ended
                                                       March 31,                            March 31,
                                                      ----------                           ----------
                                                 2000              1999                2000              1999
                                              -----------       -----------        ------------       -----------
<S>                                       <C>               <C>               <C>                 <C>
Total revenues:
   Biometric Imaging                          $ 4,802,000       $ 5,276,000        $ 15,377,000       $20,100,000
   Biometric Security                           2,767,000         1,265,000           6,689,000         5,088,000
   Government Services                         10,011,000        12,883,000          30,507,000        34,559,000
                                              -----------       -----------        ------------       -----------
                                              $17,580,000       $19,424,000        $ 52,573,000       $59,747,000
                                              ===========       ===========        ============       ===========
Net income (loss):
   Biometric Imaging                          $(1,044,000)      $  (436,000)       $ (1,965,000)      $   104,000
   Biometric Security                          (3,103,000)       (1,078,000)         (9,353,000)       (2,203,000)
   Government Services                             26,000           675,000             668,000         1,654,000
                                              -----------       -----------        ------------       -----------
                                              $(4,121,000)      $  (839,000)       $(10,650,000)      $  (445,000)
                                              ===========      ===========        ============       ===========
</TABLE>



                                       7
<PAGE>

<TABLE>
<CAPTION>

                                                                As of                                  As of
Identifiable assets:                                        March 31, 2000                         June 30, 1999
                                                            ---------------                       ---------------
<S>                                                         <C>                                   <C>
   Biometric Imaging                                            $18,654,000                           $14,591,000
   Biometric Security                                            38,234,000                            37,556,000
   Government Services                                           18,356,000                            19,299,000
                                                                -----------                           -----------
                                                                $75,244,000                           $71,446,000
                                                                ===========                           ===========
</TABLE>

6.   Bank Covenant Waiver

     At March 31, 1999, the Company was in default on one of its bank line of
     credit covenants. The Company has obtained a waiver of default from the
     bank for the breach of the covenant.

7.   Recent Accounting Pronouncements

     In December 1999, the Securities and Exchange Commission issued Staff
     Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements",
     ("SAB 101"). The Company is evaluating the effect of adopting SAB 101 and
     will comply with its requirements in the first quarter of fiscal 2001.

     In March 2000, the Financial Accounting Standards Board issued FIN 44
     "Accounting for Certain Transactions Involving Stock Compensation--an
     interpretation of APB 25" which is effective July 1, 2000. The Company does
     not expect FIN 44 to have a material effect on its financial statements.

8.   Subsequent Event

     In April 2000, certain investors from a private placement of common stock
     exercised warrants to purchase 905,798 of the Company's common stock at
     $11.33 per share. The Company received net proceeds of $10,263,000.


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The statements in this report on Form 10-Q that relate to future plans,
events, or performance are forward-looking statements. Actual results, events
and performance may differ materially due to a variety of factors including the
factors described under "Risk Factors" below. The Company undertakes no
obligation to publicly update these forward-looking statements to reflect events
or circumstances that occur after the date hereof or to reflect the occurrence
of unanticipated events.

OVERVIEW

     Identix designs, develops, manufactures and markets two categories of
products for security, anti-fraud, law enforcement and other applications: (i)
Biometric Security products that verify the identity of an individual through
the unique biological characteristics of a fingerprint and (ii) Biometric
Imaging products that electronically capture forensic quality fingerprint images
directly from an individual's fingers for law enforcement and other
applications. The Company provides information technology, engineering and
management consulting services to private and public sector clients through its
wholly owned subsidiary ANADAC. ANADAC's services support the development,
installation, integration and operation of hardware and software technology
solutions, including Identix products, for a variety of client operating
environments.

     On April 26, 1999, the Company acquired Identicator Technology, a privately
held developer of biometric fingerprint identification technology for
information technology applications. The acquisition was accounted for as a
purchase. Identicator Technology is now part of the Company's Biometric Security
Division and its operations have been relocated from San Bruno, California to
Sunnyvale, California.

     On July 31, 1999, the Company closed the Kansas City office of BA&T and
terminated most of the staff. Product development work in-process at BA&T was
transferred to other operations within the Company.

                                       8
<PAGE>

RESULTS OF OPERATIONS

Revenues
--------

     Revenues for the three and nine months March 31, 2000, were $17,580,000
and $52,573,000 compared to $19,424,000 and $59,747,000 for the same periods
in the prior fiscal year. The decrease in revenues of 9% for the three months
was primarily due to a decrease in services revenues. The decrease in revenues
of 12% for the nine months was due to decreases in both product and services
revenues.

     Product revenues were $7,569,000 and $22,066,000 for the three and nine
months ended March 31, 2000, compared to $6,541,000 and $25,188,000 for the same
periods in the prior fiscal year. For the three months ended March 31, 2000, the
increase in product revenues of 16% compared to the same period in the prior
fiscal year was primarily due to Biometric Security IT product revenues of
$1,487,000 derived through sales of the DFR-200 fingerprint scanner and
peripheral devices and licenses of BioLogon 2.0 Client and Server software. For
the nine months ended March 31, 2000, the decrease in product revenue of 12%
compared to the same period in the prior fiscal year, was primarily due to a
decrease in Biometric Imaging sales caused by certain governmental orders and
certain OEM orders for live-scan systems being delayed due to governmental
spending-approval authorization cycles. In addition, certain state and local
government agencies are delaying purchases of Biometric Imaging products while
such agencies are expanding or enhancing the capabilities of their communication
networks and, in some cases, their Automated Fingerprint Identification Systems
("AFIS"). The Company's IT product revenues are derived through Identicator
Technology, which was acquired in April 1999, and therefore, there were no
revenues for these products for the same periods in the prior fiscal year.

