<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 September 30, 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                94085
-----------------------------------------------            ----------
  (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:

                       33,344,673 shares of Common Stock
                            as of October 31, 2000

                                       1
<PAGE>

                             IDENTIX INCORPORATED

                                     INDEX

<TABLE>
<S>                                                                                                                   <C>
PART I         FINANCIAL INFORMATION

  Item 1       Unaudited Financial Statements

               Consolidated Balance Sheets -
               September 30, 2000 and June 30, 2000.......................................................             3

               Consolidated Statements of Operations -
               Three months ended September 30, 2000 and 1999.............................................             4

               Consolidated Statements of Cash Flows -
               Three months ended September 30, 2000 and 1999.............................................             5

               Notes to Consolidated Financial Statements.................................................             6

  Item 2       Management's Discussion and Analysis of Financial
               Condition and Results of Operations........................................................             9

  Item 3       Quantitative and Qualitative Disclosures about Market Risk.................................            18

PART II        OTHER INFORMATION

  Item 1       Legal Proceedings..........................................................................            19

  Item 2       Changes in Securities......................................................................            19

  Item 6       Exhibits...................................................................................            19

  Signature...............................................................................................            20
</TABLE>

                                       2
<PAGE>

                             IDENTIX INCORPORATED
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     September 30,           June 30,
                                                                     ----------------------------------
                                                                          2000                 2000
                                                                     ------------          ------------
                                                                     (Unaudited)
<S>                                                                  <C>                   <C>
                             ASSETS
Current assets:
   Cash and cash equivalents...................................      $ 13,085,000          $ 15,620,000
   Restricted cash.............................................         3,154,000                     -
   Accounts receivable, less allowance for doubtful accounts
     of $1,076,000 and $1,066,000..............................        32,659,000            28,352,000
   Inventories.................................................         4,535,000             5,180,000
   Prepaid expenses and other assets...........................         1,880,000             1,188,000
                                                                     ------------          ------------
       Total current assets....................................        55,313,000            50,340,000
Property and equipment, net....................................         2,569,000             2,632,000
Intangibles and other assets...................................        30,047,000            30,546,000
                                                                     ------------          ------------
               Total assets....................................      $ 87,929,000          $ 83,518,000
                                                                     ============          ============

        LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
               STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
   Notes payable...............................................      $  1,830,000          $    430,000
   Accounts payable............................................         9,878,000             8,570,000
   Accrued compensation........................................         2,629,000             2,894,000
   Other accrued liabilities...................................         1,390,000             1,700,000
   Deferred revenue............................................         3,340,000             2,561,000
                                                                     ------------          ------------
       Total current liabilities...............................        19,067,000            16,155,000
                                                                     ------------          ------------
Other liabilities..............................................            56,000                90,000
                                                                     ------------          ------------
       Total liabilities.......................................        19,123,000            16,245,000

Redeemable convertible preferred stock, $0.01 par value;
   2,000,000 shares authorized; 234,558 shares issued
   and outstanding.............................................         3,702,000                     -
                                                                     ------------          ------------
Shareholders' equity:
   Common stock, $0.01 par value; 50,000,000 shares authorized;
     33,337,929 and 33,026,964 shares issued and outstanding...           333,000               330,000
   Additional paid-in capital..................................       125,901,000           123,365,000
   Accumulated deficit.........................................       (60,949,000)          (56,241,000)
   Accumulated other comprehensive loss........................          (181,000)             (181,000)
                                                                     ------------          ------------
       Total shareholders' equity..............................        65,104,000            67,273,000
                                                                     ------------          ------------
               Total liabilities, redeemable convertible
                 preferred stock and shareholders' equity......      $ 87,929,000          $ 83,518,000
                                                                     ============          ============
</TABLE>

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

                                       3
<PAGE>

                             IDENTIX INCORPORATED
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Three months ended
                                                                           September 30,
                                                                 ---------------------------------
                                                                       2000              1999
                                                                 ---------------   ---------------
                                                                   (Unaudited)       (Unaudited)
<S>                                                              <C>               <C>
Revenues:
   Product revenues...........................................   $  9,170,000      $  7,038,000
   Services revenues..........................................     12,197,000        10,429,000
                                                                 ---------------   ---------------
       Total revenues.........................................     21,367,000        17,467,000
                                                                 ---------------   ---------------
Cost and expenses:
   Cost of product revenues...................................      5,323,000         4,092,000
   Cost of services revenues..................................     11,057,000         9,010,000
   Research, development and engineering......................      2,164,000         2,207,000
   Marketing and selling......................................      3,207,000         2,103,000
   General and administrative.................................      2,667,000         2,794,000
   Amortization of acquired intangible assets.................        832,000           885,000
   Preferred stock and warrant expense........................      1,259,000                 -
                                                                 ---------------   ---------------
       Total costs and expenses...............................     26,509,000        21,091,000
                                                                 ---------------   ---------------
Loss from operations..........................................     (5,142,000)       (3,624,000)
Interest and other income (expense), net......................        399,000           181,000
Interest expense..............................................        (22,000)          (47,000)
                                                                 ---------------   ---------------
Loss before taxes and equity interest in joint venture........     (4,765,000)       (3,490,000)
Provision for income taxes....................................        (17,000)                -
                                                                 ---------------   ---------------
Loss before equity interest in joint venture..................     (4,782,000)       (3,490,000)
Equity interest in joint venture..............................         71,000            18,000
                                                                 ---------------   ---------------
Net loss......................................................   $ (4,711,000)     $ (3,472,000)
                                                                 ===============   ===============

