##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark one) |  |                                                                                         
|[X]        |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
|           |  |                                                                                         
|           |  | For the quarterly period ended March 31, 2003 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
incorporation of organization) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|5600 Rowland Road, Minnetonka, Minnesota                       |  | 55343                            
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

Registrants telephone number, including area code: (952) 932-0888

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  [  ]

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

85,484,772 shares of Common Stock
as of April 30, 2003





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TABLE OF CONTENTS



|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1 Unaudited Financial Statements                                                        
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION     
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                    
|CERTIFICATIONS                
|EX-99.1 906 Certifications    



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##### Table of Contents



IDENTIX INCORPORATED

INDEX

|        |  |           |  |                                                                                                       |  |   
|------- |  | --------- |  | ----------------------------------------------------------------------------------------------------- |  | --
|PART I  |  |           |  | FINANCIAL INFORMATION                                                                                 |  |   
|       
|        |  | Item 1    |  | Unaudited Financial Statements                                                                        |  |   
|       
|        |  |           |  | Condensed Consolidated Balance Sheets 
March 31, 2003 and June 30, 2002                              |  | 3 
|       
|        |  |           |  | Condensed
Consolidated Statements of Operations 
Three and nine months ended March 31, 2003 and 2002 |  | 4 
|       
|        |  |           |  | Condensed Consolidated Statements of Cash Flows 
Nine months ended March 31, 2003 and 2002           |  | 5 
|       
|        |  |           |  | Notes to Condensed Consolidated Financial Statements                                                  |  | 6 
|       
|        |  | Item 2    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                 |  | 12
|       
|        |  | Item 3    |  | Quantitative and Qualitative Disclosures
About Market Risk                                            |  | 26
|       
|        |  | Item 4    |  | Controls and Procedures                                                                               |  | 26
|       
|PART II |  |           |  | OTHER INFORMATION                                                                                     |  |   
|       
|        |  | Item 4    |  | Submission of Matters to a Vote of Security Holders                                                   |  | 27
|       
|        |  | Item 6    |  | Exhibits and Reports on Form 8-K                                                                      |  | 27
|       
|        |  | Signature |  | 28                                                                                                   

2



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##### Table of Contents









IDENTIX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |              |             |             | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------ | ----------- | ----------- | ----------- | ------------ | ----------- | ----------- | 
|                                     |                                                                                                                                    |                            |                                            |              | March 31,   |             | June 30,   
|                                     |                                                                                                                                    |                            |                                            |              | 2003        |             | 2002       
|                                     |                                                                                                                                    |                            |                                            |              |             |             |            
|ASSETS                               |                                                                                                                                    |                            |                                            |              |             |             |             |             
|Current assets:                      |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     | Cash and cash equivalents                                                                                                          |                            | $                                          | 32,934,000   |             |             | $           | 53,346,000   |            
|                                     | Marketable securities  short-term                                                                                                 |                            |                                            | 7,995,000    |             |             |             | 5,143,000    |            
|                                     | Accounts receivable, net                                                                                                           |                            |                                            | 19,582,000   |             |             |             | 19,880,000   |            
|                                     | Inventories                                                                                                                        |                            |                                            | 10,060,000   |             |             |             | 11,095,000   |            
|                                     | Prepaid expenses and other assets                                                                                                  |                            |                                            | 1,625,000    |             |             |             | 1,412,000    |            
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    | Total current assets       |                                            |              | 72,196,000  |             |             |              | 90,876,000  |            
|Marketable securities  long-term    |                                                                                                                                    |                            | 6,650,000                                  |              |             |             | 10,269,000  |             
|Property and equipment, net          |                                                                                                                                    |                            | 4,614,000                                  |              |             |             | 6,243,000   |             
|Goodwill                             |                                                                                                                                    |                            | 295,744,000                                |              |             |             | 295,744,000 |             
|Acquired intangible assets, net      |                                                                                                                                    |                            | 21,236,000                                 |              |             |             | 25,037,000  |             
|Other assets                         |                                                                                                                                    |                            | 2,468,000                                  |              |             |             | 3,086,000   |             
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    | Total assets               |                                            | $            | 402,908,000 |             |             | $            | 431,255,000 |            
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                    |                            |                                            |              |             |             |             |             
|Current liabilities:                 |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     | Accounts payable                                                                                                                   |                            | $                                          | 7,425,000    |             |             | $           | 10,727,000   |            
|                                     | Accrued compensation                                                                                                               |                            |                                            | 4,721,000    |             |             |             | 6,082,000    |            
|                                     | Other accrued liabilities                                                                                                          |                            |                                            | 5,232,000    |             |             |             | 4,032,000    |            
|                                     | Deferred revenue                                                                                                                   |                            |                                            | 6,692,000    |             |             |             | 6,796,000    |            
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    | Total current liabilities  |                                            |              | 24,070,000  |             |             |              | 27,637,000  |            
|Deferred revenue                     |                                                                                                                                    |                            | 357,000                                    |              |             |             | 741,000     |             
|Other liabilities                    |                                                                                                                                    |                            | 10,323,000                                 |              |             |             | 9,554,000   |             
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    | Total liabilities          |                                            |              | 34,750,000  |             |             |              | 37,932,000  |            
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|Stockholders equity:                |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     | Convertible preferred stock, $0.01 par value;
2,000,000 shares authorized; 234,558 shares issued and
outstanding                   |                            |                                            | 3,702,000    |             |             |             | 3,702,000    |            
|                                     | Common stock, $0.01 par value; 200,000,000 shares authorized
85,445,025 and 84,651,058 shares issued and outstanding,
respectively |                            |                                            | 854,000      |             |             |             | 846,000      |            
|                                     | Additional paid-in capital                                                                                                         |                            |                                            | 534,259,000  |             |             |             | 532,738,000  |            
|                                     | Accumulated deficit                                                                                                                |                            |                                            | (169,538,000 | )           |             |             | (141,277,000 | )          
|                                     | Deferred stock-based compensation                                                                                                  |                            |                                            | (973,000     | )           |             |             | (2,540,000   | )          
|                                     | Accumulated other comprehensive loss                                                                                               |                            |                                            | (146,000     | )           |             |             | (146,000     | )          
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    | Total stockholders equity |                                            |              | 368,158,000 |             |             |              | 393,323,000 |            
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             
|                                     |                                                                                                                                    |                            | Total liabilities and stockholders equity |              | $           | 402,908,000 |             |              | $           | 431,255,000 | 
|                                     |                                                                                                                                    |                            |                                            |              |             |             |             |             

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

3



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IDENTIX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |            |            | 
|----------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | ---------- | ---------------------------- | ---------- | --------------------------- | ---------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | 
|                                                                                    |                                                            |                          |            | Three Months Ended March 31, |            | Nine Months Ended March 31,
|                                                                                    |                                                            |                          |            |                              |            |                            
|                                                                                    |                                                            |                          |            | 2003                         |            | 2002                        |            | 2003       |            | 2002
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |     
|Revenues:                                                                           |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|                                                                                    | Product revenues                                           |                          | $          | 12,118,000                   |            |                             | $          | 8,839,000  |            |      | $           | 38,782,000 |            |   | $           | 21,423,000 |           
|                                                                                    | Services revenues                                          |                          |            | 9,687,000                    |            |                             |            | 10,393,000 |            |      |             | 30,601,000 |            |   |             | 34,086,000 |           
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|                                                                                    |                                                            | Total revenues           |            |                              | 21,805,000 |                             |            |            | 19,232,000 |      |             |            | 69,383,000 |   |             |            | 55,509,000 | 
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Cost and expenses:                                                                  |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|                                                                                    | Cost of product revenues                                   |                          | $          | 7,298,000                    |            |                             | $          | 6,103,000  |            |      | $           | 26,384,000 |            |   | $           | 14,199,000 |           
|                                                                                    | Cost of services revenues                                  |                          |            | 8,691,000                    |            |                             |            | 10,140,000 |            |      |             | 27,322,000 |            |   |             | 31,872,000 |           
|                                                                                    | Research, development and engineering                      |                          |            | 2,613,000                    |            |                             |            | 2,358,000  |            |      |             | 8,391,000  |            |   |             | 7,224,000  |           
|                                                                                    | Marketing and selling                                      |                          |            | 3,034,000                    |            |                             |            | 3,851,000  |            |      |             | 9,686,000  |            |   |             | 10,799,000 |           
|                                                                                    | General and administrative                                 |                          |            | 4,408,000                    |            |                             |            | 4,340,000  |            |      |             | 13,347,000 |            |   |             | 11,990,000 |           
|                                                                                    | Amortization of acquired intangible assets                 |                          |            | 1,087,000                    |            |                             |            | 233,000    |            |      |             | 4,006,000  |            |   |             | 699,000    |           
|                                                                                    | Restructuring, write-offs and other merger related charges |                          |            | 1,272,000                    |            |                             |            |           |            |      |             | 9,577,000  |            |   |             | 1,712,000  |           
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|                                                                                    |                                                            | Total costs and expenses |            |                              | 28,403,000 |                             |            |            | 27,025,000 |      |             |            | 98,713,000 |   |             |            | 78,495,000 | 
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Loss from operations                                                                |                                                            |                          | (6,598,000 | )                            |            |                             | (7,793,000 | )          |            |      | (29,330,000 | )          |            |   | (22,986,000 | )         
|Interest and other income, net                                                      |                                                            |                          | 389,000    |                              |            |                             | 261,000    |            |            |      | 1,436,000   |            |            |   | 661,000     |           
|Interest expense                                                                    |                                                            |                          | (7,000     | )                            |            |                             |           |            |            |      | (11,000     | )          |            |   |            |           
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Loss before income taxes and equity interest in income (loss)
of joint venture      |                                                            |                          | (6,216,000 | )                            |            |                             | (7,532,000 | )          |            |      | (27,905,000 | )          |            |   | (22,325,000 | )         
|Provision for income taxes                                                          |                                                            |                          | (146,000   | )                            |            |                             | (7,000     | )          |            |      | (160,000    | )          |            |   | (6,000      | )         
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Loss before equity interest in income (loss) of joint venture                       |                                                            |                          | (6,362,000 | )                            |            |                             | (7,539,000 | )          |            |      | (28,065,000 | )          |            |   | (22,331,000 | )         
|Equity interest in (loss)/ income of joint venture                                  |                                                            |                          | (148,000   | )                            |            |                             | 75,000     |            |            |      | (196,000    | )          |            |   | 188,000     |           
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Net loss                                                                            |                                                            | $                        | (6,510,000 | )                            |            | $                           | (7,464,000 | )          |            | $    | (28,261,000 | )          |            | $ | (22,143,000 | )         
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Basic and diluted net loss per share                                                |                                                            | $                        | (0.08      | )                            |            | $                           | (0.17      | )          |            | $    | (0.33       | )          |            | $ | (0.56       | )         
|                                                                                    |                                                            |                          |            |                              |            |                             |            |            |            |      |             |            |            |   |             |           
|Weighted average common shares used in basic
and diluted loss per share computation |                                                            |                          | 85,393,000 |                              |            |                             | 44,814,000 |            |            |      | 85,103,000  |            |            |   | 39,809,000  |           