     International sales were $769,000 or 10% and $2,542,000 or 12% of the
Company's product revenues for the three and nine months ended March 31, 2000
respectively, compared to $802,000 or 12% and $2,771,000 or 11% for the same
periods in the prior fiscal year. The decrease in international sales for the
three months was primarily due to new product transition issues relating to
Biometric Security-Physical Access products, which have traditionally composed
the majority of the Company's international revenue. The Company expects
international sales to continue to represent a significant portion of product
revenues, although the percentage may fluctuate from period to period. Identix's
international sales are predominately denominated in U.S. dollars, and the
Company actively monitors its foreign currency exchange exposure and, if
significant, will take action to reduce foreign exchange risk. To date, the
Company has not entered into any hedging transactions.

     The Company did not have any one product business customer that accounted
for more then 10% of total revenues for the three and nine month periods ended
March 31, 2000 and the three and nine months ended March 31, 1999.

     Services revenues were $10,011,000 and $30,507,000 for the three and nine
months ended March 31, 2000, compared to $12,883,000 and $34,559,000 for the
same periods in the prior fiscal year. The decrease in services revenues of 22%
and 12% respectively, for the three and nine months ended March 31, 2000, was
primarily due to decreased sales of third party products through the Company's
General Services Administration ("GSA") contract. The GSA contract allows U.S.
Government agencies to purchase the Company's products and services as well as
third party products and services at agreed upon prices and rates. The Company
and the GSA negotiate the prices and terms periodically or as new products or
services are added. The majority of the Company's services revenues are
generated directly from contracts with the U.S. government, principally the
Department of Defense ("DOD"). For the three and nine months ended March 31,
2000, revenues directly from the DOD and from other U.S. government agencies
accounted for 85% and 90% respectively, of the Company's total services revenues
compared to 87% and 90% respectively, for the same periods in the prior fiscal
year.

                                       9
<PAGE>

     The Company's services business generates a significant amount of its
revenues from time-and-materials ("T&M") contracts and from firm fixed-
price ("FFP") contracts. During the three and nine months ended March 31, 2000,
the Company derived 81% and 82% respectively, of its services revenues from FFP
and T&M contracts compared to 85% and 83% respectively, for the same periods in
the prior fiscal year. FFP contracts provide for a fixed price for stipulated
services or products, regardless of the costs incurred, which may result in
losses from cost overruns. T&M contracts typically provide for payment of
negotiated hourly rates for labor incurred plus reimbursement of other allowable
direct and indirect costs. The Company assumes greater performance risk on FFP
and T&M contracts and the failure to accurately estimate ultimate costs or to
control costs during performance of the work can result in reduced profit
margins or losses. There can be no assurance that the Company's services
business will not incur cost overruns for any FFP and T&M contracts it is
awarded.

     The Company's services business also generates revenues from cost plus
fixed fee ("CPFF") contracts, which accounted for approximately 19% and 18%
respectively of its services revenues for the three and nine month periods ended
March 31, 2000, compared to 15% and 17% respectively, for the same periods in
the prior fiscal year. CPFF contracts provide for the reimbursement of allowable
costs, including indirect costs plus a fee or profit. Revenues generated from
contracts with government agencies are subject to audit and subsequent
adjustment by negotiation between ANADAC and representatives of such government
agencies. ANADAC is currently undergoing such an audit by the Defense Contract
Audit Agency for the period from July 1, 1995 to June 30, 1997.

Gross Margin
------------

     Gross margin on product revenues was 48% and 50% respectively, for the
three and nine months ended March 31, 2000, as compared to 47% and 50%
respectively, for the same periods in the prior fiscal year. During the nine
months ended March 31, 2000, charges were made against cost of product revenues
of $524,000 for write-downs in inventory due to market price pressures. The
Company expects gross margins to fluctuate in future periods due to changes in
the product mix, the costs of components and the competition in the industry.

     Gross margin on services revenues was 10% and 12% respectively, for the
three and nine months ended March 31, 2000, as compared to 14% and 13%
respectively, for the same periods in the prior fiscal year. The decrease in
gross margin for the three months was primarily due to more revenue being
generated from contracts that include value-added services from resellers, which
typically provide a lower gross margin.

Research, Development and Engineering
-------------------------------------

     Research, development and engineering expenses were $2,249,000 or 30% and
$6,213,000 or 28% of product revenues for the three and nine months ended March
31, 2000, compared to $1,339,000 or 21% and $4,143,000 or 16% of product
revenues for the same periods in the prior fiscal year.  The increase in
research, development and engineering expenses for the three and nine month
periods was primarily due to increased costs associated with developing new IT
security solutions for the Biometric Security Division.  Management believes
that investment in research and development is critical to maintaining a strong
technological position in the industry and therefore expects research,
development and engineering expenses to continue to be a substantial expense in
future quarters.


Marketing and Selling
---------------------

     Marketing and selling expenses were $3,390,000 or 19% and $10,087,000 or
19% of total revenues for the three and nine month periods ended March 31, 2000,
compared to $2,375,000 or 12% and $7,521,000 or 13% of total revenues for the
same periods in the prior fiscal year. The increase in marketing and selling
expenses was primarily due to the inclusion of marketing and selling expenses of
Identicator Technology and the increased staffing and expenses to promote the
Company's new products, specifically, Biometric Security IT products.