Net loss per share:
   Basic and Diluted..........................................   $      (0.14)     $      (0.11)
                                                                 ===============   ===============

Weighted average common shares used in basic
and diluted net loss per share computation....................     33,208,000        30,644,000
</TABLE>

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

                                       4
<PAGE>

                             IDENTIX INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASHFLOW

<TABLE>
<CAPTION>
                                                                   Three months ended
                                                                      September 30,
                                                             -----------------------------
                                                                 2000              1999
                                                             -----------       -----------
                                                             (Unaudited)       (Unaudited)
<S>                                                          <C>               <C>
Cash flows from operating activities:
   Net loss................................................   $(4,711,000)     $(3,472,000)
   Adjustments to reconcile net loss to net cash
     used for operating activities:
       Depreciation........................................       428,000          465,000
       Gain on disposal of property and equipment..........        (1,000)               -
       Amortization of intangibles.........................       944,000        1,090,000
       Amortization of deferred revenue....................    (1,445,000)        (801,000)
       Interest in joint venture...........................       (71,000)         (18,000)
       Increase in inventory reserve.......................         6,000          475,000
       Write-off of capitalized software...................             -          154,000
       Allowance for doubtful accounts.....................       125,000           75,000
       Preferred stock and warrant expense.................     1,259,000                -
   Changes in assets and liabilities
       Restricted cash.....................................    (3,154,000)               -
       Accounts receivable.................................    (4,432,000)        (886,000)
       Inventories.........................................       639,000         (634,000)
       Prepaid expenses and other assets...................      (692,000)         (16,000)
       Accounts payable....................................     1,308,000         (820,000)
       Accrued compensation................................      (265,000)         264,000
       Other accrued liabilities...........................      (272,000)        (372,000)
       Deferred revenue....................................     2,224,000          731,000
                                                             ------------      -----------
   Net cash used for operating activities..................    (8,110,000)      (3,765,000)
                                                             ------------      -----------
Cash flows from investing activities:
   Capital expenditures....................................      (362,000)        (519,000)
   Additions and deletions to intangibles and other
      assets...............................................      (445,000)          23,000
                                                             ------------      -----------
   Net cash used for investing activities..................      (807,000)        (496,000)
                                                             ------------      -----------
Cash flows from financing activities:
   Borrowings under bank lines of credit...................     1,756,000          431,000
   Payments under bank lines of credit.....................      (356,000)      (3,908,000)
   Principal payments on short-term note...................             -         (200,000)
   Proceeds from sales of common and preferred stock.......     4,982,000       14,243,000
                                                             ------------      -----------
   Net cash provided by financing activities...............     6,382,000       10,566,000
                                                             ------------      -----------
Net increase in cash and cash equivalents..................    (2,535,000)       6,305,000
Cash and cash equivalents at period beginning..............    15,620,000        3,013,000
                                                             ------------      -----------
Cash and cash equivalents at period end....................   $13,085,000      $ 9,318,000
                                                             ============      ===========
Supplemental disclosures of cash flow information:
   Cash paid during the period for interest................   $    22,000      $    47,000
   Cash paid during the period for income taxes............   $         -      $         -
</TABLE>

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

                                       5
<PAGE>

                             IDENTIX INCORPORATED
                     THREE MONTHS ENDED SEPTEMBER 30, 2000
                  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, 2000 included in the Company's Form 10-K. The results of
     operations for the three months ended September 30, 2000 are not
     necessarily indicative of results to be expected for the entire fiscal
     year, which ends on June 30, 2001.

     Certain fiscal 1999 amounts have been reclassified to conform to the
     current year's presentation.

2.   Inventories

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

                                                   September 30,   June 30,
                                                 ---------------------------
                                                    2000             2000
                                                 ----------       ----------
                                                (Unaudited)
     Purchased parts and materials..........     $2,188,000       $2,141,000
     Work-in-process........................      1,205,000          860,000
     Finished goods, including spares.......      1,142,000        2,179,000
                                                 ----------       ----------
                                                 $4,535,000       $5,180,000
                                                 ==========       ==========

     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 three months ended September 30, 2000, the Company
     physically disposed of $74,000 of inventory, which had been provided for at
     June 30, 2000.

3.   Sale of Series A Redeemable Convertible Preferred Stock and Warrant

     In July 2000, the Company entered into a Securities Purchase Agreement with
     Motorola, Inc. ("Motorola"), whereby the Company sold 234,558 shares of
     Series A Redeemable Convertible Preferred Stock (the "Series A Preferred
     Stock") at $15.99 per share, resulting in cash proceeds to the Company of
     $3,702,000, net of issuance costs. In accordance with the Securities
     Purchase Agreement, the price per share was determined using the average
     closing price of the Company's common stock during the ten trading days
     immediately prior to the sale. The sale of the Series A Preferred Stock was
     exempt from registration under applicable securities laws, however,
     Motorola has demand registration rights which are effective beginning on
     January 7, 2001.