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

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IDENTIX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                     |                                                                             |                                                     |             |                          |            |      |            |             |            |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | ----------- | ------------------------ | ---------- | ---- | ---------- | ----------- | ---------- | -
|                                                     |                                                                             |                                                     |             | Nine Months Ended March,
|                                                     |                                                                             |                                                     |             |                         
|                                                     |                                                                             |                                                     |             | 2003                     |            | 2002
|                                                     |                                                                             |                                                     |             |                          |            |     
|Cash flows from operating activities:                |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Net loss                                                                    |                                                     | $           | (28,261,000              | )          |      | $          | (22,143,000 | )         
|                                                     | Adjustments to reconcile net loss to net cash used in operating
activities: |                                                     |             |                          |            |      |            |             |           
|                                                     |                                                                             | Depreciation and amortization                       |             |                          | 6,244,000  |      |            |             | 2,581,000  |  
|                                                     |                                                                             | Loss on disposals of property and equipment         |             |                          |           |      |            |             | 53,000     |  
|                                                     |                                                                             | Equity interest in loss (income) on joint venture   |             |                          | 196,000    |      |            |             | (188,000   | )
|                                                     |                                                                             | Realized gain on sales of securities                |             |                          | (208,000   | )    |            |             |           |  
|                                                     |                                                                             | Stock-based compensation expense                    |             |                          | 1,391,000  |      |            |             | 443,000    |  
|                                                     |                                                                             | Amortization of premiums on marketable securities   |             |                          | 92,000     |      |            |             |           |  
|                                                     |                                                                             | Bad debt expense                                    |             |                          | 921,000    |      |            |             | 578,000    |  
|                                                     |                                                                             | Non-cash restructuring write-offs and other charges |             |                          | 789,000    |      |            |             |           |  
|                                                     | Changes in assets and liabilities, net of effects of acquisition:           |                                                     |             |                          |            |      |            |             |           
|                                                     |                                                                             | Accounts receivable                                 |             |                          | (607,000   | )    |            |             | 5,061,000  |  
|                                                     |                                                                             | Inventories                                         |             |                          | 1,035,000  |      |            |             | 282,000    |  
|                                                     |                                                                             | Prepaid expenses and other assets                   |             |                          | 117,000    |      |            |             | 622,000    |  
|                                                     |                                                                             | Accounts payable                                    |             |                          | (3,302,000 | )    |            |             | (2,179,000 | )
|                                                     |                                                                             | Accrued compensation                                |             |                          | (1,361,000 | )    |            |             | (26,000    | )
|                                                     |                                                                             | Other accrued liabilities                           |             |                          | 1,797,000  |      |            |             | (172,000   | )
|                                                     |                                                                             | Deferred revenue                                    |             |                          | (488,000   | )    |            |             | (978,000   | )
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Net cash used in operating activities                                       |                                                     |             | (21,645,000              | )          |      |            | (16,066,000 | )         
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|Cash flows from investing activities:                |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Proceeds from the sales of marketable securities                            |                                                     |             | 22,127,000               |            |      |            |            |           
|                                                     | Purchases of marketable securities                                          |                                                     |             | (21,168,000              | )          |      |            |            |           
|                                                     | Capital expenditures                                                        |                                                     |             | (931,000                 | )          |      |            | (2,810,000  | )         
|                                                     | Proceeds from the sale of property and equipment                            |                                                     |             |                         |            |      |            | 16,000      |           
|                                                     | Additions of intangibles and other assets                                   |                                                     |             | (500,000                 | )          |      |            | (669,000    | )         
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Net cash used by investing activities                                       |                                                     |             | (472,000                 | )          |      |            | (3,463,000  | )         
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|Cash flows from financing activities:                |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Proceeds from sales of common stock                                         |                                                     |             | 1,705,000                |            |      |            | 52,755,000  |           
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|                                                     | Net cash provided by financing activities                                   |                                                     |             | 1,705,000                |            |      |            | 52,755,000  |           
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                     | (20,412,000 | )                        |            |      | 33,226,000 |            
|Cash and cash equivalents at period beginning        |                                                                             |                                                     | 53,346,000  |                          |            |      | 20,777,000 |            
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            
|Cash and cash equivalents at period end              |                                                                             | $                                                   | 32,934,000  |                          |            | $    | 54,003,000 |            
|                                                     |                                                                             |                                                     |             |                          |            |      |            |            

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

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##### Table of Contents



IDENTIX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | These accompanying condensed 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 condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the fiscal year ended
June 30, 2002 included in the Identix Incorporated Form 10-K. Identix
Incorporated is hereinafter referred to as Identix or the Company. The
results of operations for the three and nine months ended March 31, 2003 are
not necessarily indicative of results to be expected for the entire fiscal
year, which ends on June 30, 2003.                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
therein. Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts and sales returns, goodwill and other
intangible asset impairments, inventory allowances, warranty costs, revenue
recognition as well as loss contingencies and restructurings. Actual results
could differ from these estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|2. |  | Revenue Recognition Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Company recognizes revenues in accordance with the provisions of the
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements and of the American Institute
of Certified Public Accountants Statement of Position (SOP) 97-2, Software
Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, as well as
Technical Practice Aids issued from time to time by the American Institute of
Certified Public Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Companys product revenue is derived from the sale of equipment and
software, as well as maintenance contracts related to the Companys product
lines. Certain of the Companys equipment sales such as its Live Scan
Systems generally require installation and training subsequent to shipment
and transfer of title. Product revenue related to equipment sales that
require installation is deferred until installation is complete and customer
acceptance has been obtained. Revenue related to product sales that require
no installation such as printers and other peripheral devices as well as
certain security products including DFR-2080, DFR-300, DFR-200 and FingerScan
V20 are recognized in accordance with the terms of the sale, generally upon
shipment by the Company, provided no significant obligations remain and
collection of the receivable is deemed reasonably assured. Revenues from
sales of products via authorized representatives, dealers, distributors or
other third party sales channels are recognized at the time the risks and
rewards have transferred or, in the case of Live Scan Systems that generally
require installation, upon the final installation, training and acceptance
from the end user.
|  
|   |  | The Company also sells several stand-alone software products including
BioLogon® and software developer kits. The Company recognizes revenue on
software products when persuasive evidence of an arrangement exists, delivery
has occurred, the vendors fee is fixed or determinable and vendor-specific
objective evidence (VSOE) of fair value exists to allocate the total fee to
all undelivered elements of the arrangement and collection is determined to
be probable. VSOE is established based upon either sales of the element
(e.g. maintenance, training or consulting) in individual transactions, or, in
certain cases for maintenance, based upon substantive renewal rates. In
cases where the Company does not have VSOE for all delivered elements in the
transaction (e.g., for licenses), the fees from these multiple-element
agreements are allocated using the residual value method. Maintenance
revenue is deferred and recognized rateably over the life of the service
period of the related agreement.                                                                                                                                                                                                                   
|  
|   |  | The majority of the Companys service revenues are generated from the U.S.
Government under various firm fixed-price (FFP), time-and-material (T&M)
and cost reimbursement contracts. Revenues on FFP contracts are generally
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Revenues on T&M contracts are recognized
to the extent of billable rates multiplied by hours worked plus materials
expense incurred. Revenues for cost plus fixed fee (CPFF) contracts are
recognized as costs are incurred, including a proportionate amount of the fee
earned. Unbilled accounts receivable represent revenue accrued which becomes
billable per the terms of contract. Provisions for estimated contract losses are
recorded in the period such losses are determined.                                                                                                                                                                                                                                                                                                                                                                                                           

6



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##### Table of Contents





|   |  | Services revenues from contracts directly with the U.S. Government,
principally with the Department of Defense (DOD), and from subcontracts
with other U.S. Government contractors, were approximately 70% and 78% of
total services revenue for the three and nine months ending March 31, 2003
compared to 86% and 84% for the same periods in the prior fiscal year.
Contract costs for services revenues to the U.S. Government, including
indirect expenses, are subject to audit and subsequent adjustment by
negotiation between the Company and U.S. Government representatives.
Revenues are recorded in amounts expected to be realized upon final
settlement. The Company was audited by the Defense Contract Audit Agency for
the period from July 1, 1997 to June 30, 2000 and the results of the audit
did not have a material effect on the Companys financial position or results
of operations.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Cash and Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Company financed its operations during the nine months ended March 31,
2003, primarily from its working capital at June 30, 2002. As of March 31,
2003, the Companys principal sources of liquidity consisted of $48,126,000
of working capital including $40,929,000 in cash and cash equivalents and
short-term marketable securities. In addition, the company has $6,650,000 in
long-term marketable securities that can be used to finance operations, if
needed. The Company also has $11,637,000 available for future borrowings
under the Companys bank line of credit.                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Companys bank line of credit (the Identix Line of Credit) was entered
into in September 2001 and was amended on March 28, 2003. This line of
credit provides for up to the lesser of $15,000,000 or 80% of the Companys
eligible product accounts receivable and 85% of the Companys eligible
service business accounts receivable. Borrowings under the Identix Line of
Credit are collateralized by substantially all of the assets of the Company
and bear interest at the banks prime rate of interest plus 50 basis points
(4.75% at March 31, 2003). The Identix Line of Credit expires on May 31,
2003. As of March 31, 2003, there were no amounts outstanding under this
line of credit and approximately $11,637,000 was available to borrow.                                                                                                                                                  
|  
|   |  | The Identix Line of Credit agreement contains financial, operating and
reporting covenants, including restrictions on the Companys ability to pay
dividends on its common stock. At March 31, 2003, the Company was in
compliance with all covenants, except the reporting covenant that required
unaudited financial statements and compliance certificates to be submitted
monthly to the lender. At March 31, 2003, the Company received a waiver of
the reporting requirements from the lender.                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|4. |  | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                 |  |           |            |          |  |   |            | 
|-------------------------------- |  | --------- | ---------- | -------- |  | - | ---------- | 
|                                 |  | March 31, |            | June 30,
|                                 |  | 2003      |            | 2002    
|                                 |  |           |            |         
|Purchased parts and materials    |  | $         | 3,637,000  |          |  | $ | 4,190,000  | 
|Work-in-process                  |  |           | 4,268,000  |          |  |   | 4,956,000  | 
|Finished goods, including spares |  |           | 2,155,000  |          |  |   | 1,949,000  | 
|                                 |  |           |            |          |  |   |            | 
|                                 |  | $         | 10,060,000 |          |  | $ | 11,095,000 | 
|                                 |  |           |            |          |  |   |            | 



|5. |  | Restructuring, Write-offs and Other Merger Related Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Fiscal 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | During the three and nine months ended March 31, 2003, the Company recorded
restructuring and merger related expenses totaling $1,272,000 and $9,577,000
respectively. For the three months ended March 31, 2003 these costs
consisted of
$489,000 in relocation costs for Identix employees and facilities, $176,000
associated with the disposal of fixed assets, $476,000 increase in the
reserve related to lease exit costs and $131,000 related to employees with
extended terminations to assist in the integration. For the nine months
ended March 31, 2003, these costs consisted of $2,530,000 in relocation
costs, $370,000 associated with the disposal of fixed assets, $4,541,000
related to lease exit costs and $2,136,000 related to employees with extended
terminations to assist in the integration. Merger related costs are expensed
as incurred.