General and Administrative
--------------------------

                                       10
<PAGE>

     General and administrative expenses were $2,363,000 or 13% and $6,899,000
or 13% of total revenues for the three and nine month periods ended March 31,
2000, compared to $2,102,000 or 11% and $5,481,000 or 9% of total revenues for
the same periods in the prior fiscal year. The increase for the three and nine
months in general and administrative expenses was primarily due to the inclusion
of Identicator Technology's general and administrative costs.

Amortization of Acquired Intangible Assets
------------------------------------------

Amortization of acquired intangible assets was $825,000 and $2,573,000 or 5% of
total revenues for the three and nine month periods ended March 31, 2000,
compared to $28,000 or 0% and $115,000 or 0% of total revenues for the same
periods in the prior fiscal year. The increase for the three and nine month
periods was primarily due to the inclusion of amortization of goodwill, core
technology and assembled workforce recorded in connection with the acquisition
of Identicator Technology.

Interest and Other Income, net
------------------------------

For the three and nine months ended March 31, 2000, interest and other income
was $88,000 and $460,000 compared to $169,000 and $229,000 for the same periods
in the prior fiscal year. The decrease for the three months ended March 31,
2000, was primarily due to lower amounts of miscellaneous non-recurring income
being recorded this period as compared to the same period in the prior fiscal
year. The increase for the nine months ended March 31, 2000, was primarily due
to an increase in interest income generated from investing the net proceeds from
the private placement of common stock in July 1999 (see Liquidity and Capital
Resources).

Interest Expense
----------------

     Interest expense was $31,000 and $108,000 for the three and nine months
ended March 31, 2000, compared to $97,000 and $332,000 for the same periods in
the prior fiscal year. The decrease was due to lower borrowings under the
Company's lines of credit during both periods compared to the same periods in
the prior fiscal year.

     The Identix Line of Credit was repaid in full on July 2, 1999. The weighted
average interest rate paid by ANADAC on borrowings under its line of credit (the
"ANADAC Line of Credit") during the three and nine months ended March 31, 2000
was 8.7% and 8.4%, respectively.

Income Taxes
------------

     The Company did not record any income tax provision for the three and nine
months ended March 31, 2000.  This compares to a benefit of $69,000 for the
three months ended March 31, 1999 which consisted of a refund of certain State
franchise taxes, and a provision of $21,000 for the nine months ended March 31,
1999.


Equity Interest in Joint Venture
--------------------------------

     Equity interest in joint venture represents the Company's 50% share of the
results of SIFC. For the three and nine months ended March 31, 2000, the equity
interest in the joint venture provided losses of $36,000 and $91,000 compared to
losses of $84,000 and $243,000 for the same periods in the prior fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

     In July 1999, the Company received net cash of $14,014,000 through a
private placement of its common stock. On July 2, 1999, the Identix Line of
Credit was repaid in full and certain other debts have been repaid since that
date.

     The Company financed its operations during the nine months ended March 31,
2000, primarily from working capital, borrowings under the ANADAC Line of Credit
and the proceeds of

                                      11
<PAGE>

the private placement of common stock. As of March 31, 2000, the Company's
principal sources of liquidity consisted of $25,771,000 of working capital
including $7,727,000 in cash and cash equivalents, the proceeds from exercises
of options and warrants of the Company's common stock and amounts available for
future borrowings under the Identix Line of Credit and the ANADAC Line of
Credit.

     The Identix Line of Credit is a $7,500,000 bank line of credit secured by
the personal property of Identix. Under the Identix Line of Credit, the Company
may borrow up to 80% of eligible accounts receivable. Amounts drawn bear
interest at the bank's prime rate of interest plus one half of one percent (9.5%
at March 31, 2000). The line of credit has been renewed to April 20, 2001. At
March 31, 2000, there was no amount outstanding and $5,410,000 was available
under the Identix Line of Credit. The Identix Line of Credit agreement contains
financial and operating covenants, including restrictions on the Company's
ability to pay dividends on its common stock. At March 31, 2000, the Company
defaulted on one of its financial covenants. The Company has obtained a waiver
of default from the bank for the breach of the covenant.

     The ANADAC Line of Credit is a $6,000,000 bank line of credit secured by
ANADAC's accounts receivable and certain other assets.  Amounts drawn bear
interest at the bank's prime rate of interest (9.0% at March 31, 2000).  The
line of credit was recently renewed to March 31, 2001.  At March 31, 2000,
$1,255,000 was outstanding and $4,736,000 was available under the ANADAC Line of
Credit.  The ANADAC Line of Credit agreement contains certain financial and
operating covenants.

     The Company used cash for operating activities of $8,668,000 during the
nine months ended March 31, 2000. The primary use of cash was due to (i) the net
loss of $10,650,000 which includes amortization of intangibles of $3,027,000,
depreciation of $760,000 and an increase in the inventory reserve of $665,000,
(ii) a decrease in accounts payable of $2,043,000 and (iii) an increase in
inventory of $987,000, which was partially offset by an increase in deferred
revenue of $988,000 and a decrease in accrued compensation of $515,000.

     The Company used cash of $1,585,000 for investing activities during the
nine months ended March 31, 2000 primarily for the purchase of plant and
equipment of $1,355,000.

     The Company generated cash of $14,967,000 from financing activities during
the nine months ended March 31, 2000. Financing activities consisted of proceeds
from the sales of common stock and warrants of $18,508,000, net of issuance
costs, partially offset by net repayments of $3,341,000 against the Company's
lines of credit.

     The Company did not have any material capital expenditure commitments as of
March 31, 2000.

