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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


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

For the quarterly period ended September 30, 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
(State or other jurisdiction of
incorporation of organization) |  | 94-2842496
(IRS Employer Identification No.)

|                                                                                  |  |                 
|--------------------------------------------------------------------------------- |  | ----------------
|5600 Rowland Road, Minnetonka, Minnesota
(Address of principal executive offices) |  | 55343
(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:

86,068,360 shares of Common Stock
as of October 31, 2003





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                             | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                             | 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                                  
|EX-10.55 Employment Agreement - Linda Howard
|EX-31.1 302 Certification by the CEO        
|EX-31.2 302 Certification by the CFO        
|EX-32 906 Certifications                    



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IDENTIX INCORPORATED

INDEX

|        |  |           |  |                                                                                       |  |                       |    |                                                                                                  |  |  |   | 
|------- |  | --------- |  | ------------------------------------------------------------------------------------- |  | --------------------- | -- | ------------------------------------------------------------------------------------------------ |  |  | - | 
|PART I  |  |           |  |                                                                                       |  | FINANCIAL INFORMATION |    |                                                                                                  |  | 
|        |  | Item 1    |  | Unaudited Financial Statements                                                        |  |                       |    |                                                                                                 
|        |  |           |  |                                                                                       |  |                       |    | Condensed Consolidated Balance Sheets 
September 30, 2003 and June 30, 2003                     |  |  | 3 | 
|        |  |           |  |                                                                                       |  |                       |    | Condensed Consolidated Statements of Operations -
Three months ended September 30, 2003 and 2002 |  |  | 4 | 
|        |  |           |  |                                                                                       |  |                       |    | Condensed Consolidated Statements of Cash Flows 
Three months ended September 30, 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                            |  |                       | 24 |                                                                                                 
|        |  | Item 4    |  | Controls and Procedures                                                               |  |                       | 24 |                                                                                                 
|PART II |  |           |  |                                                                                       |  | OTHER INFORMATION     |    |                                                                                                  |  | 
|        |  | Item 4    |  | Submission of Matters to a Vote of Security Holders                                   |  |                       | 25 |                                                                                                 
|        |  | Item 6    |  | Exhibits and Reports on Form 8-K                                                      |  |                       | 25 |                                                                                                 
|        |  | Signature |  |                                                                                       |  |                       | 26 |                                                                                                 

2



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IDENTIX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)

|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |             |             | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------ | ------------- | ----------- | ----------- | ------------ | ----------- | ----------- | 
|                                     |                                                                                                                                    |                            |                                            |              | September 30, |             | June 30,   
|                                     |                                                                                                                                    |                            |                                            |              |               |             |            
|                                     |                                                                                                                                    |                            |                                            |              | 2003          |             | 2003       
|                                     |                                                                                                                                    |                            |                                            |              |               |             |            
|ASSETS                               |                                                                                                                                    |                            |                                            |              |               |             |             |             
|Current assets:                      |                                                                                                                                    |                            |                                            |              |               |             |             |             
|                                     | Cash and cash equivalents                                                                                                          |                            | $                                          | 34,651,000   |               |             | $           | 34,712,000   |            
|                                     | Marketable securities - short-term                                                                                                 |                            |                                            | 7,993,000    |               |             |             | 8,991,000    |            
|                                     | Accounts receivable, net                                                                                                           |                            |                                            | 20,769,000   |               |             |             | 21,434,000   |            
|                                     | Inventories                                                                                                                        |                            |                                            | 10,043,000   |               |             |             | 9,920,000    |            
|                                     | Prepaid expenses and other assets                                                                                                  |                            |                                            | 1,390,000    |               |             |             | 1,677,000    |            
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    | Total current assets       |                                            |              | 74,846,000    |             |             |              | 76,734,000  |            
|Marketable securities - long-term    |                                                                                                                                    |                            | 506,000                                    |              |               |             | 505,000     |             
|Property and equipment, net          |                                                                                                                                    |                            | 4,049,000                                  |              |               |             | 4,157,000   |             
|Goodwill                             |                                                                                                                                    |                            | 140,945,000                                |              |               |             | 140,945,000 |             
|Acquired intangible assets, net      |                                                                                                                                    |                            | 18,472,000                                 |              |               |             | 19,854,000  |             
|Other assets                         |                                                                                                                                    |                            | 2,366,000                                  |              |               |             | 3,075,000   |             
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    | Total assets               |                                            | $            | 241,184,000   |             |             | $            | 245,270,000 |            
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                    |                            |                                            |              |               |             |             |             
|Current liabilities:                 |                                                                                                                                    |                            |                                            |              |               |             |             |             
|                                     | Accounts payable                                                                                                                   |                            | $                                          | 7,411,000    |               |             | $           | 8,025,000    |            
|                                     | Accrued compensation                                                                                                               |                            |                                            | 4,524,000    |               |             |             | 3,593,000    |            
|                                     | Other accrued liabilities                                                                                                          |                            |                                            | 4,130,000    |               |             |             | 4,522,000    |            
|                                     | Deferred revenue                                                                                                                   |                            |                                            | 8,158,000    |               |             |             | 7,197,000    |            
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    | Total current liabilities  |                                            |              | 24,223,000    |             |             |              | 23,337,000  |            
|Deferred revenue                     |                                                                                                                                    |                            | 207,000                                    |              |               |             | 419,000     |             
|Other liabilities                    |                                                                                                                                    |                            | 9,428,000                                  |              |               |             | 10,250,000  |             
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    | Total liabilities          |                                            |              | 33,858,000    |             |             |              | 34,006,000  |            
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|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
86,095,803 and 85,944,951 shares issued and outstanding,
respectively |                            |                                            | 861,000      |               |             |             | 859,000      |            
|                                     | Additional paid-in capital                                                                                                         |                            |                                            | 536,646,000  |               |             |             | 536,173,000  |            
|                                     | Accumulated deficit                                                                                                                |                            |                                            | (333,307,000 | )             |             |             | (328,651,000 | )          
|                                     | Deferred stock-based compensation                                                                                                  |                            |                                            | (425,000     | )             |             |             | (663,000     | )          
|                                     | Accumulated other comprehensive loss                                                                                               |                            |                                            | (151,000     | )             |             |             | (156,000     | )          
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    | Total stockholders equity |                                            |              | 207,326,000   |             |             |              | 211,264,000 |            
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            
|                                     |                                                                                                                                    |                            | Total liabilities and stockholders equity |              | $             | 241,184,000 |             |              | $           | 245,270,000 | 
|                                     |                                                                                                                                    |                            |                                            |              |               |             |             |              |            

