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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
 For the quarterly period ended December 31, 2005 or
 o
    
    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
  Delaware
    
    94-2842496(State or other jurisdiction of
incorporation of organization)
    
    (IRS Employer Identification No.)5600 Rowland Road, Minnetonka, Minnesota
(Address of principal executive offices)
    
    55343
(Zip Code)
  þ o
  o þ o
 o þ
   
   1




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##### 



PART I FINANCIAL INFORMATIONItem 1 Unaudited Financial StatementsCondensed Consolidated Balance Sheets  December 31, 2005 and June 30, 2005
    
    
    3Condensed Consolidated Statements of Operations -
Three and Six months ended December 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows 
Six months ended December 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4 Controls and Procedures
    
    
    30PART II OTHER INFORMATIONItem 1
Legal Proceedings
    
    
    31Item 2
Submission of Matters to a Vote of Security Holders
    
    
    31Item 6 Exhibits
    
    
    31Signature
    
    
    32CEO CertificationCFO Certification906 Certification
  2




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IDENTIX INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per amounts)
(Unaudited)
 December 31,
    
    
    June 30,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,950
    
    
    $
    22,445Marketable securities
    
    
    9,790
    
    
    
    9,753Restricted cash
    
    
    249
    
    
    
    2,649Accounts receivable, net
    
    
    21,336
    
    
    
    15,376Inventories
    
    
    7,691
    
    
    
    6,340Prepaid expenses and other assets
    
    
    506
    
    
    
    928Total current assets
    
    
    61,522
    
    
    
    57,491Restricted cash
    
    
    933
    
    
    
    933Property and equipment, net
    
    
    3,099
    
    
    
    1,738Goodwill
    
    
    141,213
    
    
    
    141,213Acquired intangible assets, net
    
    
    11,166
    
    
    
    13,363Other assets
    
    
    296
    
    
    
    317Total assets
    
    $
    218,229
    
    
    $
    215,055LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,158
    
    
    $
    6,597Accrued compensation
    
    
    3,745
    
    
    
    3,894Other accrued liabilities
    
    
    3,475
    
    
    
    3,634Deferred revenue
    
    
    7,951
    
    
    
    6,738Total current liabilities
    
    
    24,329
    
    
    
    20,863Deferred revenue
    
    
    2,857
    
    
    
    1,947Other liabilities
    
    
    147
    
    
    
    159Total liabilities
    
    
    27,333
    
    
    
    22,969Commitments and contingencies (Note 14)Stockholders equity:Common stock, $0.01 par value; 200,000,000 shares authorized
89,136,700 and 88,976,326 shares issued and outstanding,
respectively
    
    
    891
    
    
    
    889Additional paid-in capital
    
    
    553,572
    
    
    
    552,507Accumulated deficit
    
    
    (363,416
    )
    
    
    (361,159
    )Accumulated other comprehensive loss
    
    
    (151
    )
    
    
    (151
    )Total stockholders equity
    
    
    190,896
    
    
    
    192,086Total liabilities and stockholders equity
    
    $
    218,229
    
    
    $
    215,055
  3




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IDENTIX INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Product revenues
    
    $
    15,246
    
    
    $
    10,284
    
    
    $
    30,747
    
    
    $
    18,564Service revenues
    
    
    6,982
    
    
    
    8,274
    
    
    
    14,148
    
    
    
    16,617Total Revenues
    
    
    22,228
    
    
    
    18,558
    
    
    
    44,895
    
    
    
    35,181Cost and expenses:Cost of product revenues
    
    
    8,708
    
    
    
    7,803
    
    
    
    16,485
    
    
    
    14,343Cost of service revenues
    
    
    5,713
    
    
    
    5,925
    
    
    
    11,587
    
    
    
    12,109Research and development
    
    
    3,162
    
    
    
    2,787
    
    
    
    6,217
    
    
    
    5,316Marketing and selling
    
    
    2,977
    
    
    
    2,903
    
    
    
    6,292
    
    
    
    5,565General and administrative
    
    
    3,347
    
    
    
    3,113
    
    
    
    6,912
    
    
    
    6,202Amortization
of certain acquired intangible assets
    
    
    211
    
    
    
    253
    
    
    
    420
    
    
    
    504Restructuring and other, net
    
    
    
    
    
    
    (1,071
    )
    
    
    
    
    