     The Series A Preferred Stock is convertible into shares of the Company's
     common stock on a one-to-one basis, subject to adjustment for anti-
     dilution. The Series A Preferred Stock is redeemable upon a change in
     control or sale of all or substantially all of the assets of the Company at
     a redemption price equal to all accrued or declared but unpaid dividends of
     the Series A Preferred Stock, plus the greater (as adjusted for any stock
     dividends, combinations, or splits with respect to such shares) of (x) the
     then current market price of each such share (i.e. the average closing
     price of the common stock during the ten trading days immediately prior to
     the change of control) or (y) $15.99 per share.

     In connection with the issuance of the Series A Preferred Stock, the
     Company also issued Motorola a warrant to purchase 187,647 shares of the
     Company's common stock at $17.11 per share. The warrant is immediately
     exercisable and expires on July 7, 2005. The Company determined the fair
     value of the warrant to be $1,908,370 using the Black-Scholes option
     pricing model and the following assumptions: fair value of common stock of
     $15.99 per share, a contractual life of five years, an annual risk free
     interest rate of 6%, volatility of 73.9%, and no future dividends.

     Based on the net cash proceeds received from the sale of Series A Preferred
     Stock of $3,702,000, the relative fair values of the Series A Preferred
     Stock and the Warrant totaled $2,443,000 and $1,259,000, respectively. The
     net cash proceeds allocated to the warrant of $1,259,000 were credited to
     additional paid-in capital within shareholders' equity. The issuance of the
     Series A Preferred Stock and Warrant also resulted in a beneficial
     conversion feature which was recorded in the consolidated statement of
     operations. Such amount was included in operating costs and expenses in
     light of the relationship with Motorola contemplated in the Master OEM
     Agreement and certain other agreements.

     The proceeds from the sale of the Series A Preferred Stock will be used
     solely for the research, design, development, marketing and manufacturing
     of product and service solutions related to the Company's itrust division.

4.   Earnings Per Share

     Basic earnings per share are computed by dividing net income (loss)
     available to common shareholders by the weighted average number of common
     shares outstanding during the period. Diluted earnings per share gives
     effect to all dilutive potential shares outstanding during the period,
     including stock options and warrants, using the treasury stock method.


     Following is the calculation of basic and diluted loss per share for the
     periods presented:
                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                           Three months ended
                                                              September 30,
                                                       ---------------------------
                                                            2000          1999
                                                       ------------   ------------
                                                        (Unaudited)    (Unaudited)
     <S>                                               <C>            <C>
     Net loss:                                         $(4,711,000)   $(3,472,000)
                                                       ------------   ------------
     Shares used in computing net loss per share:
                                                       ------------   ------------
       Basic and diluted..........................      33,208,000     30,644,000
                                                       ------------   ------------
     Net loss per share:
       Basic and diluted..........................     $     (0.14)   $     (0.11)
                                                       ============   ============
</TABLE>

     Options and warrants outstanding during the three months ended September
     30, 2000, were not included in the computation of net loss per share as
     their effect was anti-dilutive.

5.   Comprehensive Income

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

6.   Reportable Segment Data

     The Company has determined that its reportable segments are those based on
     its method of internal reporting. The Company's reportable segments are
     Imaging, Security, Government Services and Fingerprinting Services.
     Management has organized the Company on product lines. The Company's
     reportable segments are strategic business units that offer different
     products and services and include inter-segment revenues, corporate
     allocations and administrative expenses. Revenues are attributed to the
     reportable segment of the sales or service organizations, and costs
     directly and indirectly incurred in generating revenues are similarly
     assigned. Segment information is as follows:

<TABLE>
<CAPTION>
                                                   Three months ended
                                                       September 30,
                                              --------------------------
                                                   2000          1999
                                              ------------   -----------
                                               (Unaudited)   (Unaudited)
<S>                                           <C>            <C>
Total revenues:
   Imaging................................    $ 7,637,000    $ 5,450,000
   Security...............................      1,533,000      1,588,000
   Government Services....................     13,151,000     11,547,000
   Elimination of inter-segment revenues..       (954,000)    (1,118,000)
                                              -----------    -----------
                                              $21,367,000    $17,467,000
                                              ===========    ===========
Depreciation and amortization:
   Imaging................................    $   247,000    $   402,000
   Security...............................        926,000        995,000
   Government Services....................        199,000        158,000
                                              -----------    -----------
                                              $ 1,372,000    $ 1,555,000
                                              ===========    ===========
Interest and other income, net:
   Imaging................................    $    87,000    $    86,000
   Security...............................        175,000         (6,000)
   Government Services....................         69,000         37,000
   Fingerprinting Services................         68,000         64,000
</TABLE>

                                       7
<PAGE>

<TABLE>
<S>                                           <C>            <C>
                                              -----------    -----------

                                              $   399,000    $   181,000
                                              ===========    ===========
Interest expense:
   Imaging................................    $       -      $    10,000
   Security...............................              -         14,000
   Government Services....................         22,000         23,000
                                              -----------    -----------
                                              $    22,000    $    47,000
                                              ===========    ===========