     The Company believes that the cash flow from operations, together with
existing working capital, the proceeds from the exercise of options and warrants
and the two bank lines of credit will be adequate to fund the Company's cash
requirements for at least the next twelve months. However, the Company may
require additional equity or debt financing as well as the proceeds of
$10,263,000 from the exercise of warrants [see Note 8 - Subsequent Events].
There can be no assurances that the Company will be able to obtain such
additional financing or that the terms of such financing will be favorable to
the Company.

IMPACT OF YEAR 2000

     Identix has instituted a program to address Year 2000 issues.  Year 2000
problems are caused by computer systems that only use a two-digit year value
and, accordingly, will be subject to error or failure when the year 2000
arrives.

                                       12
<PAGE>

     Identix's Year 2000 program consisted of the following:  (1) evaluation of
Identix products; (2) development of solutions to Year 2000 issues for Identix
products; (3) customer notification and support regarding Identix products; (4)
evaluation and remediation of Identix's information technology infrastructure;
(5) assessment of Year 2000 compliance of third party providers of critical
components and services; and (6) development of contingency plans to address
Year 2000 issues.  Identix's Year 2000 program is overseen by its Year 2000
Committee.

     Identix has completed all phases of the Year 2000 program. In phases 1, 2
and 4, Identix performed an evaluation of its products and information
technology infrastructure to determine their Year 2000 readiness. To the extent
that a Year 2000 issue was identified, Identix has solutions to remediate the
Year 2000 issues. Identix did not take remedial action for those products that
reached the end of their support life before the end of 1999. Phase 3 consisted
of notifying customers of Year 2000 issues with Identix products and providing
support to the customer's remediation efforts.

     Identix is at risk of disruption to its business if Year 2000 problems are
experienced by its key suppliers.  The purpose of phase 5 is to determine the
Year 2000 readiness of suppliers of critical components and services.  Identix
has sent inquiries to its suppliers to determine their readiness with respect to
Year 2000 problems.  As of December 31, 1999, substantially all of Identix's
critical suppliers made written assurances to Identix that they will be able to
continue to supply Identix into the year 2000.  A failure of a key supplier to
provide Identix with necessary components or services could result in a
significant delay by Identix in providing products or services to its customers
and have a severe negative impact on Identix's stock price or financial
performance.

     Identix continues to develop contingency plans to address Year 2000
concerns as part of its Year 2000 program. As of March 31, 2000, Identix was in
the process of formulating and planning for the event the Company may experience
unforeseen Year 2000 problems. Identix believes that its costs, not borne by
customers, for its Year 2000 program will be less than $250,000, excluding costs
associated with existing internal personnel. The costs of the program to date
have been less than $75,000.

     Leading up to, and following the transition into calendar Year 2000, the
Company experienced no significant internal Year 2000 problems with its'
information technology systems. Externally, certain of the Company's Biometric
Imaging customers required temporary remediation to ensure proper function of
the Company's products. These temporary actions will require a permanent
solution which the Company is in the process of defining. The costs of both
short-term and long-term remediation efforts have been approximately $50,000 and
are not expected to exceed $100,000 excluding costs associated with existing
internal personnel. Identix has used existing personnel for the Year 2000
program and has no current plans to add staff specifically for this purpose.
Identix has not separately tracked the internal costs associated with the Year
2000 program.

     Not withstanding the foregoing, the Year 2000 problem is pervasive and
complex and there are risks that Identix has not identified all of the Year 2000
issues that may affect it and that any remedial efforts it takes will not
adequately address any potential Year 2000 problems. Though the Company has
experienced no significant Year 2000 problems to date, there can be no assurance
that significant Year 2000 problems will not develop going forward. Identix's
products are used in systems that perform a number of critical functions. For
example, the biometric security products are used to verify individual identity
in a number of high-risk situations such as prisons and airports. The biometric
security products are also used to protect computer data and to verify
commercial transactions, such as the authorization of money transfers by bank
personnel. Although Identix believes that it should not have liability for a
system failure relating to the Year 2000, such a failure in these or other
critical applications could potentially require Identix to expend substantial
resources to assist in remedying the failure or result in litigation to
ascertain liability or recover costs. Identix believes that this represents the
most reasonably likely worst-case scenario with respect to the Year 2000.

     Identix has made forward-looking statements regarding its Year 2000
program. These statements include the expected costs to and liabilities of
Identix associated with the Year 2000 and Identix's Year 2000 readiness. There

                                       13
<PAGE>

are many factors that could cause actual events or results to differ materially
from those stated in the forward-looking statements. These factors include the
complexity associated with identifying Year 2000 problems, the inability of
Identix, its customers and suppliers to ascertain Year 2000 readiness and
compliance issues and to become year 2000 compliant, and the reaction of
customers to Year 2000 issues. All of these factors make it impossible for
Identix to ensure that it has identified all Year 2000 issues that may affect it
or all costs or liabilities that it may be exposed to as a result of Year 2000
issues.

     The information contained in this Form 10-Q related to the Year 2000
constitutes Year 2000 Readiness Disclosure for purposes of the Year 2000
Information and Readiness Disclosure Act.  That act does not limit liability
under the securities laws.


RISK FACTORS


     The Company's operations, financial performance, business and share price
may be affected by a number of factors, including the following, any of which
could cause actual results to vary materially from anticipated results or from
those expressed in any forward-looking statements made by the Company in this
quarterly report Form 10-Q or in other reports, press releases or other
statements issued from time to time.