7



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| |  | Lease exit costs of $476,000 were recorded for the three months ended March
31, 2003, and are related to revised estimated lease exit costs that were
non-recoverable at the Companys Dublin, California and Fairfax, Virginia
facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Of the lease exit costs of $4,541,000 recorded during the nine months ended
March 31, 2003, $4,061,000 of the loss was due to the sublease of a portion
of its Fairfax, Virginia facility. The loss represented the difference
between the remaining lease obligation at the time of the merger of
$5,222,000, abandoned property and equipment of $445,000 and costs to sublet
the facility of $375,000, partially offset by estimated sublease income of
$1,981,000. In conjunction with the restructuring related charges recorded,
the Company made certain estimates regarding future sublease income that have
a significant impact on its anticipated cash obligations and restructuring
reserves. Although the Company believes that the lease commitment estimates
are appropriate in the circumstances, future changes in real estate markets
could impact the ultimate amount of cash paid to resolve these obligations.
During the nine months ended March 31, 2003, the Company reduced its
liability by $182,000 which related to the shut down of the Companys
Virginia Beach-based Law Enforcement Solutions Division (LESD) as the
actual costs to dispose of the division were less than estimated. In
addition, the Company recorded a loss of approximately $480,000 related to
lease exit costs at the Companys Dublin, California facility. The loss is
associated with revised estimated lease exit costs.
|
| |  | The following table represents a summary of restructuring, write-offs and
other merger related charges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 
|----------------------------- |  | ---------------------------------------- | ---------- | --------- |  | ------- | --------- | ------------- |  | ---- | ------- |  |  | ------------------------- | --------- |  |  | - | ---------- | 
|                              |  | For the nine months ended March 31, 2003
|                              |  |                                         
|                              |  | Liability as of June 30,                 |            |           |  |         |           | Non-Cash      |  |      |         |  |  | Liability as of March 31,
|                              |  | 2002                                     |            | Additions |  | Charges |           | Cash Payments |  | 2003
|                              |  |                                          |            |           |  |         |           |               |  |     
|Severance and benefits        |  | $                                        | 2,493,000  |           |  | $       | 2,136,000 |               |  | $    |        |  |  | $                         | 3,885,000 |  |  | $ | 744,000    | 
|Disposal of fixed assets      |  |                                          |           |           |  |         | 370,000   |               |  |      | 370,000 |  |  |                           |          |  |  |   |           | 
|Lease exit costs              |  |                                          | 10,340,000 |           |  |         | 4,541,000 |               |  |      | 419,000 |  |  |                           | 1,822,000 |  |  |   | 12,640,000 | 
|Internal merger costs & other |  |                                          | 814,000    |           |  |         | 2,530,000 |               |  |      |        |  |  |                           | 3,313,000 |  |  |   | 31,000     | 
|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 
|Total                         |  | $                                        | 13,647,000 |           |  | $       | 9,577,000 |               |  | $    | 789,000 |  |  | $                         | 9,020,000 |  |  | $ | 13,415,000 | 
|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 



|   |  | The restructuring liability is classified in the consolidated balance sheet
based on the anticipated timing of the respective payment. As of March 31,
2003, approximately $9,811,000 of the above restructuring liability is
classified as long-term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Fiscal 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In June 2001, the Company initiated a restructuring of its worldwide
operations to reduce costs and increase operational efficiencies. In
connection with the restructuring, in July 2001, the Company initiated a
workforce reduction of approximately 42 employees, or 10% of its workforce to
streamline its worldwide functions, operations and resources primarily in
marketing, selling and administration. The workforce reduction resulted in a
$1,712,000 charge during the quarter ended September 30, 2001 relating
primarily to severance and fringe benefits. Related cash payments of
$1,476,000 were made during the nine months ended March 31, 2002. The
remaining liability was paid during the quarter ended June 30, 2002.
|  
|6. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Basic earnings per share are computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share gives effect to all
dilutive potential common shares outstanding during the period, including
convertible preferred stock as well as stock options and warrants, using the
treasury stock method.                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Options and warrants to purchase 9,475,000 and 6,816,000 shares of common
stock were outstanding at March 31, 2003 and 2002, respectively, but were not
included in the computation of diluted net loss per share as their effect was
anti-dilutive. Also 235,000 shares of convertible preferred stock were
outstanding at March 31, 2003 and are convertible into 236,000 shares of
common stock, but were not included in the computation of diluted net loss
per share as their effect was anti-dilutive.                                                                                                                                                                                                                                 
|  
|7. |  | Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Comprehensive loss for the three and nine months ended March 31, 2003 was
$6,498,000 and $28,261,000 compared to a loss of $7,464,000 and $22,143,000
for the same period in the prior fiscal year. Accumulated other
comprehensive loss for the Company consisted of unrealized gain (loss) on
available-for-sale marketable securities and cumulative translation
adjustments.                                                                                                                                                                                                                                                                                                                                                              

8



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##### Table of Contents





|8. |  | Unaudited Pro Forma Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On June 25, 2002, the Company completed its merger with Visionics Corporation
(Visionics), a leading provider of biometric technologies and
identification information systems. The Visionics results of operations have
been included in the Companys consolidated financial statements since the
date of acquisition. In connection with this stock-for-stock merger
transaction, each outstanding share of Visionics common stock was exchanged
for 1.3436 shares of the Companys common stock, resulting in the issuance of
an aggregate of 39,422,000 shares of the Companys common stock for all
outstanding shares of Visionics common stock. In addition, all options and
warrants to purchase shares of Visionics common stock outstanding
immediately prior to the consummation of the merger were converted into
options and warrants to purchase 3,860,000 shares of the Companys common
stock. The total purchase price was $334,818,000.
|  
|   |  | The following table presents the consolidated results of operations on an
unaudited pro forma basis, excluding the charge for acquired in-process
research and development, as if the June 2002 merger with Visionics had taken
place at the beginning of the periods presented:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                                   |  |                    |             |                   |  |   |             |  
|------------------------------------------------------------------ |  | ------------------ | ----------- | ----------------- |  | - | ----------- | -
|                                                                   |  | Three Months ended |             | Nine Months ended
|                                                                   |  | March 31,          |             | March 31,        
|                                                                   |  | 2002               |             | 2002             
|                                                                   |  |                    |             |                  
|Revenues                                                           |  | $                  | 28,528,000  |                   |  | $ | 80,443,000  |  
|Net Loss                                                           |  |                    | (11,260,000 | )                 |  |   | (31,639,000 | )
|Loss per share  basic and diluted                                 |  | $                  | (0.13       | )                 |  | $ | (0.40       | )
|Common shares used in basic and diluted loss
per share computation |  |                    | 84,236,000  |                   |  |   | 79,231,000  |  



|   |  | The unaudited pro forma results of operations are for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the merger occurred at the beginning of the periods presented or the results
which may occur in the future. These pro forma amounts are not necessarily
indicative of the results that would have been obtained if the merger had
occurred as of the beginning of the period presented or that may occur in the
future.                                                                                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | Reportable Segment Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The Company has determined that its reportable segments are those based on
its method of internal reporting. Effective July 1, 2002, the Company
reorganized in conjunction with the merger with Visionics and the new
reportable segments are Products and Services. The Companys reportable
segments are strategic business groups 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.

|                               |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |             |  
|------------------------------ | -------- | - | ---------------------------- | ---------- | --------------------------- | - | ---------- | ---------- | ---- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                               |          |   | Three Months Ended March 31, |            | Nine Months Ended March 31,
|                               |          |   |                              |            |                            
|                               |          |   | 2003                         |            | 2002                        |   | 2003       |            | 2002
|                               |          |   |                              |            |                             |   |            |            |     
|Total revenues:                |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            
|                               | Product  |   | $                            | 12,118,000 |                             |   | $          | 8,839,000  |      |   | $           | 38,782,000  |   |   | $           | 21,423,000  |  
|                               | Services |   |                              | 9,687,000  |                             |   |            | 10,393,000 |      |   |             | 30,601,000  |   |   |             | 34,086,000  |  
|                               |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            
|                               |          | $ | 21,805,000                   |            |                             | $ | 19,232,000 |            |      | $ | 69,383,000  |             |   | $ | 55,509,000  |            
|                               |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            
|Income (Loss) from operations: |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            
|                               | Product  |   | $                            | (6,151,000 | )                           |   | $          | (5,549,000 | )    |   | $           | (25,486,000 | ) |   | $           | (18,984,000 | )
|                               | Services |   |                              | (447,000   | )                           |   |            | (2,244,000 | )    |   |             | (3,844,000  | ) |   |             | (4,002,000  | )
|                               |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            
|                               |          | $ | (6,598,000                   | )          |                             | $ | (7,793,000 | )          |      | $ | (29,330,000 | )           |   | $ | (22,986,000 | )          
|                               |          |   |                              |            |                             |   |            |            |      |   |             |             |   |   |             |            

|                     |          |   |             |             |          |   |             |             |  |  |  |  |  |  |  |  | 
|-------------------- | -------- | - | ----------- | ----------- | -------- | - | ----------- | ----------- |  |  |  |  |  |  |  |  | 
|                     |          |   | March 31,   |             | June 30, |   |             |             |  |  |  |  | 
|                     |          |   | 2003        |             | 2002     |   |             |             |  |  |  |  | 
|                     |          |   |             |             |          |   |             |             |  |  |  |  | 
|Identifiable assets: |          |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 
|                     | Product  |   | $           | 393,314,000 |          |   | $           | 419,689,000 |  |  |  |  |  |  |  |  | 
|                     | Services |   |             | 9,594,000   |          |   |             | 11,566,000  |  |  |  |  |  |  |  |  | 
|                     |          |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 
|                     |          | $ | 402,908,000 |             |          | $ | 431,255,000 |             |  |  |  |  |  |  |  | 
|                     |          |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 