Net income (loss):
   Imaging................................    $   574,000    $  (539,000)
   Security...............................     (5,827,000)    (3,335,000)
   Government Services....................        402,000        320,000
   Fingerprinting Services................        140,000         82,000
                                              -----------    -----------
                                              $(4,711,000)   $(3,472,000)
                                              ===========    ===========

Capital expenditures:
   Imaging................................    $   151,000    $   353,000
   Security...............................         57,000         56,000
   Government Services....................        154,000        110,000
                                              -----------    -----------
                                              $   362,000    $   519,000
                                              ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                              September 30,     June 30,
                                              --------------------------
                                                  2000           2000
                                              -----------     ----------
                                              (Unaudited)
<S>                                            <C>            <C>
Identifiable assets:
   Imaging................................    $33,294,000    $31,042,000
   Security...............................     32,777,000     32,987,000
   Government Services....................     21,858,000     19,489,000
                                              -----------    -----------
                                              $87,929,000    $83,518,000
                                              ===========    ===========
</TABLE>

7.   Foreign Operations Data

     In geographical reporting, revenues are attributed to the geographical
location of the sales and service organizations.

<TABLE>
<CAPTION>
                                                    Three months ended
                                                       September 30,
                                              ------------------------------
                                                 2000               1999
                                              -----------       ------------
                                               (Unaudited)       (Unaudited)
<S>                                           <C>              <C>
Total revenues:
   North America..........................    $20,362,000        $16,698,000
   International..........................      1,005,000            769,000
                                              -----------        -----------
                                              $21,367,000        $17,467,000
                                              ===========        ===========
</TABLE>

<TABLE>
<CAPTION>
                                              September 30,       June 30,
                                              ------------------------------
                                                   2000              2000
                                              -----------        -----------
                                              (Unaudited)
<S>                                           <C>                 <C>
Identifiable assets:
   North America.........................     $86,081,000        $81,043,000
   International.........................       1,848,000          2,475,000
                                              -----------        -----------
                                              $87,929,000        $83,518,000
                                              ===========        ===========
</TABLE>

8.   Recent Accounting Pronouncements

     On July 1, 2000, the Company adopted the Financial Accounting Standards
Board Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of APB No. 25. FIN No. 44
clarifies the application of APB No. 25 for (a) the definition of employee for
purposes of applying APB No. 25, (b) the criteria for determining whether a plan
qualifies as a non compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN No. 44 did not have a material effect on the
Company's financial position or results of operations.

     On July 1, 2000, the Company adopted Statement of Financial Accounting
Standard No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as assets or liabilities and measurement of those instruments at fair value. The
adoption of SFAS No. 133 did not have a material effect on the Company's
financial position or results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements. "SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition in financial statements. SAB 101 as amended is
effective for the Company in the fourth quarter of fiscal 2001. The impact of
implementing SAB 101 on the Company's financial statements is still being
assessed by management and was unknown at September 30, 2000.

9.   Subsequent Event

     The Company has continued the restructuring of its operations in Australia
that was commenced in February 1998 with the substantial liquidation of its
Australian subsidiary. In November 2000, the office has been closed and the
current staff of three will be retrenched. The Company's products will be sold
through certain distributors and Identix direct sales staff. Identix Australia
Pty Limited will be liquidated in due course and the Company will realize a
cumulative translation loss of $181,000. We do not expect any significant
closure costs.

                                       8
<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS


Item 2.

     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 Incorporated ("Identix" or the "Company") is a leader in designing,
developing, manufacturing and marketing comprehensive biometric technology based
solutions for security, fraud prevention, law enforcement and other
applications. Identix's products and services are classified into three groups:
(i) biometric security ("Security") solutions that verify the identity of an
individual through the unique physical biological characteristics of a
fingerprint; (ii) biometric imaging ("Imaging") solutions that electronically
capture forensic quality fingerprint images directly from an individual's
fingers for law enforcement and other applications; and (iii) information
technology, engineering and management consulting services primarily to
government agencies ("Government Services"). The Company's solutions employ the
Company's industry leading optical fingerprint capture technologies, its
proprietary algorithms and customizable application software suites. Identix's
technologies and know-how enable it to produce Security and Imaging solutions
for commercial, federal, state and local government customers worldwide. The
Company provides Government Services through ANADAC, Inc. ("ANADAC"), a wholly
owned subsidiary of the Company.

     On September 30, 1997, the Company entered into a joint venture agreement
with Sylvan Learning Systems, Inc. for the purpose of providing fingerprinting
services. Since October 1, 1997, fingerprinting services have been provided
through the joint venture, Sylvan/Identix Fingerprinting Centers, LLC ("SIFC").

     In July 2000, the Company formed itrust, a new division within Identix, in
conjunction with an investment of $3,750,000 by its initial partner, Motorola
Incorporated.  The itrust division is to offer security and content management
solutions for the wireless web, internet and intranet markets.


RESULTS OF OPERATIONS

Revenues
--------

     Revenues for the three months ended September 30, 2000 were $21,367,000
compared to $17,467,000 for the same period in the prior fiscal year. The
increase in revenues of 22% for the three months was due to increases in both
product and service revenues. In the three months ended September 30, 2000 and
1999, the Company had one customer being the U.S. Department of Defense, which
accounted for 47% and 39% respectively of total revenue.