     All of our product revenues are derived from the sale of biometric products
     ---------------------------------------------------------------------------
and our business will not grow unless the market for biometric products expands
-------------------------------------------------------------------------------
both domestically and internationally.
--------------------------------------

     Biometric products have not gained widespread commercial acceptance. We
cannot accurately predict the future growth rate, if any, or the ultimate size
of the biometric technology market. The expansion of the market for our products
depends on a number of factors including:

     .   the cost, performance and reliability of our products and products of
         competitors
     .   customers' perception of the perceived benefit of these products
     .   public perceptions of the intrusiveness of these products and the
         manner in which firms are using the fingerprint information collected.
     .   public perceptions regarding the confidentiality of private
         information
     .   customers' satisfaction with our products
     .   marketing efforts and publicity regarding these products.

     Certain groups have publicly objected to the use of biometric products for
some applications on civil liberties grounds and legislation has been proposed
to regulate the use of biometric security products.  Even if biometric markets
develop, our products may not gain wide market acceptance.

     We face intense competition from other biometric identification providers
     -------------------------------------------------------------------------
as well as traditional identification and security systems providers.
---------------------------------------------------------------------

     A significant number of established and startup companies are developing
and marketing software and hardware for fingerprint biometric security
applications that do or will compete directly with our biometric security
products. Some of these companies are developing semiconductor or optically
based direct contact fingerprint image capture devices. Other companies are
developing and marketing other methods of biometric identification such as
retinal blood vessel or iris pattern, hand geometry, voice and facial structure.
If one or more of these approaches were widely adopted, it would significantly
reduce the potential market for our products.

     Our biometric security products also compete with non-biometric
technologies such as traditional key, card, surveillance systems and passwords.

                                       14
<PAGE>

       Our biometric imaging products face intense competition from a number of
     competitors who are actively engaged in developing and marketing livescan
products, including Digital Biometrics, Inc., Heimann Biometric Systems GmbH and
Printrak International Inc.

     We expect competition to increase further if and when biometric products
gain widespread commercial acceptance and as other companies introduce products
that are competitively priced, that may have increased performance or
functionality or that incorporate technological advances not yet developed or
implemented by us. Some present and potential competitors have financial,
marketing, research resources substantially greater than ours. In order to
compete effectively in this environment, we must continually develop and market
new and enhanced products at competitive prices and must have the resources
available to invest in significant research and development activities.

     In our services business, we face substantial competition from professional
     ---------------------------------------------------------------------------
services providers of all sizes in the government marketplace.
--------------------------------------------------------------

     ANADAC is increasingly being required to bid on firm fixed price and
similar contracts that result in greater performance risk to ANADAC. If ANADAC
is not able to maintain a competitive cost structure, support specialized market
niches, retain highly qualified personnel or align with technology leaders, we
may lose our ability to compete successfully in the services business.

     The biometrics industry is characterized by rapid technological change and
     --------------------------------------------------------------------------
evolving industry standards, which could render existing products obsolete.
---------------------------------------------------------------------------

     Our future success will depend upon our ability to develop and introduce a
variety of new products and product enhancements to address the changing,
sophisticated needs of the marketplace. Material delays in introducing new
products and enhancements or the failure to offer innovative products at
competitive prices may cause customers to forego purchases of our products and
purchase those of our competitors.

     Our revenues and operating results often vary significantly from quarter to
     ---------------------------------------------------------------------------
quarter and may be negatively affected by a number of factors, including the
----------------------------------------------------------------------------
timing of large orders.
-----------------------

     Usually, most of our revenues in a quarter come from a small number of
large orders. Accordingly, revenues in a particular quarter depend on the timing
and size of major orders. The following are some other reasons why our financial
results may fluctuate from quarter to quarter:

     .    reduced demand for products caused by a competitor's price reductions
   or introduction of new competitors or new or enhanced products

     .    changes in the mix of products and services we or our distributors
          sell
     .    cancellation, delays or contract amendments by government agency
          customers
     .    the lack of avilability of government funds
     .    litigation costs
     .    expenses related to acquisitions
     .    other one-time financial charges
     .    the lack of availability or increase in cost of key components
     .    economic downturns domestically or internationally.

     We also may reduce prices or increase spending in response to competition
     -------------------------------------------------------------------------
or to pursue new market opportunities.
--------------------------------------

     Our Biometric Imaging products often have a lengthy sales cycle while the
customer evaluates and receives approvals for purchase. If after expending
significant funds and effort we fail to receive an order, a severe negative
impact on our financial results and stock price could result.

                                       15
<PAGE>

     It is difficult to predict accurately the sales cycle of any large order
for any of our products. If we do not ship one or more large orders as
forecasted for a fiscal quarter, our total revenues and operating results for
that quarter could be materially and adversely affected.

     Further, the lead-time for ordering parts and materials and building our
products can be many months. As a result, we must order parts and materials and
build our products based on forecasted demand. If demand for our products lags
significantly behind our forecasts, we may produce more products than we can
sell, which can result in cash flow problems and write-offs or write-downs of
obsolete inventory.

     We derive a majority of our services revenue from government contracts,
     -----------------------------------------------------------------------
which are often non-standard, involve competitive bidding and may be subject to
--------------------------------------------------------------------------------
cancellation without penalty.
-----------------------------

     Government contracts frequently include provisions that are not standard in
private commercial transactions. For example, government contracts may include
bonding requirements and provisions permitting the purchasing agency to cancel
the contract without penalty in certain circumstances. As public agencies, our
prospective customers are also subject to public agency contract requirements
that vary from jurisdiction to jurisdiction. Some of these requirements may be
onerous or impossible to satisfy.