    
    (620
    )Total costs and expenses
    
    
    24,118
    
    
    
    21,713
    
    
    
    47,913
    
    
    
    43,419Loss from operations
    
    
    (1,890
    )
    
    
    (3,155
    )
    
    
    (3,018
    )
    
    
    (8,238
    )Interest and other income, net
    
    
    285
    
    
    
    399
    
    
    
    510
    
    
    
    662Loss from continuing operations before income taxes
    
    
    (1,605
    )
    
    
    (2,756
    )
    
    
    (2,508
    )
    
    
    (7,576
    )Benefit (provision) for income taxes
    
    
    64
    
    
    
    (9
    )
    
    
    38
    
    
    
    (22
    )(Loss) income from continuing
operations
    
    
    (1,541
    )
    
    
    (2,765
    )
    
    
    (2,470
    )
    
    
    (7,598
    )Discontinued operations:(Loss) Gain
on sale of IPS, net of taxes
    
    
    (137
    )
    
    
    
    
    
    
    213
    
    
    
    (Loss) Income from discontinued operations
    
    
    (137
    )
    
    
    
    
    
    
    213
    
    
    
    Net loss
    
    $
    (1,678
    )
    
    $
    (2,765
    )
    
    $
    (2,257
    )
    
    $
    (7,598
    )Basic and diluted loss per share from continuing
operations
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )Basic and diluted (loss)income per share from discontinued
operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )Weighted average common shares used in basic
and diluted loss per share computation
    
    
    89,076
    
    
    
    88,591
    
    
    
    89,037
    
    
    
    88,514
  4




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IDENTIX INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended December 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (2,257
    )
    
    $
    (7,598
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    2,974
    
    
    
    3,276Realized gain on sales of marketable securities
    
    
    (146
    )
    
    
    (51
    )Gain on sale of discontinued IPS operations, pre-tax
    
    
    (350
    )
    
    
    Stock-based compensation expense
    
    
    511
    
    
    
    14Bad debt expense (recoveries), net
    
    
    50
    
    
    
    (172
    )Loss on disposal of equipment
    
    
    10
    
    
    
    8Inventory obsolescence provision
    
    
    336
    
    
    
    582Restructuring and other, net
    
    
    
    
    
    
    (620
    )Changes in assets and liabilities:Restricted Cash
    
    
    2,400
    
    
    
    986Accounts receivable
    
    
    (6,010
    )
    
    
    (2,001
    )Inventories
    
    
    (1,687
    )
    
    
    741Prepaid expenses and other assets
    
    
    443
    
    
    
    471Accounts payable
    
    
    2,561
    
    
    
    98Accrued compensation
    
    
    (149
    )
    
    
    807Other accrued liabilities
    
    
    (171
    )
    
    
    (1,124
    )Deferred revenue
    
    
    2,123
    
    
    
    870Net cash provided by (used in) operating activities
    
    
    638
    
    
    
    (3,713
    )Cash flows from investing activities:Net proceeds from the sales of marketable securities
    
    
    9,900
    
    
    
    12,000Purchases of marketable securities
    
    
    (9,791
    )
    
    
    (11,915
    )Cash proceeds related to final payment on the sale of IPS
    
    
    350
    
    
    
    Additions of Intangible Assets
    
    
    (300
    )
    
    
    Capital expenditures
    
    
    (1,848
    )
    
    
    (438
    )Net cash used in investing activities
    
    
    (1,689
    )
    
    
    (353
    )Cash flows from financing activities:Proceeds from the exercise of stock options and issuance of stock
under employee retirement plans
    
    
    556
    
    
    
    1,453Net cash provided by financing activities
    
    
    556
    
    
    
    1,453Net decrease in cash and cash equivalents
    
    
    (495
    )
    
    
    (2,613
    )Cash and cash equivalents at period beginning
    
    
    22,445
    
    
    
    35,944Cash and cash equivalents at period end
    
    $
    21,950
    
    
    $
    33,331
  5




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IDENTIX INCORPORATED
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
       Product Revenues
   6




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Service Revenues
      7




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8




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Three months ended December 31, 2005Employees
    
    Directors and OfficersExpected volatility
    
    
    67.70
    %
    
    
    77.91
    %Expected dividends
    
    
    
    
    
    
    Expected term (in years)
    
    
    4.02
    
    
    