     Product revenues were $9,170,000 for the three months ended September 30,
2000, compared to $7,038,000 for the same period in the prior fiscal year. For
the three months ended September 30, 2000, the increase in product revenues of
30% was due to an increase in Imaging solutions revenues; primarily from
live-scan system shipments and live-scan customer service programs.

     International sales accounted for $1,005,000 or 11% of the Company's
product revenues for the three months ended September 30, 2000 compared to
$769,000 or 11% for the same period in the prior fiscal year. The increase in
international sales for the three months was due to greater sales of the
Security Division's products in Europe. 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.

     Services revenues were $12,197,000 for the three months ended September 30,
2000 compared to $10,429,000 for the same period in the prior fiscal year. The
increase in services revenues of 17% for the three months ended September 30,
2000 was primarily related to $1,878,000 in revenues recognized for equipment
shipments under a recently awarded contract with the NAVSEA Chief Information
Office. 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 months ended September 30, 2000, revenues directly from
the DOD and from other U. S. government agencies accounted for 90% of the
Company's total services revenues compared to 92% for the same period 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 months ended September 30, 2000 and 1999,
the Company derived 92% and 82% respectively, of its services revenues from FFP
and T&M contracts, respectively. 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 T&M and FFP 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 8% and 18% of
its services revenues for the three months ended September 30, 2000 and 1999.
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 the Company and representatives of such government agencies.
ANADAC has not yet been audited by the Defense Contract Audit Agency for the
period from July 1, 1997 to September 30, 2000.

     Gross margin on product revenues was 42% for the three months ended
September 30, 2000 and September 30, 1999. During the three months ended
September 30, 1999, a charge was made against cost of product revenues of
$439,000 for a write down in inventory of certain physical access security
products 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 9% for the three months ended
September 30, 2000 as compared to 14% for the same period in the prior fiscal
year. The decrease in gross margin for the three months was primarily due to
lower margin equipment sales under certain service and equipment supply
contracts.

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

     Research, development and engineering expenses were $2,164,000 or 24% of
product revenues for the three months ended September 30, 2000 compared to
$2,207,000 or 31% of product revenues for the same period in the prior fiscal
year. 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 $3,207,000 or 15% of total revenues for
the three months ended September 30, 2000 compared to $2,103,000 or 12% of total
revenues for the same period in the prior fiscal year. The increase in marketing
and selling expenses was primarily due to increased staffing and promotional
costs for Imaging and Security products.

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

     General and administrative expenses were $2,667,000 or 12% of total
revenues for the three months ended September 30, 2000 compared to $2,794,000 or
16% of total revenues for the same period in the prior fiscal year.

Preferred Stock and Warrant Expense
-----------------------------------

                                       10
<PAGE>

     In connection with the private sale of shares of Series A redeemable
convertible Preferred Stock and Warrant in July 2000 to Motorola, Inc., (see
Note 3), the Company recognized a one-time preferred stock warrant expense of
$1,259,000 representing the relative fair value of the warrant. The value of the
warrant was calculated using the Black-Scholes option pricing model.

Interest and Other Income (Expense), net
----------------------------------------

     For the three months ended September 30, 2000, interest and other income
(expense), net was $399,000 compared to $181,000 for the same period in the
prior fiscal year. The increase in interest and other income (expense), net was
primarily due to an increase in interest income generated from investing the
proceeds from the sale of both common and preferred stock.

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

  Interest expense was $22,000 for the three months ended September 30, 2000
compared to $47,000 for the same period in the prior fiscal year.  The decrease
was due to lower borrowings under the ANADAC Line of Credit during the three
months ended September 30, 2000 compared to the same period in the prior fiscal
year.  The Identix Line of Credit was repaid in full on July 2, 1999 and there
have been no borrowings under this line of credit since July 2, 1999. The
weighted average interest rate paid on borrowings under the ANADAC Line of
Credit during the three months ended September 30, 2000 was 9.5%.

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

     The Company recorded an income tax provision of $17,000 for the three
months ended September 30, 2000 which consisted of certain state franchise
taxes. There were no taxes provided for in the same period in the prior fiscal
year.


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

     The equity interest in joint venture represents the Company's 50% share of
the results of SIFC. For the three months ended September 30, 2000, our equity
interest in joint venture was $71,000 compared to $18,000 for the same period in
the prior fiscal year. The increase in the equity interest was due to an
increase in net income of SIFC.

Liquidity and Capital Resources
-------------------------------

     The Company financed its operations during the three months ended September
30, 2000 primarily from the proceeds of the sale of common and preferred stock
and borrowings under the ANADAC Line of Credit. As of September 30, 2000, the
Company's principal sources of liquidity consisted of $36,246,000 of working
capital including $13,085,000 in cash and cash equivalents, $3,154,000 of
restricted cash, and $11,386,000 available for future borrowings under bank
lines of credit. Restricted cash of $3,154,000 is to be used solely for the
research, design, development, marketing and manufacturing of product and
service solutions related to the Company's itrust division.