     In addition, public agency contracts are frequently awarded only after
formal competitive bidding processes, which have been and may continue to be
protracted, and typically impose provisions that permit cancellation in the
event that funds are unavailable to the public agency. There is a risk that we
may not be awarded any of the contracts for which our products are bid or, if
awarded, that substantial delays or cancellations of purchases may follow as a
result of protests initiated by losing bidders. In addition, local government
agency contracts may be contingent upon availability of matching funds from
state or federal entities.

     For the three and nine months ended March 31, 2000, we derived
approximately 85% and 90% respectively of our services revenue directly from
contracts relating to the Department of Defense and other U.S. Government
agencies. The loss of a material government contract due to budget cuts or
otherwise could have a severe negative impact on our financial results and stock
price.

     For the three and nine months ended March 31, 2000, we derived
approximately 81% of our services revenue from time and materials contracts and
firm-fixed-price contracts. We assume certain performance risk on these
contracts. If we fail to estimate accurately ultimate costs or to control costs
during performance of the work, our profit margins may be reduced and we may
suffer losses. In addition, revenues generated from government contracts are
subject to audit and subsequent adjustment by negotiation with representatives
of the government agencies. ANADAC is currently undergoing such an audit by the
Defense Contract Audit Agency for the period from July 1, 1995 to June 30, 1997.
While the Company believes that the results of such audit will have no material
effect on the Company's profits, there can be no assurance that no adjustments
will be made and that, if made, such adjustments will not have a material effect
on the Company's business, financial condition and results of operation.

     We rely on marketing and distribution partners to distribute our products
     -------------------------------------------------------------------------
and may be adversely affected if those parties do not actively promote our
--------------------------------------------------------------------------
products or pursue installations that use our equipment.
--------------------------------------------------------

     A significant portion of our product revenues comes from sales to marketing
partners including OEMs, systems integrators, distributors and resellers. Some
of these relationships are formalized in agreements; however, the agreements are
often terminable with little or no notice and subject to periodic amendment. We
cannot control the amount and timing of resources that our marketing partners
devote to activities on our behalf.

     We intend to continue to seek strategic relationships to distribute and
sell certain of our products. We, however, may not be able to negotiate
acceptable distribution relationships in the future and cannot predict whether
current or future distribution relationships will be successful.

                                       16
<PAGE>

     We depend on products and services provided by International Technology
     -----------------------------------------------------------------------
Concepts, Inc. ("IT Concepts")
------------------------------

     Our Biometric Security Division purchases certain complete biometric
security I.T. products, components of IT products and engineering services
related to the development of products from IT Concepts. In turn, IT Concepts
subcontracts a portion of its development work to an affiliate in Russia. If we
were to lose IT Concepts as a supplier of these products and engineering
services, or if IT Concepts were prohibited or restricted from importing a
portion of its engineering requirements or resources, we would be required to
find alternative suppliers for the products and services or hire additional
engineering personnel to provide the services, which could delay shipment of
products to customers and the development of new technology and products. There
is a risk that we would not be able to find such personnel or suppliers at a
reasonable cost, or at all. Any delay in product development or shipment may
have a material adverse effect on our financial results and stock price.

Loss of sole or limited source suppliers may result in delays or additional
---------------------------------------------------------------------------
expenses.
---------

     We obtain certain components and complete products from a single source or
a limited group of suppliers. We do not have long-term agreements with any of
our suppliers. We will experience signifiant delays in manufacturing and
shipping of products to customers if we lose these sources or if supplies from
these sources are delayed.

     As a result, we may be required to incur additional development
manufacturing and other costs to establish alternative sources of supply. It may
take several months to locate alternative suppliers, if required, or to re-tool
our products to accommodate components from different suppliers. We cannot
predict if we will be able to obtain replacement components within the time
frames we require at an affordable cost, or at all. Any delays resulting from
suppliers failing to deliver components or products on a timely basis in
sufficient quantities and of sufficient quality or any significant increase in
the price of components from existing or alternative suppliers could have a
severe negative impact on our financial results and stock price.

The success of our strategic plan to pursue sales in international markets may
------------------------------------------------------------------------------
be limited by risks related to international trade and marketing.
-----------------------------------------------------------------

     For the three and nine months ended March 31, 2000, we derived
approximately 10% of our product revenues from international sales. We currently
have offices in Australia, Singapore, Brazil, Britain and Switzerland. There is
a risk that we may not be able to market, sell and deliver our products in
foreign countries.

     In addition to the uncertainty as to our ability to maintain and expand our
international presence, there are certain risks inherent in foreign operations
and international markets, including:

     .  regional economic conditions
     .  delays in or prohibitions on exporting products resulting from export
        restrictions for certain products and technologies, including "crime
        control" products and encryption technology
     .  fluctuations in foreign currencies and the U.S. dollar
     .  loss of revenue, property and equipment from expropriation,
        nationalization, war, insurrection, terrorism and other political risks
     .  the overlap of different tax structures
     .  seasonal reductions in business activity
     .  risks of increases in taxes and other government fees
     .  involuntary renegotiation of contracts with foreign governments.

     In addition, foreign laws treat the protection of proprietary rights
differently from laws in the United States and may not protect our proprietary
rights to the same extent as U.S. laws.