9



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##### Table of Contents





|10. |  | Foreign Operations Data                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|   
|    |  | In geographical reporting, revenues are attributed to the geographical
location of the sales and service organizations:

|                |               |   |                              |            |                             |   |            |            |      |   |            |            |  |   |            |            | 
|--------------- | ------------- | - | ---------------------------- | ---------- | --------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                |               |   | Three Months Ended March 31, |            | Nine Months Ended March 31,
|                |               |   |                              |            |                            
|                |               |   | 2003                         |            | 2002                        |   | 2003       |            | 2002
|                |               |   |                              |            |                             |   |            |            |     
|Total revenues: |               |   |                              |            |                             |   |            |            |      |   |            |            |  |   |            |           
|                | North America |   | $                            | 20,904,000 |                             |   | $          | 17,670,000 |      |   | $          | 66,453,000 |  |   | $          | 52,568,000 | 
|                | International |   |                              | 901,000    |                             |   |            | 1,562,000  |      |   |            | 2,930,000  |  |   |            | 2,941,000  | 
|                |               |   |                              |            |                             |   |            |            |      |   |            |            |  |   |            |           
|                |               | $ | 21,805,000                   |            |                             | $ | 19,232,000 |            |      | $ | 69,383,000 |            |  | $ | 55,509,000 |           
|                |               |   |                              |            |                             |   |            |            |      |   |            |            |  |   |            |           

|                     |               |   |             |             |          |   |             |             |  |  |  |  |  |  |  |  | 
|-------------------- | ------------- | - | ----------- | ----------- | -------- | - | ----------- | ----------- |  |  |  |  |  |  |  |  | 
|                     |               |   | March 31,   |             | June 30, |   |             |             |  |  |  |  | 
|                     |               |   | 2003        |             | 2002     |   |             |             |  |  |  |  | 
|                     |               |   |             |             |          |   |             |             |  |  |  |  | 
|Identifiable assets: |               |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 
|                     | North America |   | $           | 401,902,000 |          |   | $           | 430,431,000 |  |  |  |  |  |  |  |  | 
|                     | International |   |             | 1,006,000   |          |   |             | 824,000     |  |  |  |  |  |  |  |  | 
|                     |               |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 
|                     |               | $ | 402,908,000 |             |          | $ | 431,255,000 |             |  |  |  |  |  |  |  | 
|                     |               |   |             |             |          |   |             |             |  |  |  |  |  |  |  | 



|11. |  | Indemnification Arrangements and Product Warranties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As part of the Visionics acquisition in June 2002,
the Company assumed
from Visionics, obligations to indemnify the officers and directors of the
acquired company for certain events or occurrences while the officer or
director served in such capacity. The maximum potential amount of future
payments required to be made under this indemnification obligation
is unlimited; however, the Company purchased a directors and officers insurance
policy to cover former directors and officers of Visionics that provides
coverage until June 25, 2007 and may enable recovery of a portion of any
future amounts paid. Assuming the applicability of the coverage and the
willingness of the insurer to assume coverage and subject to certain
retention, loss limits and other policy provisions and except as provided
below, the Company believes the estimated fair value of the indemnification obligations
to Visionics directors and officers is not material. However, no assurances
can be given that the covering insurers will not attempt to dispute the
validity, applicability or amount of coverage without expensive and
time-consuming litigation against the insurers.
|   
|    |  | From time to time, the Company agrees to indemnify its customers against
liability if the Companys products infringe a third partys intellectual
property rights. As of March 31, 2003, the Company was not subject to any
pending litigation alleging that the Companys products infringe the
intellectual property rights of any third parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company offers a warranty on various products and services. The Company
estimates the costs that may be incurred under its warranties and records a
liability in the amount of such costs at the time the product is sold.
Factors that affect the Companys warranty liability include the number of
units sold, historical and anticipated rates of warranty claims and cost per
claim. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary. The amount of the
reserve recorded is equal to the costs to repair or otherwise satisfy the
claim. The following table presents changes in the Companys warranty
liability during the first nine months of fiscal 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                          |  |   |          |  
|------------------------- |  | - | -------- | -
|Balance at June 30, 2002  |  | $ | 92,000   |  
|Warranty Expense          |  |   | 520,000  |  
|Closed Warranty Claims    |  |   | (232,000 | )
|                          |  |   |          |  
|Balance at March 31, 2003 |  | $ | 380,000  |  
|                          |  |   |          |  



|12. |  | Recent Accounting Pronouncements                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In June 2002, the Financial Accounting Standards Board FASB issued SFAS No.
146, Accounting for Exit or Disposal Activities. SFAS 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs that are

10



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##### Table of Contents





| |  | associated with exit and disposal activities, including
restructuring activities that are currently accounted for under EITF No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The scope of SFAS 146 also includes costs related to
terminating a contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146 was effective for the
Company for exit or disposal activities that were initiated after December
31, 2002. The provisions of EITF No. 94-3 shall continue to apply for an exit
activity initiated under an exit plan that met the criteria of EITF No. 94-3
prior to the adoption of SFAS 146. The provisions of SFAS 146 change, on a
prospective basis, the timing of when restructuring charges are recorded from
a commitment date approach to when the liability is incurred.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company is currently
assessing the impact of the adoption of this pronouncement on its
consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In December 2002 the Company adopted the provisions of FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. The implementation
of this accounting pronouncement did not have a material effect on the
Companys results of operations, financial position or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. FIN 46 addresses the
requirements for business enterprises to consolidate related entities, for
which they do not have controlling interests through voting or other rights,
if they are determined to be the primary beneficiary as a result of variable
economic interests. FIN 46 provides guidance for determining the primary
beneficiary for entities with multiple economic interests. FIN 46 is
effective at the time of investment for interests obtained in a variable
economic entity after January 31, 2003. Beginning in the Companys first
quarter of fiscal year 2004, FIN 46 applies to interests in variable interest
entities (VIEs) acquired prior to February 1, 2003. FIN 46 is not expected
to have a material impact on the Companys consolidated results of
operations, financial position, or cash flows.                                                                                                                                                                               
|
| |  | In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FAS 123. SFAS
No. 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation and amends certain disclosure requirements of SFAS No. 123. The
transition provisions of this Statement are effective for fiscal years ending
after December 15, 2002, and the disclosure requirements of the Statement are
effective for interim periods beginning after
December 15, 2002. The Company currently plans to continue to apply the
intrinsic-value based method to account for stock options.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Had compensation cost for the Companys employee stock options been
recognized based on the estimated fair value on the grant date under the fair
value methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the
Companys net loss and net loss per share would have been as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                     |                                                                                                                                    |   |                              |            |                             |   |             |            |      |   |             |            |   |   |             |            |  
|-------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | - | ---------------------------- | ---------- | --------------------------- | - | ----------- | ---------- | ---- | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                     |                                                                                                                                    |   | Three Months Ended March 31, |            | Nine Months Ended March 31,
|                     |                                                                                                                                    |   |                              |            |                            
|                     |                                                                                                                                    |   | 2003                         |            | 2002                        |   | 2003        |            | 2002
|                     |                                                                                                                                    |   |                              |            |                             |   |             |            |     
|Net Loss as reported |                                                                                                                                    | $ | (6,510,000                   | )          |                             | $ | (7,464,000  | )          |      | $ | (28,261,000 | )          |   | $ | (22,143,000 | )         
|                     | Add: Stock Based compensation
expense included in reported
net loss, net of related tax
effects                                    |   |                              | 459,000    |                             |   |             | 136,000    |      |   |             | 1,391,000  |   |   |             | 443,000    |  
|                     | Deduct: Total stock based compensation
expense determined under fair value
based method for all awards, net
of related tax effects |   |                              | (2,022,000 | )                           |   |             | (2,854,000 | )    |   |             | (6,343,000 | ) |   |             | (7,684,000 | )
|                     |                                                                                                                                    |   |                              |            |                             |   |             |            |      |   |             |            |   |   |             |           
|Proforma net loss    |                                                                                                                                    | $ | (8,073,000                   | )          |                             | $ | (10,182,000 | )          |      | $ | (33,213,000 | )          |   | $ | (29,384,000 | )         
|                     |                                                                                                                                    |   |                              |            |                             |   |             |            |      |   |             |            |   |   |             |           
|Net Loss per share:  |                                                                                                                                    |   |                              |            |                             |   |             |            |      |   |             |            |   |   |             |           
|                     | As Reported                                                                                                                        |   |                              | (0.08      | )                           |   |             | (0.17      | )    |   |             | (0.33      | ) |   |             | (0.56      | )
|                     | Proforma                                                                                                                           |   |                              | (0.09      | )                           |   |             | (0.23      | )    |   |             | (0.39      | ) |   |             | (0.74      | )

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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) provides a broad range of
fingerprint and facial recognition technology offerings that empower the
identification of individuals who wish to gain access to information or
facilities, conduct transactions and obtain identifications. Additionally, the
Companys products and solution offerings can help identify those who
perpetrate fraud and otherwise pose a threat to public safety. Identix
products serve a broad range of industries and
market segments  most notably, government, law enforcement, aviation,
financial, healthcare and corporate enterprise. A world leader in
multi-biometric technology, Identix believes it has more fingerprint and facial
biometric installations worldwide than any other company. The Company also
provides project management and facilities engineering services to government
agencies through Identix Public Sector, Inc. (IPS), a wholly owned subsidiary
of the Company.

On June 25, 2002, the Company completed its merger with Visionics Corporation
(Visionics), a leading provider of biometric technologies and identification
information systems. The Visionics results of operations have been included in
the Companys consolidated financial statements since the date of acquisition.
In connection with this stock-for-stock merger transaction, each outstanding
share of Visionics common stock was exchanged for 1.3436 shares of the
Companys common stock, resulting in the issuance of an aggregate of 39,422,000
shares of the Companys common stock for all outstanding shares of Visionics
common stock. In addition, all options and warrants to purchase shares of
Visionics common stock outstanding immediately prior to the consummation of
the merger were converted into options and warrants to purchase 3,860,000
shares of the Companys common stock. The total purchase price was
$334,818,000. The Companys annual impairment analysis will be performed
during the fourth quarter of fiscal year 2003.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect
the amounts reported in the Consolidated Financial Statements and accompanying
notes. Note 1 to the Consolidated Financial Statements in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 describes the
significant accounting policies and methods used in the preparation of the
Consolidated Financial Statements. Estimates are used for, but not limited to,
the accounting for the allowance for doubtful accounts and sales returns,
goodwill and other intangible asset impairments, inventory allowances, warranty
costs, revenue recognition as well as loss contingencies and restructurings.
Actual results could differ materially from these estimates. Managements
Discussion and Analysis of Financial Condition and Results of Operations in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2002
describes the critical accounting policies that are impacted significantly by
judgments, assumptions and estimates used in the preparation of the
Consolidated Financial Statements. The Companys asset impairment analysis
will be performed during the fourth quarter of fiscal year 2003.