     The Identix Line of Credit is a $7,500,000 bank line of credit
collateralized by the property of Identix. Under the bank line of credit, the
Company may borrow up to 80% of eligible accounts receivable and amounts drawn
bear interest at the bank's prime rate of interest plus one half of one percent
(10% at September 30, 2000). The line of credit expires on April 21, 2001. At
September 30, 2000, there was no amount outstanding and $7,500,000 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.

     The ANADAC Line of Credit is a $6,000,000 bank line of credit
collateralized by ANADAC's accounts receivable and certain other assets. Under
the ANADAC Line of Credit, ANADAC may borrow against qualified accounts
receivable. Amounts drawn bear interest at the bank's prime rate of interest
(9.5% at September 30, 2000). The line of credit expires on March 30, 2001. At
September 30, 2000, $1,830,000 was outstanding and $3,886,000 was available
under the ANADAC Line of Credit. The ANADAC Line of Credit agreement contains
financial and operating covenants.

     The Company used cash for operating activities of $8,110,000 during the
three months ended September 30, 2000 as compared to $3,765,000 for the same
period in the prior fiscal year. The primary use of cash for the three months
ended September 30, 2000 was due to (i) the net loss of $4,711,000 which
includes a one-time charge for preferred stock and warrant expense of
$1,259,000, amortization of $944,000 and depreciation of $428,000, and (ii) an
increase in accounts receivable of

                                       11
<PAGE>

$4,432,000 and restricted cash of $3,154,000, partially offset by an increase in
accounts payable of $1,308,000 and a decrease in inventories of $639,000. The
primary use of cash during the three months ended September 30, 1999 was due to
(i) the net loss of $3,472,000 which includes amortization of $1,090,000,
depreciation of $465,000 and an increase in the inventory reserve of $475,000,
(ii) a decrease in accounts payable of $820,000, (iii) an increase in inventory
of $634,000 and (iv) an increase in accounts receivable of $886,000.

     The Company used cash of $807,000 for investing activities during the three
months ended September 30, 2000 consisting of purchases of property and
equipment of $362,000 and additions to intangible assets of $445,000. During the
three months ended September 30, 1999, the Company used cash of $496,000 for
investing activities primarily for the purchase of property and equipment of
$519,000.

     The Company generated cash of $6,382,000 from financing activities during
the three months ended September 30, 2000 as compared to $10,566,000 for the
same period in the prior fiscal year. Financing activities for the three months
ended September 30, 2000 consisted of proceeds from the sale of preferred stock
and a warrant of $3,702,000, net of issuance costs, the sale of common stock of
$1,280,000 and net borrowings of $1,400,000 under the ANADAC line of credit.
Financing activities during the three months ended September 30, 1999, consisted
of proceeds from the sales of common stock and warrants of $14,243,000, net of
issuance costs, partially offset by net repayments of $3,477,000 against the
Company's lines of credit.

     The Company did not have any material capital expenditure commitments as of
September 30, 2000.

     The Company believes that cash flow from operations, together with existing
working capital and two existing bank lines of credit, will be adequate to fund
the Company's cash requirements through fiscal 2001. However, the Company may
raise additional equity or debt financing beyond the amounts currently forecast
to meet its working capital or capital equipment needs and are looking to bring
in additional equity investment partners into trust.  There can be no assurance
that the Company would be able to obtain such financing or that the terms of
financing will be favorable to the Company.

Recent Accounting Pronouncements
--------------------------------

     On July 1, 2000, the Company adopted the Financial Accounting Standards
Board Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of APB No. 25. FIN No. 44
clarifies the application of APB No. 25 for (a) the definition of employee for
purposes of applying APB No. 25, (b) the criteria for determining whether a plan
qualifies as a non compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN No. 44 did not have a material effect on the
Company's financial position or results of operations.

     On July 1, 2000, the Company adopted Statement of Financial Accounting
Standard No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as assets or liabilities and measurement of those instruments at fair value. The
adoption of SFAS No. 133 did not have a material effect on the Company's
financial position or results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements. "SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition in financial statements. SAB 101 as amended is
effective for the Company in the fourth quarter of fiscal 2001. The impact of
implementing SAB 101 on the Company's financial statements is still being
assessed by management and was unknown at September 30, 2000.


RISK FACTORS

     This report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The Company's business, operating results, financial
performance, and share price may be materially adversely affected by a number of
factors, including but not limited to the following risk factors, any one 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 report on Form 10-Q or in other reports, press releases or other statements
issued from time to time. Additional factors that may cause such a difference
are set forth in the annual report on Form 10-K.

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

     Biometric solutions 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
and services depends on a number of factors including:

 .    the cost, performance and reliability of our products and services and the
     products and services of competitors
 .    customers' perception of the perceived benefit of biometric solutions
     public perceptions of the intrusiveness of these solutions 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 and services
 .    marketing efforts and publicity regarding these products and services

     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 and services may not gain wide market acceptance. Even if
biometric solutions gain wide market acceptance, there can be no assurance that
the Company's products and services will adequately address the market
requirements.

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

                                       12
<PAGE>

     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 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 Security products also compete with non-
biometric technologies such as certificate authorities, and traditional key,
card, surveillance systems and passwords. The biometric security market is a
rapidly evolving and intensely competitive market and the Company believes that
additional competitors may yet enter the market: certain of these competitors
may prove to be primary long-term competitors.