    5.46Risk-free interest rate
    
    
    4.38
    %
    
    
    4.44
    %
 9




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Weighted AverageWeighted Average
    
    
    Remaining Contractual
    
    
    AggregateOptions
    
    Shares
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic ValueOutstanding at July 1, 2005
    
    
    7,058,681
    
    
    $
    6.09
    
    
    
    6.87Granted
    
    
    52,800
    
    
    $
    5.26
    
    
    
    9.84Exercised
    
    
    41,276
    
    
    $
    1.70
    
    
    
    Forfeited or expired
    
    
    55,392
    
    
    $
    6.77
    
    
    
    Outstanding at September 30, 2005
    
    
    7,014,813
    
    
    $
    6.11
    
    
    
    6.69
    
    
    $
    12,155,000Granted
    
    
    47,000
    
    
    $
    4.56
    
    
    
    9.87Exercised
    
    
    51,357
    
    
    $
    3.09
    
    
    
    Forfeited or expired
    
    
    50,257
    
    
    $
    5.80
    
    
    
    Outstanding at December 31, 2005
    
    
    6,960,199
    
    
    $
    6.12
    
    
    
    6.48
    
    
    $
    10,532,000Excercisable at December 31, 2005
    
    
    6,341,997
    
    
    $
    6.26
    
    
    
    6.01
    
    
    $
    10,519,000
  2005
    
    
    2004Three months ended September 30,
    
    $
    2.94
    
    
    $
    3.35Six months ended December 31,
    
    $
    2.82
    
    
    $
    4.58
   Weighted AverageGrant Date FairNonvested Options
    
    Shares
    
    
    ValueNonvested at July 1, 2005
    
    
    701,927
    
    
    $
    3.36$Granted
    
    
    52,800
    
    
    
    2.94$Vested
    
    
    123,262
    
    
    
    3.58$Forfeited
    
    
    10,848
    
    
    
    3.23$Nonvested at September 30, 2005
    
    
    620,617
    
    
    
    3.28$Granted
    
    
    47,000
    
    
    
    2.68$Vested
    
    
    41,250
    
    
    
    4.44$Forfeited
    
    
    8,165
    
    
    
    3.23$Nonvested at December 31, 2005
    
    
    618,202
    
    
    
    3.16
   10




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For the Three Months Ended
    
    
    For the Six Months EndedDecember 31, 2004
    
    
    December 31, 2004(in thousands)
    
    
    (in thousands)Net Loss as reported
    
    $
    (2,765
    )
    
    $
    (7,598
    )Add: Employee stock-based compensation
expense included in reported
net loss
    
    
    
    
    
    
    14Deduct: Total employee stock-based compensation
expense determined under fair value
based method for all awards
    
    
    (1,046
    )
    
    
    (2,253
    )Proforma net loss
    
    $
    (3,811
    )
    
    $
    (9,837
    )Basic and diluted net loss per share:As Reported
    
    $
    (0.03
    )
    
    $
    (0.09
    )Proforma
    
    $
    (0.04
    )
    
    $
    (0.11
    )Shares
    
    
    88,591
    
    
    
    88,514
        11




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December 31,
    
    
    June 30,2005
    
    
    2005(In thousands)Purchased parts and materials
    
    $
    4,752
    
    
    $
    3,403Work-in-process
    
    
    2,322
    
    
    
    2,008Finished goods, including spares
    
    
    617
    
    
    
    929$
    7,691
    
    
    $
    6,340
    Three Months Ended December 31,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Charges related to restructuring actions initiated in 2002:Lease exit costs
    
    $
    
    
    
    $
    (1,071
    )
    
    $
    
    
    
    $
    (620
    )Total
    
    $
    
    
    
    $
    (1,071
    )
    
    $
    
    
    
    $
    (620
    )
 2005 Restructuring Actions
  2002 Restructuring Program
       12




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Total Charges
    
    
    
    
    
    
    
    
    
    
    Restructuringfrom Continuing
    
    
    
    
    
    
    
    
    
    
    Liability as ofOperations
    
    
    Non-Cash Charges
    
    
    Cash Payments
    
    
    December 31, 2005(in thousands)Severance and benefits
    
    $
    8,604
    
    
    $
    900
    
    
    $
    7,626
    
    
    $
    78Disposal of property and equipment
    
    
    1,664
    
    
    
    1,664
    
    
    
    
    