We may need to raise additional debt or equity financing in the next twelve
---------------------------------------------------------------------------
months.
-------

                                       17
<PAGE>

     As of March 31, 2000, we had $25,771,000 in working capital, which included
$7,727,000 in cash and cash equivalents. In addition, we had $5,410,000
available under the Identix bank line of credit, which has been renewed to April
20, 2001, and ANADAC had $4,736,000 available under the ANADAC Bank Line of
Credit, which has been renewed to March 31, 2001. In July 1999, the Company
received net cash proceeds of $14,014,000 through a private placement of its
common stock and a further $10,263,000 in April 2000, from the exercise of
warrants issued in conjunction with the private placement of common stock.
However, we may need to raise additional debt or equity financing in the next 12
months. We may not be able to obtain additional equity or debt financing and if
successful in securing additional financing, we may not be able to do so on
terms that are not excessively dilutive to existing stockholders or less costly
than existing sources of debt financing. Failure to secure additional financing
on favorable terms could have a severe negative impact on our financial
performance and stock price.

One stockholder owns a significant portion of our stock and may delay or prevent
--------------------------------------------------------------------------------
a change in control or adversely affect the stock price through sales in the
----------------------------------------------------------------------------
open market.
------------

     As of May 4, 2000, the State of Wisconsin Investment Board owns
approximately 11% of the Company's outstanding common stock. The concentration
of large percentages of ownership in any single shareholder may delay or prevent
change in control of the Company. Additionally, the sale of a significant number
of our shares in the open market could adversely affect our stock price.

We may experience unanticipated expenses and other problems related to Year 2000
--------------------------------------------------------------------------------
issues.
-------

     Year 2000 problems are caused by computer systems that only use a two-digit
year value and, accordingly, will be subject to error or failure when the year
2000 arrives. We have a program for evaluating and addressing risks related to
the Year 2000 that is described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Year 2000 problem is
pervasive and complex and there is a risk that we have not identified all of the
Year 2000 issues that may affect us or that our remedial efforts do not
adequately address identified Year 2000 problems. Our products are used in
systems that perform a number of critical functions. For example, the biometric
security products are used to verify individual identity in a number of high-
risk situations such as prisons and airports. The biometric security products
are also used to protect computer data and to verify commercial transactions,
such as the authorization of money transfers by bank personnel.  Further,
biometric imaging products are used in law enforcement to automate the booking
process and used to screen applicants for various public programs.  Although we
believe that we should not have liability for a system failure relating to the
Year 2000, any failure in these or other critical applications could potentially
require us to expend substantial resources to assist in remediating the failure
or result in litigation to ascertain liability or recover costs.

Our products are complex and may contain undetected or unresolved defects when
------------------------------------------------------------------------------
sold or may not meet customer's performance criteria.
-----------------------------------------------------

     Performance failure in our products may cause loss of market share, delay
in or loss of market acceptance, additional warranty expense or product recall,
or other contractual liabilities. The complexity of certain of our fingerprint
readers may make the manufacturing and assembly process of such products
complex, which may in turn lead to delays or shortages in the availability of
certain products. The negative effects of any delay or failure could be
exacerbated if the delay or failure occurred in products that provide personal
security, secure sensitive computer data, authorize significant financial
transactions or perform other functions where a security breach could have
significant consequences.

     If a product fails to meet performance criteria, we may delay recognizing
revenue associated with a product and face higher operating expenses during the
period required to correct the defects. There is a risk that for unforeseen
reasons we may be required to repair or replace a substantial number of products
in use or to reimburse customers for products that fail to work or meet strict
performance criteria. We carry product liability insurance, but existing
coverage may not be adequate to cover potential claims.

                                       18
<PAGE>

     Failure by us to maintain the proprietary nature of our technology,
     -------------------------------------------------------------------
     products and manufacturing processes would negatively impact our ability to
     ---------------------------------------------------------------------------
     compete effectively.
     --------------------

We principally rely upon patent, copyright, trade secret and contract law to
establish and protect our proprietary rights. There is a risk that claims
allowed on any patents or trademarks we hold may not be broad enough to protect
our technology. In addition, our patents or trademarks may be challenged,
invalidated or circumvented and we cannot be certain that the rights granted
thereunder will provide competitive advantages to us. Moreover, any current or
future issued or licensed patents, trade secrets or know-how may not afford
sufficient protection against competitors with similar technologies or
processes, and the possibility exists that already issued patents or trademarks
may infringe upon or be designed around by others. In addition, there is a risk
that others may independently develop proprietary technologies and processes,
which are the same as, substantially equivalent or superior to ours, or become
available in the market at a lower price.

     There is a risk that we have infringed or in the future will infringe
patents or trademarks owned by others, that we will need to acquire licenses
under patents or trademarks belonging to others for technology potentially
useful or necessary to us, and that licenses will not be available to us on
acceptable terms, if at all.

     We may have to litigate to enforce our patents or trademarks or to
determine the scope and validity of other parties' proprietary rights.
Litigation could be costly and divert management's attention. An adverse outcome
in any litigation may have a severe negative impact on our financial results and
stock price. To determine the priority of inventions, we may have to participate
in interference proceedings declared by the United States Patent and Trademark
Office or oppositions in foreign patent and trademark offices, which could
result in substantial cost to us and limitations on the scope or validity of our
patents or trademarks.

     We also rely on trade secrets and proprietary know-how, which we seek to
protect by confidentiality agreements with our employees, consultants, service
providers and third parties. There is a risk that these agreements may be
breached, and that the remedies available to us may not be adequate. In
addition, our trade secrets and proprietary know-how may otherwise become known
to or be independently discovered by others.