     Our 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 and intensify in the near term in both
the Security and Imaging markets. Companies competing with the Company may
introduce products that are competitively priced, that 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. The failure to do so could have a material adverse effect on our
business operations, financial results and stock price.


Future growth depends in part on the success of itrust, a new division with no
------------------------------------------------------------------------------
operating history; anticipation of future losses.
-------------------------------------------------

     A portion of the Company's future growth will depend on the success of the
Company's itrust division. itrust was formed in July 2000 and has no operating
history on which to base an evaluation of it's business and prospects. itrust's
success will depend on many factors, including, but not limited to: the ability
of the Company to form additional strategic partnerships that will contribute
technical and commercial value to itrust and fuel the division's growth; the
demand for the Company's Security products and itrust services; the ability of
the Company and it's partners such as Motorola, Inc. to successfully and rapidly
manufacture, disseminate and deploy biometric enabled products and itrust
services; the levels of competition in the space for Internet and Wireless Web
security services; the perceived need for secure communications and commerce in
such markets; the Company's ability to successfully introduce new products and
services; and the ability of the Company to expand it's operations and attract
integrate, retain and motivate qualified sales, marketing, and research and
development personnel. In addition, the Company has experienced net losses in
each of the past two fiscal year periods. itrust is not expected to contribute
significant revenues to the Company in the foreseeable future. At the same time,
however, the Company will incur significant costs in the design, development,
manufacture, sale and deployment of itrust products and services and in the
execution of itrust's business plan. In part because of the significant
investment the Company will make in itrust, the Company expects to incur
substantial additional losses in the foreseeable future.

In our services business, we face substantial competition from professional
---------------------------------------------------------------------------
service 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 services enhancements thereto address the changing,
sophisticated needs of the marketplace. Material delays in introducing new
products and services and enhancements thereto or the failure to offer
innovative products at competitive prices may cause customers to forego
purchases and of our products and services and purchase those of our competitors
and services.

Our financial and operating results often vary significantly from quarter to
----------------------------------------------------------------------------
quarter and may be negatively affected by a number
--------------------------------------------------

                                       13
<PAGE>

of factors.
----------

     The following are some other reasons why our financial and operating
results may fluctuate from quarter to quarter:

     .    optical reduced demand for products and services caused by a
          competitor's price reductions or introduction of
          new competitors or enhanced products or services.
     .    reduced pricing and/or increased spending in response to competition
          or new market opportunities
     .    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 availability 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
     .    the inability to successfully manufacture in volume certain of the
          Company's product that may contain complex designs and components.

Additionally, certain of our 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 negative
impact on our financial results and stock price could result.

     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 forecast
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
Security or Imaging 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
federal or state entities.

For the year ended June 30, 2000, we derived approximately 86% 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 year ended June 30, 2000, we derived approximately 82% 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. The
Defense Contract Audit Agency has not yet audited ANADAC for the period from
July 1, 1997 to June 30, 2000. While the Company believes that the results of
such audit will

                                       14
<PAGE>

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.

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

  Both our Imaging and Security Divisions purchase certain complete biometric
security and imaging products, components of products and research, development
and engineering services related to the development of products from IT
Concepts.  It is anticipated that itrust may also work with IT Concepts for the
development of certain of itrust's solutions.  In turn IT Concepts subcontracts
portions of its development work to an affiliate in Russia and imports a portion
its engineering and personnel resources from Russia under applicable immigration
laws.  In recent years competition for a limited number of available visas for
foreign high-technology workers and/or consultants has intensified as more U.S.
companies have chosen to look abroad for supplemental research, development and
engineering resources.  If we were to lose IT Concepts as a supplier of products
and engineering services, or if IT Concepts were prohibited or restricted from
importing a portion of its engineering requirements or resources, because of
lack of availability of applicable immigration visas or otherwise we would be
required to find alternative suppliers for products and services or hire
additional engineering personnel to provide the services. This could require the
company to incur significant additional research and development costs and 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 could have a material adverse effect on our business, operations,
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 significant 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 and source certain
-----------------------------------------------------------------------
research, development and engineering services from international markets may be
--------------------------------------------------------------------------------
limited by risks related to socio-economic and political conditions in such
---------------------------------------------------------------------------
markets.
--------

     For the fiscal year ended June 30, 2000, we derived approximately 14% of
our product revenues from international sales. We currently have a local
presence in Australia, Singapore, Brazil, Britain and Switzerland.  We rely on
products and services provided by I.T. Concepts which in turn relies on research
development and personnel support from Russia.  There is a risk that we may not
be able to successfully market, sell and deliver our products in foreign
countries, or successfully rely on supplemental offshore research and
development resources.

     Risks inherent in marketing, selling and delivering products in, and
sourcing research and development services from, foreign and international
markets, include those associated with:

                                       15
<PAGE>

  .  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
  .  loss of, or delays in importing products, services and intellectual
     property developed abroad, resulting from unstable or fluctuating social,
     political or governmental conditions
  .  fluctuations in foreign currencies and the U.S. dollar
  .  loss of revenue, property (including intellectual 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 renegotiations 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 The Company primarily enters into debt
obligations to support general corporate purposes including working capital
requirements and capital expenditures.  The Company is subject to fluctuating
interest rates that may impact, adversely or otherwise, its results of operation
of cash flows for its variable rate lines of credit and cash equivalents.