RESULTS OF OPERATIONS

Revenues, Cost of Revenues and Gross Margins

Revenues for the three and nine months ended March 31, 2003 were $21,805,000
and $69,383,000 compared to $19,232,000 and $55,509,000 for the same period in
the prior fiscal year. The increase in revenues of 13% and 25% for the three
and nine months ended March 31, 2003 was primarily the result of an increase in
product sales resulting from the Visionics merger, which was partially offset
by lower services revenue. For comparable periods for the prior fiscal year,
Visionics revenue was $9,296,000 and $24,934,000 respectively. The Company had
one customer, the Department of Defense (DOD) which
accounted for 25% and 29%
of the total revenue for the three and nine months ended 2003, compared to 44%
and 41% for the same periods respectively in the prior fiscal year.

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Product revenues were $12,118,000 and $38,782,000 for the three and nine months
ended March 31, 2003, compared to $8,839,000 and $21,423,000 for the same
periods in the prior fiscal year. The increase in product revenue of 37% and
81% for the three and nine months ended March 31, 2003 was primarily due to the
Visionics merger. For comparable periods last year Visionics revenue was
$9,296,000 and $24,934,000.

International sales accounted for $901,000 and $2,930,000 or 7% and 8% of the
Companys product revenues for the three and nine months ended respectively
March 31, 2003 compared to $1,562,000 and $2,941,000 or 18% and 14% of the
Companys product revenues respectively for the same period in the prior fiscal
year. The Company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 $9,687,000 and $30,601,000 for the three and nine months
ended March 31, 2003 down 7% and 10% when compared to services revenues of
$10,393,000 and $34,086,000 for the same periods in the prior fiscal year. The
decrease for the three months ended is the result of decreased revenues from
the Naval Sea Systems Command contracts and for the nine months ended, the
reduction is primarily the result of delayed or reduced spending on several of
the Companys
long-term contracts. The delays have been caused by the lack of a federal
budget and some of the reduction has been due to the Naval Sea Systems Command
reorganization as well as a reduced level of spending on government contractors. The majority of the Companys services revenues are generated
directly from contracts with the U.S. Government, principally the DOD. For the
three and nine months ended March 31, 2003, revenues directly from the DOD and
from other U. S. Government agencies accounted for 70% and 78% of the Companys
total services revenues compared to 86% and 84% respectively, for the same
periods in the prior fiscal year. Services revenues were not affected by the
merger with Visionics.

In January 2003, the Company was notified that its service business will not
be awarded a contract to continue providing professional support services and
material acquisition support to the Naval Sea Systems Command. The original
contract is a fixed price delivery order contract with incrementally
funded task orders that expires on June 30, 2003. During
the three and nine months ended March 31, 2003, $1,700,000 and $5,500,000 of
revenue was recognized under the contract. The contract that was not awarded
would have generated an estimated $3,250,000 per quarter of additional revenue
over the life of the contract. The loss of this contract will not materially
affect the Companys cash flows.

The Companys services business generates a significant amount of its revenues
from firm fixed-price (FFP) contracts and from time-and-materials (T&M)
contracts. During the three and nine months ended March 31, 2003, the Company
derived 88% and 90%, respectively, of services revenues from FFP and T&M
contracts. During the three and nine months ended March 31, 2002, the Company
derived 94% and 90%, respectively, of services revenues from FFP and T&M
contracts. 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 12% and 10%,
respectively, of its services revenues for the three and nine months ended
March 31, 2003 and approximately 6% and 10% respectively, of its services
revenues for the same periods in the prior fiscal year. CPFF contracts provide
for the reimbursement of allowable costs, including indirect costs plus a fee
or profit. Revenues generated from contracts with government agencies are
subject to audit and subsequent adjustment by negotiation between the Company
and representatives of such government agencies. The Company was audited by
the Defense Contract Audit Agency for the period from July 1, 1997 to June 30,
2000 and the results of the audit did not have a material effect on the
Companys financial position or results of operations.

Gross margin on product revenues was 40% and 32% for the three and nine months
ended March 31, 2003 and 31% and 33% for the same periods of the prior fiscal
year. The increase in product gross margin for the three months ended March
31, 2003, was due to a decrease in sales of lower margin products as well as an
order from the Department of Defense for 5.4 million of the Companys higher
margin user licenses related to the BioEngine® fingerprint recognition
technology. 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.

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Gross margin on services revenues was 10% and 11% for the three and nine months
ended March 31, 2003 as compared to 2%
and 7% for the same periods in the prior
fiscal year. The increase in gross margins for the three and nine months
ended March 31, 2003 compared to the prior year was due to events which took
place in the prior fiscal year, these events included lower utilization of the
direct workforce, increased utilization of subcontractors and cost overruns
during the three and nine months ended March 31, 2002.

Research, Development and Engineering

Research, development and engineering expenses were $2,613,000 and $8,391,000
or 22% of product revenues for the three and nine months ended March 31, 2003
compared to $2,358,000 and $7,224,000 or 27% and 34% of product revenues for
the same periods in the prior fiscal year. The increase in dollars in
research, development and engineering expenses was the result of the Companys
continued emphasis on the investment in research and development, which is
critical to developing new and innovative products intended to allow the
Company to maintain a strong technological position in the industry.

Marketing and Selling

Marketing and selling expenses were $3,034,000 and $9,686,000 or 14% of total
revenues for the three and nine months ended March 31, 2003 compared to
$3,851,000 and $10,799,000 or 20% of total revenues for the same periods in the
prior fiscal year. The decrease in marketing and selling expenses for both
periods was primarily due to a headcount reduction in the sales area and the Companys continued efforts
to control its marketing expenditures which on
a year to date basis decreased from fiscal year 2002 to fiscal year 2003 by
$484,000.

General and Administrative

General and administrative expenses were $4,408,000 and $13,347,000 or 20% and
19% of total revenues for the three months and nine months ended March 31,
2003, compared to $4,340,000 and $11,990,000 or 23% and 22% of total revenues
for the same periods in the prior fiscal year. The increase in general and
administrative expenses when comparing the nine months ended March 31, 2002 to
March 31, 2003 was primarily the result of an increase in stock option
amortization expense associated with the Visionics merger from $443,000 for the
nine months ended March 31, 2002 to $1,391,000 for the nine months ended March
31, 2003 as well as increased costs for the nine months ended March 31, 2003 in
the areas of recruitment, subcontractors, and the Companys information
technology department.

Amortization of Acquired Intangible Assets

The amortization expense consists primarily of related acquired intangible
assets such as developed technology, patents and capitalized software
development cost. The amortization expense related to acquired intangible
assets was $1,087,000 and $4,006,000 for the three and nine months ended March
31, 2003 compared to $233,000 and $699,000 for the same periods in the prior
fiscal year. The increase in amortization expense is primarily the result of
intangible assets which were acquired during the Visionics acquisition which
are now being amortized over their estimated useful lives.

Restructuring Write-offs and Other Merger Related Charges

Fiscal 2003

During the three and nine months ended March 31, 2003, the Company recorded
restructuring and merger related expenses totaling $1,272,000 and $9,577,000
respectively. For the three months ended March 31, 2003 these costs consisted
of $489,000 in relocation costs for Identix employees and facilities, $176,000
associated with the disposal of fixed assets, $476,000 increase in the reserve
related to lease exit costs and $131,000 related to employees with extended
terminations to assist in the integration. Merger related costs are expensed
as incurred. For the nine months ended March 31, 2003, these costs consisted
of $2,530,000 in relocation costs, $370,000 associated with the disposal of
fixed assets, $4,541,000 related to lease exit costs and $2,136,000 related to
employees with extended terminations to assist in the integration. Merger
related costs are expensed as incurred.

Lease exit costs of $476,000 were recorded for the three months ended March 31,
2003, and are related to revised estimated lease exit costs that were
non-recoverable at the Companys Dublin, California and Fairfax, Virginia
facilities.

Of the lease exit costs of $4,541,000 recorded during the nine months ended
March 31, 2003, $4,061,000 of the loss was due to the sublease of a portion of
its Fairfax, Virginia facility. The loss represented the difference between
the remaining lease obligation at the time of the merger of $5,222,000,
abandoned property and equipment of $445,000 and costs to sublet the facility
of $375,000, partially offset by estimated sublease income of $1,981,000. In
conjunction with the restructuring related

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charges recorded, the Company made
certain estimates regarding future sublease income that have a significant
impact on its anticipated cash obligations and restructuring reserves.
Although the Company believes that the lease commitment estimates are
appropriate in the circumstances, future changes in real estate markets could
impact the ultimate amount of cash paid to resolve these obligations. During
the nine months ended March 31, 2003, the Company reduced its liability by
$182,000 which related to the shut down of the Companys Virginia Beach-based
Law Enforcement Solutions Division (LESD) as the actual costs to dispose of
the division were less than estimated. In addition, the Company recorded a
loss of approximately $480,000 related to lease exit costs at the Companys
Dublin, California facility. The loss is associated with revised estimated
lease exit costs.

The following table represents a summary of restructuring, write-offs and other
merger related charges:

|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 
|----------------------------- |  | ---------------------------------------- | ---------- | --------- |  | ------- | --------- | ------------- |  | ---- | ------- |  |  | ------------------------- | --------- |  |  | - | ---------- | 
|                              |  | For the nine months ended March 31, 2003
|                              |  |                                         
|                              |  | Liability as of June 30,                 |            |           |  |         |           | Non-Cash      |  |      |         |  |  | Liability as of March 31,
|                              |  | 2002                                     |            | Additions |  | Charges |           | Cash Payments |  | 2003
|                              |  |                                          |            |           |  |         |           |               |  |     
|Severance and benefits        |  | $                                        | 2,493,000  |           |  | $       | 2,136,000 |               |  | $    |        |  |  | $                         | 3,885,000 |  |  | $ | 744,000    | 
|Disposal of fixed assets      |  |                                          |           |           |  |         | 370,000   |               |  |      | 370,000 |  |  |                           |          |  |  |   |           | 
|Lease exit costs              |  |                                          | 10,340,000 |           |  |         | 4,541,000 |               |  |      | 419,000 |  |  |                           | 1,822,000 |  |  |   | 12,640,000 | 
|Internal merger costs & other |  |                                          | 814,000    |           |  |         | 2,530,000 |               |  |      |        |  |  |                           | 3,313,000 |  |  |   | 31,000     | 
|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 
|Total                         |  | $                                        | 13,647,000 |           |  | $       | 9,577,000 |               |  | $    | 789,000 |  |  | $                         | 9,020,000 |  |  | $ | 13,415,000 | 
|                              |  |                                          |            |           |  |         |           |               |  |      |         |  |  |                           |           |  |  |   |            | 

The restructuring liability is classified in the consolidated balance sheet
based on the anticipated timing of the respective payment. As of March 31,
2003, $9,811,000 of the above restructuring liability is classified as
long-term.