    
    $
    Lease exit costs
    
    
    10,558
    
    
    
    388
    
    
    
    10,055
    
    
    $
    115Internal merger costs and other
    
    
    3,684
    
    
    
    
    
    
    
    3,684
    
    
    $
    Total
    
    $
    24,510
    
    
    $
    2,952
    
    
    $
    21,365
    
    
    $
    193
  Restructuring
    
    
    Total Charges from
    
    
    
    
    
    
    RestructuringLiabiliity as of June
    
    
    Continuing
    
    
    
    
    
    
    Liability as of30, 2005
    
    
    Operations
    
    
    Cash Payments
    
    
    December 31, 2005(in thousands)Severance and benefits
    
    $
    108
    
    
    $
    
    
    
    $
    30
    
    
    $
    78Lease exit costs
    
    
    361
    
    
    
    
    
    
    
    246
    
    
    $
    115Total
    
    $
    469
    
    
    $
    
    
    
    $
    276
    
    
    $
    193
     13




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Three Months Ended December 31,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Total revenues:Biometric systems
    
    $
    20,021
    
    
    $
    16,465
    
    
    $
    40,093
    
    
    $
    30,963Finger Printing Services
    
    
    1,854
    
    
    
    1,734
    
    
    
    4,088
    
    
    
    3,566Other
    
    
    353
    
    
    
    359
    
    
    
    714
    
    
    
    652$
    22,228
    
    
    $
    18,558
    
    
    $
    44,895
    
    
    $
    35,181Operating income/loss:Biometric systems
    
    $
    (1,515
    )
    
    $
    (3,061
    )
    
    $
    (2,593
    )
    
    $
    (8,108
    )Finger Printing Services
    
    
    (307
    )
    
    
    118
    
    
    
    (242
    )
    
    
    313Other
    
    
    (68
    )
    
    
    (212
    )
    
    
    (183
    )
    
    
    (443
    )$
    (1,890
    )
    
    $
    (3,155
    )
    
    $
    (3,018
    )
    
    $
    (8,238
    )
 December 31,
    
    
    June 30,2005
    
    
    2005(in thousands)Identifiable assets:Biometric systems
    
    $
    209,308
    
    
    $
    208,441Finger Printing Services
    
    
    8,003
    
    
    
    5,756Other
    
    
    918
    
    
    
    858$
    218,229
    
    
    $
    215,055
 14




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Three Months Ended December 31,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Total revenues:United States
    
    $
    20,455
    
    
    $
    16,854
    
    
    $
    40,538
    
    
    $
    31,761International
    
    
    1,773
    
    
    
    1,704
    
    
    
    4,357
    
    
    
    3,420$
    22,228
    
    
    $
    18,558
    
    
    $
    44,895
    
    
    $
    35,181
 December 31,
    
    
    June 30,2005
    
    
    2005(in thousands)*Identifiable long lived assets:United States
    
    $
    3,087
    
    
    $
    1,712International
    
    
    12
    
    
    
    26$
    3,099
    
    
    $
    1,738
 
 *Long lived assets consist of property and equipment.     Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Balance at beginning of period
    
    $
    1,509
    
    
    $
    1,094
    
    
    $
    1,416
    
    
    $
    921Warranty Expense
    
    
    8
    
    
    
    394
    
    
    
    164
    
    
    
    890Closed Warranty Claims
    
    
    (48
    )
    
    
    (349
    )
    
    
    (111
    )
    
    
    (672
    )Balance at end of period
    
    $
    1,469
    
    
    $
    1,139
    
    
    $
    1,469
    
    
    $
    1,139
    15




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16




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17




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Revenues, and Gross Margins
     18




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Research and Development
  Marketing and Selling
  General and Administrative
  19




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Amortization of Acquired Intangible Assets
  Restructuring and other, net
  Three Months Ended December 31,
    
    
    Six Months Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Charges related to restructuring actions initiated in 2002:Lease exit costs
    
    $
    
    
    
    $
    (1,071
    )
    
    $
    
    
    
    $
    (620
    )Total
    
    $
    
    
    
    $
    (1,071
    )
    
    $
    
    
    
    $
    (620
    )
  Interest and Other Income, net
  Income Taxes
  Discontinued Operations
  20




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New Accounting Pronouncements
  Liquidity and Capital Resources
     21