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

     As of September 30, 2000, we had $36,246,000 in working capital, which
included $16,239,000 in cash and cash equivalents and restricted cash. In
addition, we had $7,500,000 available under the Identix Bank Line of Credit,
which has been renewed to April 20, 2001, and ANADAC had $3,886,000 available
under the ANADAC Bank Line of Credit, which has been renewed to March 31, 2001.
However, we may 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 September 30, 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.

Our products are complex, may contain undetected or unresolved defects when sold
--------------------------------------------------------------------------------
or may not meet customer's performance criteria, and may be difficult to
------------------------------------------------------------------------
successfully manufacture in volume.
-----------------------------------

     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,
especially in volume, complex.  This 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.

                                       16
<PAGE>

Failure by us to maintain the proprietary nature of our technology, products and
--------------------------------------------------------------------------------
manufacturing processes could have a material adverse effect on the Company's
-----------------------------------------------------------------------------
business, operating results, financial condition and stock price and on the
---------------------------------------------------------------------------
Company's ability to compete effectively.
-----------------------------------------

     We principally rely upon patent, trademark, 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, Inc. 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 our operating results and financial condition
  .  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

                                       17
<PAGE>

  .  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:

James P. Scullion, President and Chief Financial Officer, and Daniel F. Maase,
Vice President and Chief Technical Officer, Imaging Division, have a combined
total of 22 years experience with Identix and have a substantial amount of
acquired knowledge regarding Identix and the biometrics industry generally and
Mr. Scullion plays a major role in the execution of Identix's strategic plan.

Grant Evans, Executive Vice President and General Manager, Security and itrust
Divisions, has established relationships with major companies and plays a
central role in the company's marketing strategy.

Yuri Khidekel, Vice President and Chief Software Technology Officer, Security
Division, and Yury Shapiro, Vice President and Chief Hardware Technology
Officer, Security Division, serve as key researchers and developers and manage
the biometric security research and development activities of IT Concepts, a key
product and service provider to the Company.

     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 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 dramatic seismic activity.  An earthquake or other significant natural
disaster could have a material adverse impact on our business, financial
condition, operating results and stock price.


Item 3. Quantitative and Qualitative Disclosures about Market Risk


  Interest Rate Risk.   The Company's exposure to market risk for changes in
  ------------------
interest rates relates primarily to the Company's cash equivalents and lines of
credit. The Company does not use derivative financial instruments in its
investment portfolio. The Company's investment portfolio is generally comprised
of money market securities that mature within one year. 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.

  The Company primarily enters into debt obligations to support general
corporate purposes including working capital requirements and capital
expenditures.  The Company is subject to fluctuating interest rates that may
impact, adversely or otherwise, its results of operation or cash flows for its
variable rate lines of credit and cash equivalents.

  Foreign Currency Exchange Rate Risk.   Certain of the Company's foreign
  -----------------------------------
revenues, cost of revenues and marketing 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.

                                       18
<PAGE>

PART II   OTHER INFORMATION

   Item 1. Legal Proceedings


          The Company is not party to any material legal proceedings.



   Item 2. Changes in Securities



          In July 2000, the Company entered into a Securities Purchase Agreement
with Motorola, Inc. ("Motorola"), whereby the Company sold 234,558 shares of
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock")
at $15.99 per share, resulting in cash proceeds to the Company of $3,702,000,
net of issuance costs. In accordance with the Securities Purchase Agreement,
the price per share was determined using the average closing price of the
Company's common stock during the ten trading days immediately prior to the
sale. The sale of the Series A Preferred Stock was exempt from registration
under applicable securities laws, however, Motorola has demand registration
rights which are effective beginning on January 7, 2001.

          The Series A Preferred Stock is convertible into shares of the
Company's common stock on a one-to-one basis, subject to adjustment for anti-
dilution. The Series A Preferred Stock is redeemable upon a change in control or
sale of all or substantially all of the assets of the Company at a redemption
price equal to all accrued or declared but unpaid dividends of the Series A
Preferred Stock, plus the greater (as adjusted for any stock dividends,
combinations, or splits with respect to such shares) of (x) the then current
market price of each such share (i.e. the average closing price of the common
stock during the ten trading days immediately prior to the change of control) or
(y) $15.99 per share.

          In connection with the issuance of the Series A Preferred Stock, the
Company also issued Motorola a warrant to purchase 187,647 shares of the
Company's common stock at $17.11 per share. The warrant is immediately
exercisable and expires on July 7, 2005.

          The proceeds from the sale of the Series A Preferred Stock will be
used solely for the research, design, development, marketing and manufacturing
of product and service solutions related to the Company's itrust division.


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

             (a) Exhibits

                 Exhibit
                 Number         Description

                 27.1 Financial Data Schedule

             (b) During the three months ended September 30, 2000, no reports
                 were filed on Form 8-K.

                                       19
<PAGE>

                                  SIGNATURES


   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, 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 November 10, 2000.

                                    IDENTIX INCORPORATED


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

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