Fiscal 2002

In June 2001, the Company initiated a restructuring of its worldwide operations
to reduce costs and increase operational efficiencies. In connection with the
restructuring, in July 2001, the Company initiated a workforce reduction of
approximately 42 employees, or 10% of its workforce to streamline its worldwide
functions, operations and resources primarily in marketing, selling and
administration. The workforce reduction resulted in a $1,712,000 charge during
the quarter ended September 30, 2001 relating primarily to severance and fringe
benefits. Related cash payments of $1,476,000 were made during the nine months
ended March 31, 2001. The remaining liability was paid during the year ended
June 30, 2002.

Interest and Other Income (Expense), net

For the three and nine months ended March 31, 2003 and 2002, interest and other
income (expense), net was $389,000 and $1,436,000 compared to $261,000 and
$661,000 for the same periods in the prior fiscal year. The increase for nine
months ended March 31, 2003 is primarily the result of a net gain realized on
the sale of investments of $235,000 in the second quarter of fiscal year 2003
and interest from investments totaling $661,000 for the nine months ending
March 31, 2003. The increase in interest income is the result of higher cash
balances in fiscal year 2003 which resulted from the cash acquired in the
Visionics merger in late June 2002 as well as the remaining proceeds from the
Companys private placement in December 2001.

Interest Expense

Interest expense was $7,000 and $11,000 for the three and nine months ended
March 31, 2003, compared to zero for the same periods in the prior fiscal year.
There have been no borrowings under the Companys line of credit for the three
and nine months ended March 31, 2003 and 2002. Interest expense is comprised
primarily of interest costs associated with the Companys leased vehicles in
the United Kingdom as well as interest connected to leased equipment in the
U.S.

Benefit (Provision) for Income Taxes

The Company recorded a provision for income tax expense of $146,000 for the
three months ended March 31, 2003 and a provision of $160,000 for the nine
months ended March 31, 2003. For the three months ended March 31, 2002, the
tax provision was $7,000 and for the nine months March 31, 2002 the Companys
tax provision was $6,000. The tax provision recorded for the nine months ended
March 31, 2003 is related to state tax liabilities.

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Equity Interest in Income (Loss) of Joint Venture

The equity interest in income of joint venture represents the Companys 50%
share of the results of Sylvan Identix Fingerprinting Centers (SIFC). For
the three and nine months ended March 31, 2003, the Companys equity interest
in the joint venture loss was $148,000 and $196,000 respectively. For the same
periods in the prior fiscal year the Company experienced income of $75,000 and
$188,000. The decrease in the equity interest is due to decreased revenue and
net income of SIFC.

Liquidity and Capital Resources

The Company financed its operations during the nine months ended March 31,
2003, primarily from its working capital at June 30, 2002. As of March 31,
2003, the Companys principal sources of liquidity consisted of $48,126,000 of
working capital
including $40,929,000 in cash and cash equivalents and short-term marketable
securities. In addition, the company has $6,650,000 in long-term securities
that can be used to finance operations. The Company also has $11,637,000
available for future borrowings under the Companys bank lines of credit.

The Companys only line of credit (the Identix Line of Credit) was entered
into in September 2001 and was amended on March 28, 2003. This line of credit
provides for up to the lesser of $15,000,000 or 80% of the Companys eligible
product accounts receivable and 85% of the Companys eligible service business
accounts receivable. Borrowings under the Identix Line of Credit are
collateralized by substantially all of the assets of the Company and bear
interest at the banks prime rate of interest plus 50 basis points (4.75% at
March 31, 2003). The Identix Line of Credit expires on May 31, 2003. At March
31, 2003, there were no amounts outstanding under this line of credit and
approximately $11,637,000 was available to borrow.

The Identix Line of Credit agreement contains financial, operating and
reporting covenants, including restrictions on the Companys ability to pay
dividends on its common stock. At March 31, 2003, the Company was in
compliance with all covenants, except the reporting covenant that required
unaudited financial statements and compliance certificates to be submitted
monthly to the lender. As of March 31, 2003, the Company received a waiver of
the reporting requirements from the lender.

The Company used $20,412,000 of cash and cash equivalents during the nine
months ended March 31, 2003 of which $9,020,000 was related to restructuring
and merger costs. Cash used in operating activities for the periods presented
was primarily due to net losses offset by certain non-cash items. Cash
provided by investing activities for the nine months ended March 31, 2003 was
primarily the result of net sales of marketable securities partially offset by
additions to property, plant and equipment and intangible assets. Cash used in
investing activities for the nine months ended March 31, 2002 was primarily due
to purchases of marketable securities, capital expenditures and additions to
intangible assets which were partially offset by the proceeds from the sales of
marketable securities. Cash provided by financing activities for the periods
presented was due solely to proceeds from the sale of the Companys equity
securities and the exercise of employee stock options.

The Company did not have any material capital expenditure commitments as of
March 31, 2003.

The Company currently occupies its Minnesota headquarters under a lease that
expires in March 2008, and is required to pay taxes, insurance, and maintenance
as well as monthly rental payments. In addition, the Company leases space for
its former headquarters in Los Gatos, California under a lease that expires in
December of 2007; and a space in Dublin, California for its former research,
development and engineering activities that expire in March 2006. Further, the
Company leases office space for its sales force and customer support activities
under operating leases, which expire at various dates through 2008. The
Company leases office space for its IPS business under operating leases
expiring at various dates through 2011. The leases contain escalation
provisions requiring rental increases for increases in operating expense and
real estate taxes.

Future minimum lease payments for operating leases are as follows:

|                                        |       |   |            |            | 
|--------------------------------------- | ----- | - | ---------- | ---------- | 
|Periods or fiscal years ending June 30: |       |   |            |           
|2003                                    |       | $ | 1,755,000  |           
|2004                                    |       |   | 7,302,000  |           
|2005                                    |       |   | 7,541,000  |           
|2006                                    |       |   | 6,869,000  |           
|2007                                    |       |   | 6,412,000  |           
|Thereafter                              |       |   | 10,557,000 |           
|                                        |       |   |            |           
|                                        | Total |   | $          | 40,436,000 | 
|                                        |       |   |            |           

Included in the above future minimum payments is $11,311,000 related to two
leased facilities that were vacated in connection with the Companys merger
with Visionics. At June 30, 2002 the Company recorded a charge of $10,340,000
representing a

16



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##### Table of Contents



portion of the future lease costs related to these excess leased
facilities.

In January 2003, the Company was notified that its service business will not
be awarded a contract to continue providing professional support services and
material acquisition support to the Naval Sea Systems Command. The original
contract is a cost plus fixed fee award that expires on June 30, 2003. The
loss of this contract will not materially affect the Companys cash flows.

While the Company believes that future cash flows from operations, together
with existing working capital and available lines of credit, will be adequate
to fund the Companys operating cash requirements for at least the next twelve
months, the Company may need to raise additional debt or equity financing in
the future. The Company may not be able to obtain additional debt or equity
financing. If successful in raising additional financing, the Company may not
be able to do so on terms that are not excessively dilutive to existing
stockholders or less costly than existing sources of financing. Failure to
secure additional financing in a timely manner and on favorable terms in the
future could have a material adverse impact on the Companys financial
performance and stock price and require the Company to implement certain cost
reduction initiatives and curtail certain of its operations.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, Accounting for Exit or Disposal Activities. SFAS 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The scope of SFAS 146 also includes costs related to
terminating a contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146 was effective for the
Company for exit or disposal activities that were initiated after December 31,
2002. The provisions of EITF No. 94-3 shall continue to apply for an exit
activity initiated under an exit plan that met the criteria of EITF No. 94-3
prior to the adoption of SFAS 146. The provisions of SFAS 146 change, on a
prospective basis, the timing of when restructuring charges are recorded from a
commitment date approach to when the liability is incurred.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company is currently
assessing the impact of the adoption of this pronouncement on its consolidated
financial statements.

In December 2002 the Company adopted the provisions of FASB Interpretation No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. The implementation of
this accounting pronouncement did not have a material effect on the Companys
results of operations, financial position or cash flows.

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. FIN 46 addresses the
requirements for business enterprises to consolidate related entities, for
which they do not have controlling interests through voting or other rights, if
they are determined to be the primary beneficiary as a result of variable
economic interests. FIN 46 provides guidance for determining the primary
beneficiary for entities with multiple economic interests. FIN 46 is effective
at the time of investment for interests obtained in a variable economic entity
after January 31, 2003. Beginning in the Companys first quarter of fiscal
year 2004, FIN 46 applies to interests in variable interest entities (VIEs)
acquired prior to February 1, 2003. FIN 46 is not expected to have a material
impact on the Companys consolidated results of operations, financial position,
or cash flows.

In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FAS 123. SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation and
amends certain disclosure requirements of SFAS No. 123. The transition
provisions of this Statement are effective for fiscal years ending after
December 15, 2002, and the disclosure requirements of the Statement are
effective for interim periods beginning after December 15, 2002. The Company
currently plans to continue to apply the intrinsic-value based method to
account for stock options.

17



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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 such a
difference are set forth in the Companys annual report on Form 10-K.

Our business will not grow unless the market for biometric solutions expands both domestically and internationally.

Our product revenues and a portion of our service revenues are derived
from the sale of biometric products and services. 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 without limitation:



| |  | 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; and                                                                              
| 
| |  | 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. From time to time,
biometrics technologies have been the focus of organizations and individuals
seeking to curtail or eliminate such technologies on the grounds that they may
be used to diminish personal privacy rights. If such initiatives result in
restrictive legislation, the market for biometric solutions may be adversely
affected. Even if biometric solutions gain wide market acceptance, our products
and services may not adequately address the requirements of the market and may
not gain wide market acceptance.

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

A significant number of established and startup companies have developed
or are developing and marketing software and hardware for facial or fingerprint
biometric security applications that currently compete or will compete directly
with our current facial and fingerprint Security line of products and
applications. Some of these companies have developed or are developing and
marketing semiconductor or optically based direct contact fingerprint image
capture devices, or retinal blood vessel, iris pattern, hand geometry, voice
or facial structure solutions. If one or more of these technologies or
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. Many competitors offering products that are
competitive with our Security products and services have significantly more
financial and other resources than we have. The biometric security market is a
rapidly evolving and intensely competitive market, and we believe that
additional competitors may yet enter the market and become significant
long-term competitors.

Our facial biometric products face intense competition from a number of
competitors who are actively engaged in developing and marketing facial-based
recognition or security products, including Viisage Technology, Inc. and Imagis
Technologies Inc. The products designed, developed and sold under our line of
products known as our Imaging products also face intense competition from a
number of competitors who are actively engaged in developing and marketing live
scan products, including Heimann Biometric Systems GmbH, Sagem Morpho, Inc.,
Printrak International, Inc., (a company owned by Motorola), and CrossMatch
Technologies, Inc.