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Occupied
    
    
    Unoccupied or Sublet
    
    
    TotalPeriods or fiscal years ending June 30:2006
    
    
    907
    
    
    
    115
    
    
    
    1,0222007
    
    
    1,600
    
    
    
    
    
    
    
    1,6002008
    
    
    1,309
    
    
    
    
    
    
    
    1,3092009
    
    
    358
    
    
    
    
    
    
    
    358Total
    
    $
    4,174
    
    
    $
    115
    
    
    $
    4,289
    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 quarterly report on
Form 10-Q or in other reports, press releases or other statements issued from time to time.
Additional factors that may cause our results to vary are set forth in the Companys Annual Report
on Form 10-K.
 We face intense competition from other biometric solution providers as well as identification and
security systems providers.
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The biometrics industry is characterized by rapid technological change and requires introduction of
new and enhanced products at competitive prices.
   Our business will not grow unless the market for biometric products and services expands both
domestically and internationally.
  
    
    national or international events which may affect the need for or interest in biometric products
or services;
    
    the cost, performance and reliability of our products and services and those of our
competitors;
    
    customers perception of the perceived benefit of biometric products and services and their
satisfaction with our products and services;
    
    public perceptions of the intrusiveness of these products and services and the manner in which
firms are using the information collected;
    
    public perceptions regarding the confidentiality of private information;
    
    proposed or enacted legislation related to privacy of information; and
    
    marketing efforts and publicity regarding these products and services.
  We derive a significant amount of our revenue from government contracts, which are often
non-standard, involve competitive bidding, may be subject to cancellation without penalty and may
produce volatility in earnings and revenue.
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
    
    include provisions that allow the government agency to terminate the contract without penalty under some circumstances;
    
    be subject to purchasing decisions of agencies that are subject to political influence;
    
    include bonding requirements;
    
    contain onerous procurement procedures; and
    
    be subject to cancellation if government funding becomes unavailable.
     Our financial and operating results often vary significantly from quarter to quarter and may be
negatively affected by a number of factors.
  
    
    unavailability or delays in authorization of government funding or
cancellations, delays or contract amendments by government agency customers;
    
    reduced demand for products and services caused, for example, by product offerings from new
competitors;
    
    the inability to timely and successfully (i) complete development of complex designs,
components and products, (ii) complete new product introductions that may result in improved gross margins, (iii)
manufacture in volume or install certain of our complex products or (iv) obtain relevant government agency
certifications for newly introduced products on a timely basis;
    
    changes in the mix of products and services we or our distributors sell;
    
    the readiness of customers to accept delivery of new products on a timely basis;
    
    protests of federal, state or local government contract awards by competitors;
    
    unforeseen legal expenses, including litigation and/or administrative protest costs;
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
    
    expenses related to acquisitions or mergers;
    
    impairment charges arising out of our assessments of goodwill and intangibles;
    
    other one-time financial charges;
    
    the lack of availability or increase in cost of key components and subassemblies;
    
    competitive pricing pressures; and
    
    unpredictable product installation schedules
  Our results of operations may be harmed by governmental credit and other policies.
   A security breach or failure in systems that we sell could result in the disclosure of private
personal information that could harm our business by adversely affecting the markets perception of
our products and services.
  The terrorist attacks of September 11, 2001, and the continuing threat of global terrorism, have
increased financial expectations that may not materialize.
  We may need to raise additional equity or debt financing in the future.
  Our lengthy and variable sales cycle will make it difficult to predict operating results.
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The substantial lead-time required for ordering parts and materials may lead to inventory problems.
  We rely in part upon original equipment manufacturers (OEM) and distribution partners to
distribute our products, and we may be adversely affected if those parties do not actively promote
our products or pursue installations that use our equipment.
   Loss of sole or limited source suppliers may result in delays or additional expenses.
   Our plan to pursue sales in international markets may be limited by risks related to conditions in
such markets.
    