If we fail to adequately manage growth of our business, it could have a severe
------------------------------------------------------------------------------
negative impact on our financial results or stock price.
--------------------------------------------------------

     We believe that in order to be successful we must grow rapidly. In order to
do so, we must expand, train and manage our employee base, particularly skilled
technical, marketing and management personnel. Rapid growth will also require an
increase in the level of responsibility for both existing and new management. In
addition, we will be required to implement and improve operational, financial
and management information procedures and controls. The management skills and
systems currently in place may not be adequate and we may not be able to manage
any significant growth we experience effectively.

We may encounter difficulties in acquiring and effectively integrating
----------------------------------------------------------------------
complementary assets and businesses.
------------------------------------

     As part of our business strategy, we may acquire assets and businesses
principally relating to or complementary to our current operations. We acquired
Identicator Technology in fiscal 1999, one company in fiscal 1998 and two
companies in fiscal 1996. These and any other acquisitions by Identix are and
will be accompanied by the risks commonly encountered in acquisitions of
companies. These risks include, among other things:

     .  potential exposure to unknown liabilities of acquired companies
     .  higher than anticipated acquisition costs and expenses
     .  effects of costs and expenses of acquiring and integrating new
        businesses on higher operating results and financial condition

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     .  the difficulty and expense of assimilating the operations and personnel
        of the companies
     .  the potential disruption of our ongoing business

 .  diversion of management time and attention
 .  failure to maximize our financial and strategic position by the
   successful incorporation of acquired technology
 .  the maintenance of uniform standards, controls, procedures and policies
 .  loss of key employees and customers as a result of changes in management
 .  the incurrence of amortization expenses
 .  possible dilution to our stockholders.

        In addition, geographic distances may make integration of businesses
more difficult. We may not be successful in overcoming these risks or any other
problems encountered in connection with any acquisitions.

Loss of current senior executives and key technical, marketing and sales
------------------------------------------------------------------------
personnel would adversely affect our business.
----------------------------------------------

     Our personnel may voluntarily terminate their relationship with us at any
time, and competition for qualified personnel, especially engineers, is intense.
The process of locating additional personnel with the combination of skills and
attributes required to carry out our strategy could be lengthy, costly and
disruptive. We are dependent on the services of certain key personnel, including
the following:

 .     Randall C. Fowler, Chairman and founder of Identix, retired as CEO
      effective March 31, 2000. The Company is actively searching for Mr.
      Fowler's replacement. There can be no assurance that the Company will be
      able to attract a highly skilled and motivated individual to succeed Mr.
      Fowler as Chairman and CEO.

 .     James P. Scullion, President and Chief Financial Officer, and Daniel F.
      Maase, Vice President, Biometric Imaging Division, have a combined total
      of 20 years experience with Identix and have a substantial amount of
      acquired knowledge regarding Identix and the biometrics industry generally
      and play a major role in the execution of Identix's strategic plan.

 .     Grant Evans, Vice President, Biometric Security Division, Information
      Technology, has established relationships with major companies and plays a
      central role in the company's marketing strategy.

 .     Yuri Khidekel, Vice President, Software, Biometric Security Division,
      Information Technology, and Yury Shapiro, Vice President, Hardware,
      Biometric Security Division, Information Technology, serve as key
      researchers and developers and are responsible for Identicator
      Technology's research and development activities.

       If we lose the services of key personnel, or fail to replace the services
of key personnel who depart from the Company, we could experience a severe
negative impact on our financial results and stock price. In addition, there is
intense competition for highly qualified engineering and marketing personnel in
the Silicon Valley where the Company principally operates. The loss of the
services of any key engineering, marketing or other personnel or the

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     failure of the Company to attract, integrate, motivate and retain
     additional key employees could have a material adverse effect on the
     Company's business, operating and financial results and stock price.


Our business operations may be adversely affected in the event of an earthquake.
--------------------------------------------------------------------------------

     Our corporate headquarters and most of our research and development
operations are located in Silicon Valley in Northern California, a region known
for seismic activity. An earthquake or other significant natural disaster could
have a material adverse impact on our business, financial condition and
operating results.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk - The Company does not use derivative financial instruments
in its investment portfolio.  The Company's investment portfolio is primarily
comprised of money market funds that mature within ninety days.  The Company
places investments in instruments that meet high credit quality standards.
These securities are subject to interest rate risk, and could decline in value
if interest rates fluctuate.  Due to the short duration and conservative nature
of the Company's investment portfolio, the Company does not expect any material
loss with respect to its investment portfolio.

Foreign Currency Exchange Rate Risk - Certain of the Company's revenues, cost of
revenues and operating expenses are transacted in local currencies.  As a
result, the Company's international results of operations are subject to foreign
exchange rate fluctuations.  The Company does not currently hedge against
foreign currency rate fluctuations. Gains and losses from such fluctuations are
not material to the Company's consolidated results of operations.


PART II     OTHER INFORMATION

   Item 1.  Legal Proceedings


            The Company is not party to any material legal proceedings.


   Item 6.  Exhibits and Reports on Form 8-K.

           (a) Exhibits

                   10.31  Compensation Continuation Agreement between Identix
                          Incorporated and James P. Scullion

                   27.1   Financial Data Schedule

           (b)     During the three months ended March 31, 2000, no reports were
               filed on Form 8-K.


                                   SIGNATURES


   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant,

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     Identix Incorporated, a corporation organized and existing under the laws
     of the State of Delaware, has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Sunnyvale,
State of California, on May 11, 2000.

                                          IDENTIX INCORPORATED

                                          BY:     /s/James P. Scullion
                                          --------------------------------------
                                          James P. Scullion
                                          President, Chief Operating Officer
                                          and Chief Financial Officer

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