We expect competition to increase and intensify in the near term in the
biometrics markets. Companies competing with us 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, and
manufacturing 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.

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

18



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Our financial and operating results may fluctuate from quarter to quarter because of the following reasons:



| |  |  | the lack of availability of government funds;                                                                                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | reduced demand for products and services caused by competitors;                                                                                                   
|
| |  |  | price reductions, new competitors, or the introduction of enhanced products or services from new or existing competitors;                                         
|
| |  |  | changes in the mix of products and services we or our distributors sell;                                                                                          
|
| |  |  | cancellations, delays or contract amendments by government agency customers;                                                                                      
|
| |  |  | unforeseen legal expenses, including litigation costs;                                                                                                            
|
| |  |  | expenses related to acquisitions or mergers;                                                                                                                      
|
| |  |  | impairment charges arising out of
our annual valuation of goodwill and intangibles in accordance with FAS 142;                                                    
|
| |  |  | other one-time financial charges;                                                                                                                                 
|
| |  |  | the lack of availability or increase in cost of key components and subassemblies; and                                                                             
|
| |  |  | the inability to timely and successfully complete development
of or manufacture in volume certain of our products that may contain
complex designs and components.

Particularly important is the need to invest in planned technical
development programs to maintain and enhance our competitiveness, and to
successfully develop and launch new products and services on a timely basis.
Improving the manageability and likelihood of success of such programs requires
the development of budgets, plans and schedules for the execution of these
programs and the adherence to such budgets, plans and schedules. The majority
of such program costs are payroll and related staff expenses, and secondarily
materials, subcontractors and promotional expenses. These costs are very
difficult to adjust in response to short-term fluctuations in our revenues,
compounding the difficulty of achieving profitability in the event of a revenue
downturn.

We derive a majority of our services 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.

Our performance in any one reporting period is not necessarily indicative
of sale trends or future operating or earnings performance because of our
reliance on a small number of large customers, the majority of which are
government agencies. 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 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. In
some cases, unsuccessful bidders for public agency contracts are provided the
opportunity to formally protest certain contract awards through various agency,
administrative and judicial channels. The protest process may delay a
successful bidders contract performance for a number of weeks, months or more,
or cancel the contract award entirely. Although we have not previously
experienced a substantial number of contract delays or cancellations due to
protest initiated by losing bidders, there is a risk that we may not be awarded
contracts for which we bid or, if awarded, that substantial delays or
cancellation of purchases may follow as a result of such protests. In addition,
local government agency contracts may be contingent upon availability of
matching funds from federal or state entities. Also, law enforcement and other
government agencies are subject to political, budgetary, purchasing and
delivery constraints which may continue to result in quarterly and annual
revenues and operating results that may be irregular and difficult to predict.
Such revenue volatility makes management of inventory levels, cash flow and
profitability inherently difficult. In addition, if we are successful in
winning such procurements, there may be unevenness in shipping schedules, as
well as potential delays and schedule changes in the timing of deliveries and
recognition of revenue, or cancellation of such procurements.

For the three and nine months ended March 31, 2003, we derived
approximately 70% and 78% 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. In
January 2003, we were notified that our service business will not be awarded a
contract to continue providing professional support services and material
acquisition support to the

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Naval Sea Systems Command. The original contract is
a fixed price delivery order contract with incrementally funded task
orders that expires on June 30, 2003. During the three
and nine months ended March 31, 2003, $1,700,000 and $5,500,000 of revenue was
recognized under the contract. The contract that was not awarded to us would
have generated an estimated $3,250,000 per quarter of additional revenue over
the life of the contract.

For the three and nine months ended March 31, 2003, we derived
approximately 88% and 90% of our services revenue from time-and-materials
(T&M) contracts and firm-fixed-price (FFP) 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. We were audited by
the Defense Contract Audit Agency for the period from July 1, 1997 to June 30,
2000 and the results of the audit did not have a material effect on the
Companys financial position or results of operations.

Integration of our business and Visionics business following our merger may be
difficult to achieve, which may adversely affect operations.

Our merger with Visionics, which was completed in June 2002, continues to
present risks related to the integration and management of technology,
operations and personnel of two companies. The integration of the businesses of
the two companies is a complex, time-consuming and expensive process and may
disrupt our business if not completed in a timely and efficient manner. We
operate with Visionics as a combined organization utilizing common information
and communications systems, operating procedures, financial controls and human
resources practices.

We may encounter substantial difficulties, costs and delays involved in
integrating the companies operations, including:



| |  |  | potential conflicts between business cultures;                                                                           
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adverse changes in business focus perceived by third-party constituencies;                                               
|
| |  |  | potential conflicts in distribution, marketing or other important relationships;                                         
|
| |  |  | inability to implement uniform standards, controls, procedures and policies;                                             
|
| |  |  | integration of the research and development and product development efforts;                                             
|
| |  |  | loss of key employees and/or the diversion of managements attention from other ongoing business concerns; and           
|
| |  |  | costs associated with the integration of the two companies may
be difficult to control or may be higher than anticipated.

In addition, prior to the merger, Visionics was co-headquartered in New
Jersey and Minnesota, with offices in five locations, and Identix was
headquartered in Northern California, with offices in nine locations. After
the merger, we moved our headquarters to Minnesota. The geographic distances
and the consolidation of operations increase the risk that the integration will
not be completed successfully or in a timely and cost-effective manner. We may
not be successful in overcoming these risks or any other problems encountered
in connection with the integration of the companies.

The substantial costs of the merger and the manner of accounting for the merger
may affect Identix reported results of operations.

Approximately
$28-$30 million of costs are expected to be incurred in
connection with the merger, of which $27.9 million has been incurred. These
include costs associated with combining the businesses of the two companies,
including integration and restructuring costs, costs associated with the
consolidation of operations and the fees of financial advisors, attorneys and
accountants. A significant portion of these costs have been charged to expense
in the period incurred, which increased our loss for such period. The remaining
costs, consisting primarily of fees and expenses paid to financial advisors,
attorneys and accountants, were a component of the purchase price and
capitalized as an element of goodwill. Goodwill is required to be tested for
impairment at least annually and we will be required to record a non-cash
charge to earnings in the period any impairment of goodwill is determined.
There is a risk that such costs may be higher than anticipated. The failure to
manage such integration costs effectively could have a material adverse effect
on the business operations, financial results and stock price of the combined
company.

The market price of our common stock could decline.

The market price of our common stock could decline if:



| |  |  | our integration with Visionics is unsuccessful;
| | - |  | -----------------------------------------------

20



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| |  |  | the combined company is unable to successfully market its products and services to both companies customers;                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the combined company does not achieve the perceived benefits of
the merger as rapidly as, or to the extent, anticipated by financial
or industry analysts, or such analysts do not perceive the same
benefits to the merger as do we; or
|
| |  |  | the effect of the merger on our financial results is not
consistent with the expectations of financial or industry analysts.                                                                                                            

The terrorist attacks of September 11, 2001 have increased financial
expectations that may not materialize.

The September 11, 2001 terrorist attacks may have created an increase in
awareness for biometric security solutions generally. However, it is uncertain
whether the actual level of demand for our biometric products and services will
grow as a result of such increased awareness. Increased demand may not result
in an actual increase in our product or services revenues. In addition, it is
uncertain which security solutions, if any, will be adopted as a result of the
terrorism and whether our products will be a part of those solutions. Efforts
in the war
against terrorism or the war with Iraq may actually delay funding for the
implementation of biometric solutions generally. Even if our products are
considered or adopted as solutions to the terrorism, the level and timeliness
of available funding are unclear. These factors may adversely impact us and
create unpredictability in revenues and operating results.

We may need to raise additional equity or debt financing in the future.

While we believe that future cash flows from operations, together with
existing working capital and available lines of credit, may be adequate to fund
our operating cash requirements for at least the next twelve months, we may
need to raise additional debt or equity financing in the future. We may not be
able to obtain additional debt or equity financing. If successful in raising
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 financing. Failure to secure additional financing in a timely manner
and on favorable terms in the future could have a material adverse impact on
our financial performance and stock price and require us to implement certain
cost reduction initiatives and curtail certain of our operations.

Future growth depends in part on the success of itrust, which has little
operating history.

Our future growth may depend on the success of itrust, which was formed in
July 2000 and has a limited operating history. itrusts success will depend on
many factors, including, but not limited to:



| |  |  | our ability to form additional collaborative partnerships that will contribute technical and commercial value to itrust;                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the demand for our security products and itrust products and services;                                                                                                 
|
| |  |  | our ability to successfully and rapidly manufacture, disseminate and deploy biometric enabled products and services;                                                   
|
| |  |  | the ability and willingness of our collaborative partners to
successfully and rapidly promote, manufacture, disseminate and deploy
biometric enabled products 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;                                                                                             
|
| |  |  | our ability to successfully introduce new products and services; and                                                                                                   
|
| |  |  | our ability to expand its operations and attract, integrate,
retain and motivate qualified sales, marketing, and research and
development personnel.                   

A significant number of established and startup companies have developed
or are developing and marketing security and/or authentication solutions that
currently compete or will compete directly with itrusts solutions. Some of
these companies have significantly more cash and resources than we do, and may
currently offer a broader or more robust range of solutions than those
currently available through the itrust offering. The wired and wireless
security and authentication marketplace is rapidly evolving and intensely
competitive and we believe that additional competitors may yet enter the market
and become significant long-term competitors.

We have experienced net losses in the last two fiscal years and expect
additional losses in the future. itrust is not expected to contribute
significant revenues or positive cash flows in the foreseeable future. At the
same time, however, we 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 we will make in itrust, we expect to incur substantial additional
losses and negative cash flows from it in the foreseeable future.

We face substantial competition from professional service providers of all
sizes in the government marketplace.

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Our wholly-owned subsidiary, IPS, is increasingly being required to bid on
firm fixed price and similar contracts that result in greater performance risk
to IPS. If IPS 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 and enhancements to these new product and
services in order to address the changing and sophisticated needs of the
marketplace. Frequently, technical development programs in the biometric
industry require assessments to be made of the future directions of technology
and technology markets generally, which are inherently risky and difficult to
predict. Delays in introducing new products, services and enhancements, the
failure to choose correctly among technical alternatives or the failure to
offer innovative products and services at competitive prices may cause
customers to forego purchases of our products and services and purchase those
of our competitors.

Continued participation by us in the market for live scan systems that are
linked to forensic quality databases under the jurisdiction of governmental
agencies may require the investment of our resources in upgrading our products
and technology for us to compete and to meet regulatory and statutory
standards. We may not have adequate resources available to us or may not
adequately keep pace with appropriate requirements in order to effectively
compete in the marketplace.