    
    regional economic instabilities or political conditions;
    
    delays in or absolute 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, criminal acts and other political and
social risks;
    
    the overlap of different tax structures;
    
    seasonal reductions in business activity;
    
    risks of increases in taxes and other government fees; and
    
    involuntary renegotiations of contracts with foreign governments, or outright termination of contracts by such governments.
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Individual stockholders owning a significant portion of our stock may have the ability to delay or
prevent a change in control or adversely affect the stock price through sales in the open market.
  We may be subject to loss in market share and market acceptance as a result of performance
failures, manufacturing errors, delays or shortages.
  We may be subject to repair, replacement, reimbursement and liability claims as a result of
products that fail to work or to meet applicable performance criteria.
  Failure by us to maintain the proprietary nature of our technology, intellectual property and
manufacturing processes could have a material adverse effect on our business, operating results,
financial condition, stock price, and on our ability to compete effectively.
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Our proposed merger with Viisage subjects us to certain significant risks and may result in
disruptions to our business.
  
    
    the exchange ratio for the shares of Viisage common stock to be received by our
stockholder is fixed, and will not be adjusted in the event of changes in the market prices
of either our stock or the stock of Viisage;
    
    the costs of the merger will be substantial, and many of the costs associated with the
merger will be incurred whether or not it is successfully completed;
    
    failure to complete the merger could adversely affect our stock price, future business
and operations, including that under certain circumstances we could be require to pay a
termination fee of $20 million; and
    
    even if the merger is successfully completed, integration of the two businesses may be
difficult to achieve, and will be complex, time-consuming and expensive.
 Possible additional acquisitions and dispositions of companies, assets or technologies may result
in disruptions to our business.
   
    
    exposure to unknown liabilities of acquired companies or assets;
    
    higher than anticipated acquisition costs and expenses;
    
    effects of costs and expenses of acquiring and integrating new businesses and/or
technologies on our operating results and financial condition;
    
    effects of consolidated revenue loss associated with dispositions of material subsidiaries or assets;
    
    effects of costs and expenses of integrating and introducing new technologies and entering into new markets;
    
    the difficulty and expense of assimilating the operations and personnel of the companies;
    
    disruption of our ongoing business;
    
    diversion of management time and attention;
    
    failure to maximize our financial and strategic position by the successful incorporation,
integration and launch of acquired technology;
    
    failure to realize the potential of acquired technologies, complete product development, or
properly obtain or secure appropriate protection of intellectual property rights;
    
    the maintenance of uniform standards, controls, procedures and policies;
    
    loss of key employees and customers as a result of changes in management;
    
    incurring amortization expenses;
    
    incurring impairment charges arising out of our assessments of goodwill and intangibles; and
    
    possible dilution to our stockholders.
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The manner of accounting for our merger with Visionics Corporation, which was completed in June
2002, may affect our reported results of operations.
  If we are unable to successfully address the material weakness in our internal controls as
described in Item 9A of the Form 10-K for the fiscal year ended June 30, 2005 and updated for the
three and six months ended December 31, 2005 on our Form 10-Q, our ability to report our financial
results on a timely and accurate basis may be adversely affected. As a result, current and
potential stockholders could lose confidence in our financial reporting which could have a material
adverse effect on our business, operating results and stock price.
  Compliance with changing regulation of corporate governance and public disclosure may result in
additional expenses.
  If we fail to adequately manage the size of our business, it could have a severe negative effect on
our financial results or stock price.
  If we fail to attract and retain qualified senior executive and key technical personnel, our
business will not be able to expand.
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Interest Rate Risk.
  Foreign Currency Exchange Rate Risk.
 
  Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
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(a)
    
    The Annual Meeting of Shareholders was held on November 15, 2005.(b)
    
    All Board of Directors nominees referenced in Item 4 (c) below
were elected at the Annual Meeting of Shareholders on November 15, 2005.(c)
    
    The matters voted upon and the results of the voting were as
follows:
 (1)
    
    The following seven persons were elected to the
Board of Directors:
 Name
    
    Votes For
    
    Votes WithheldMilton E. Cooper
    
    
    76,278,027
    
    
    
    6,918,202Dr. Joseph J. Atick
    
    
    79,798,023
    
    
    
    3,398206Malcolm J. Gudis
    
    
    79,717,153
    
    
    
    3,479,076Dr. John E. Haugo
    
    
    76,246,961
    
    
    
    6,949,268George Latimer
    
    
    79,691,937
    
    
    
    3,504,292John E. Lawler
    
    
    79,827,398
    
    
    
    3,368,831
   
   ExhibitNumber
    
    Description31.1
    
    CEO Certification31.2
    
    CFO Certification32
    
    906 Certifications
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IDENTIX INCORPORATEDBY:      /s/ Elissa J. LindsoeElissa J. LindsoeChief Financial Officer 32