Our lengthy and variable sales cycle will make it difficult to predict
operating results.

Certain of our 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.

The substantial lead-time required for ordering parts and materials may lead to
excess or insufficient inventory.

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

Our results of operations may be harmed by governmental credit, funding and
other policies.

In many instances, the procurements of our federal, state and local
customers are dependent on the availability or continued availability of
federal, state or local government funds or grants and general tax funding.
Such funding may not be approved or, if approved, it may not be available for
the purchase of our products or solutions, and even if such funding is approved
and available, such funds may be subject to termination at any time at the sole
discretion of the government body providing or receiving such funds.

We also extend substantial credit to federal, state and local governments
in connection with sales of our products and services. Sales to sizeable
customers requiring large and sophisticated networks of fingerprint recognition
and live scan systems and peripheral equipment often include technical
requirements which may not be fully known at the time requirements are
specified by the customer. In addition, contracts may specify performance
criteria that must be satisfied before the customer accepts the products and
services. Collection of accounts receivable may be dependent on completion of
customer requirements, which may be unpredictable, subject to change by the
customer, and not fully understood at the time of acceptance of the order, and
may involve investment of additional resources. These investments of additional
resources are accrued when amounts can be estimated but may be uncompensated
and negatively affect profit margins and our liquidity.

Additionally, without regard to termination of funding, government
agencies both domestically and internationally may successfully assert the
right to terminate business or funding relationships with us at their sole
discretion without adequate or any compensation or recourse for us.

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.

A significant portion of our product revenues comes from sales to partners
including OEM, systems integrators, distributors and resellers. Some, but not
all, of these relationships are formalized in written agreements. Even where
these relationships are formalized in written agreements, 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 partners devote to
activities on our behalf.

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

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We rely on certain hardware products provided by International Technology
Concepts, Inc. (IT Concepts).

Certain of our product lines require the purchase of optical hardware
components from IT Concepts. If we were to lose IT Concepts as a supplier of
these components, if IT Concepts experiences a delay in manufacturing or
delivering these components to the Company, or if the products delivered by IT
Concepts fail to satisfy the Companys quality requirements, we would be
required to find alternative suppliers of such products. This could require us
to incur significant development and manufacturing costs and delay shipment of
certain products to customers. There is a risk that we would not be able to
find such 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. Additionally, Identix is a party
to a series of agreements with IT Concepts governing IT Concepts former supply
of research, development and engineering services to Identix. Identix relies in
part on these agreements to protect its ownership, and the confidentiality of
Identix proprietary technology, trade
secrets and other intellectual property rights developed under the
agreements. There is a risk that these agreements may be inadequate to protect
Identix, or that such agreements may be breached, and that the remedies
available to Identix may not be adequate.

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 international markets may
be limited by risks related to conditions in such markets.

For the year ended June 2002, and the three and nine months ended March
31, 2003, we derived approximately 13%, 7% and 8%, respectively, of our product
revenues from international sales. We currently have a local presence in the
United Kingdom and the Commonwealth of Australia.

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 foreign
and international markets, each of which could have a severe negative impact on
our financial results and stock price, include those associated with:



| |  |  | regional economic 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.                                                                                                                               

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 failure of foreign laws or judicial
systems to adequately protect our proprietary rights

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or intellectual property,
including intellectual property developed on our behalf by foreign contractors
or subcontractors may have a material adverse effect on our business,
operations, financial results and stock price.

Two stockholders own 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 March 31, 2003, the State of Wisconsin Investment Board and Mazama
Capital Management, L.L.C owned approximately 10% and 6%, respectively of the
Companys outstanding common stock. The concentration of large percentages of
ownership in any single stockholder may delay or prevent change in control of
the Company. Additionally, the sale of a significant number of our shares in
the open market by a single stockholder or otherwise could adversely affect our
stock price.

We may be subject to loss in market share and market acceptance as a result of
manufacturing errors, delays or shortages.

Performance failure in our products or certain of our services 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 makes 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, or,
in some cases, the unavailability of certain products. The negative effects of
any delay or failure could be exacerbated if the delay or failure occurs in
products or services (such as itrust services) 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 or service launch is delayed or is the subject of an
availability shortage because of problems with our ability to manufacture or
assemble the product or service successfully on a timely basis, or if a product
or service otherwise fails to meet performance criteria, we may lose revenue
opportunities entirely and/or experience delays in revenue recognition
associated with a product or service in addition to incurring 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.

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.

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 attempt
to limit remedies for product or service failure to the repair or replacement
of malfunctioning or noncompliant products or services, and also attempt to
exclude or minimize exposure to product and related liabilities by including in
our standard agreements warranty disclaimers and disclaimers for consequential
and related damages as well as limitations on our aggregate liability. From
time to time, in certain complex sale or licensing transactions, we may
negotiate liability provisions that vary from such standard forms. There is a
risk that our contractual provisions may not adequately minimize our product
and related liabilities or that such provisions may be unenforceable. We carry
product liability insurance, but existing coverage may not be adequate to cover
potential claims. We maintain warranty reserves as deemed adequate by
management.

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 and stock price
and on our 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, or trademarks, or currently
existing or future developed trade secrets or know-how may not afford
sufficient protection against competitors with similar technologies or
processes, and the possibility exists that certain of our already issued
patents or trademarks may infringe upon third party patents or trademarks 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 very 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 us and limitations on the scope or
validity of our patents or trademarks.

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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 the size of our business, it could have a
severe negative impact on our financial results or stock price.

Our management believes that in order to be successful we must
appropriately manage the size of our business. This may mean reducing costs and
overhead in certain economic periods, and selectively growing in periods of
economic expansion. In addition, we will be required to implement operational,
financial and management information procedures and controls that are efficient
and appropriate for the size and scope of our operations. The management skills
and systems currently in place may not be adequate and we may not be able to
manage any significant reductions or growth effectively.

Acquisitions of companies or technologies may result in disruptions to our
business.

As part of our business strategy, we may acquire assets and businesses
principally relating to or complementary to our current operations. We merged
with Visionics in fiscal 2002 and acquired Identicator Technology, Inc.
(Identicator Technology) in fiscal 1999, one company in fiscal 1998 and two
companies in fiscal 1996. We also acquired certain software and source code
assets in October 2002. These and any other acquisitions and/or mergers by
Identix are and will be accompanied by the risks commonly encountered in
acquisitions of companies. These risks include, among other things:



| |  |  | 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;                                   
|
| |  |  | 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;                                                                                    
|
| |  |  | incurring impairment charges arising out of our annual
valuation of goodwill and intangibles in accordance with FAS 142; and
|
| |  |  | possible dilution to our stockholders.                                                                                      

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

If we fail to attract and retain qualified senior executive and key technical
personnel, our business will not be able to expand.

We are dependent on the continued availability of the services of Dr.
Joseph J. Atick, the Companys President and CEO, as well as certain of our
other employees, many of whom are individually key to our future success, and
the availability of new employees to implement our business plans. The market
for skilled employees is highly competitive, especially for employees in
technical fields. Although our compensation programs are intended to attract
and retain the employees required for us to be successful, there can be no
assurance that we will be able to retain the services of all of the key
employees or a sufficient number to execute our plans, nor can there be any
assurances that we will be able to continue to attract new employees as
required.

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.

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If we lose the services of Dr. Atick or other key personnel, or fail to
replace the services of key personnel who depart, 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 locations where we principally operate. The loss of the services of any key
engineering, marketing or other personnel or our failure to attract, integrate,
motivate and retain additional key employees could have a material adverse
effect on our business, operating and financial 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. The
Companys
cash equivalents are invested in money market accounts with major
financial institutions. Due to the short duration and conservative nature of
the Companys cash equivalents, their carrying value approximates fair market
value. The Company has performed an analysis to assess the potential effect of
reasonably possible near-term changes in interest rates. The effect of such
rate changes is not expected to be material to the Companys results of
operations, cash flows or financial condition.

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, primarily the British Pound. As a result, the Companys results of
operations and certain receivables and payables are subject to foreign exchange
rate fluctuations. The Company does not currently hedge against foreign
currency rate fluctuations. Gains and losses from such fluctuations have not
been material to the Companys consolidated results of operations or balance
sheet.




Item 4. Controls and Procedures

Under the supervision of and with the participation of our management,
including our President and Chief Executive Officer and our Chief Financial
Officer, we conducted an evaluation of our disclosure controls and procedures,
as such term is defined under Rule 13a-14(c) promulgated under the Securities
Exchange Act of 1934, as amended within 90 days of the filing date of this
report. Based on their evaluation, our President and Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures are adequate and effective in timely alerting them to material
information required to be included in our periodic SEC reports.

The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. We intend to review and
evaluate the design and effectiveness of our disclosure controls and procedures
on an ongoing basis and, if necessary or appropriate, to improve our controls
and procedures over time and to correct any deficiencies that we may discover
in the future. Our goal in this process is to ensure that our senior
management and board of directors have timely access to all material financial
and non-financial information concerning our consolidated business and
operations. While we believe the present design of our disclosure controls and
procedures is adequate and effective to achieve our goal, future events
affecting our consolidated business and operations may cause us to
significantly modify our disclosure controls and procedures.

There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced above.

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PART II OTHER INFORMATION




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

None




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

(a)  Exhibits

|        |  |                   
|------- |  | ------------------
|Exhibit |  |                   
|Number  |  | Description       
|        |  |                   
|99.1    |  | 906 Certifications

(b)  No reports on Form 8-K have been filed during the quarter for which
this Report is filed.

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SIGNATURE

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 Minnetonka, State of Minnesota, on May 14, 2003.

| |  |                      |  |                                                         
| |  | -------------------- |  | --------------------------------------------------------
| |  | IDENTIX INCORPORATED
|
| |  | BY:                  |  | /s/ Erik E. PruschErik E. Prusch
Chief Financial Officer

28



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CERTIFICATIONS

I, Joseph J. Atick, President and Chief Executive Officer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Identix
Incorporated (the registrant);                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                            
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                  



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent functions):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weakness.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |       |  |                                                                         
| |  | ----- |  | ------------------------------------------------------------------------
| |  | By:   |  | /s/ Joseph J. AtickJoseph J. Atick
President and Chief Executive Officer
|
| |  | Date: |  | May 14, 2003                                                            

29



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I, Erik E. Prusch, Chief Financial Officer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Identix
Incorporated (the registrant);                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                            
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                  



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent functions):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weakness in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weakness.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |       |  |                                                         
| |  | ----- |  | --------------------------------------------------------
| |  | By:   |  | /s/ Erik E. PruschErik E. Prusch
Chief Financial Officer
|
| |  | Date: |  | May 14, 2003                                            

30