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

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IDENTIX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |            | 
|----------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | ---------- | -------------------------------- | ---------- | ---- | ----------- | ---------- | ---------- | 
|                                                                                    |                                                            |                          |            | Three Months Ended September 30,
|                                                                                    |                                                            |                          |            |                                 
|                                                                                    |                                                            |                          |            | 2003                             |            | 2002
|                                                                                    |                                                            |                          |            |                                  |            |     
|Revenues:                                                                           |                                                            |                          |            |                                  |            |      |             |           
|                                                                                    | Product revenues                                           |                          | $          | 12,718,000                       |            |      | $           | 14,152,000 |           
|                                                                                    | Services revenues                                          |                          |            | 8,614,000                        |            |      |             | 10,910,000 |           
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|                                                                                    |                                                            | Total revenues           |            |                                  | 21,332,000 |      |             |            | 25,062,000 | 
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Cost and expenses:                                                                  |                                                            |                          |            |                                  |            |      |             |           
|                                                                                    | Cost of product revenues                                   |                          |            | 8,008,000                        |            |      |             | 10,305,000 |           
|                                                                                    | Cost of services revenues                                  |                          |            | 7,471,000                        |            |      |             | 9,844,000  |           
|                                                                                    | Research, development and engineering                      |                          |            | 2,255,000                        |            |      |             | 3,088,000  |           
|                                                                                    | Marketing and selling                                      |                          |            | 2,677,000                        |            |      |             | 3,251,000  |           
|                                                                                    | General and administrative                                 |                          |            | 4,389,000                        |            |      |             | 4,883,000  |           
|                                                                                    | Amortization of acquired intangible assets                 |                          |            | 1,382,000                        |            |      |             | 1,546,000  |           
|                                                                                    | Restructuring, write-offs and other merger related charges |                          |            |                                 |            |      |             | 6,755,000  |           
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|                                                                                    |                                                            | Total costs and expenses |            |                                  | 26,182,000 |      |             |            | 39,672,000 | 
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Loss from operations                                                                |                                                            |                          | (4,850,000 | )                                |            |      | (14,610,000 | )         
|Interest and other income, net                                                      |                                                            |                          | 316,000    |                                  |            |      | 376,000     |           
|Interest expense                                                                    |                                                            |                          | (8,000     | )                                |            |      | (1,000      | )         
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Loss before income taxes and equity interest in (loss) income of
joint venture      |                                                            |                          | (4,542,000 | )                                |            |      | (14,235,000 | )         
|Provision for income taxes                                                          |                                                            |                          | (9,000     | )                                |            |      | (22,000     | )         
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Loss before equity interest in (loss) income of joint venture                       |                                                            |                          | (4,551,000 | )                                |            |      | (14,257,000 | )         
|Equity interest in (loss) income of joint venture                                   |                                                            |                          | (105,000   | )                                |            |      | 58,000      |           
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Net loss                                                                            |                                                            | $                        | (4,656,000 | )                                |            | $    | (14,199,000 | )         
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|                                                                                    | Basic and diluted net loss per share                       |                          | $          | (0.05                            | )          |      | $           | (0.17      | )         
|                                                                                    |                                                            |                          |            |                                  |            |      |             |            |           
|Weighted average common shares used in basic
and diluted loss per share computation |                                                            |                          | 86,015,000 |                                  |            |      | 84,801,000  |           

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)

|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |            |  
|--------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | -------------------------------- | ---------- | ---- | ----------- | ----------- | ---------- | -
|                                              |                                                                             |                                                     |            | Three Months Ended September 30,
|                                              |                                                                             |                                                     |            |                                 
|                                              |                                                                             |                                                     |            | 2003                             |            | 2002
|                                              |                                                                             |                                                     |            |                                  |            |     
|Cash flows from operating activities:         |                                                                             |                                                     |            |                                  |            |      |             |            
|                                              | Net loss                                                                    |                                                     | $          | (4,656,000                       | )          |      | $           | (14,199,000 | )         
|                                              | Adjustments to reconcile net loss to net cash used in operating
activities: |                                                     |            |                                  |            |      |             |             |           
|                                              |                                                                             | Depreciation and amortization                       |            |                                  | 1,941,000  |      |             |             | 2,090,000  |  
|                                              |                                                                             | Equity interest in loss (income) of joint venture   |            |                                  | 105,000    |      |             |             | (58,000    | )
|                                              |                                                                             | Realized gain on sales of marketable securities     |            |                                  | (15,000    | )    |             |             |           |  
|                                              |                                                                             | Stock-based compensation expense                    |            |                                  | 234,000    |      |             |             | 585,000    |  
|                                              |                                                                             | Amortization of premiums on marketable securities   |            |                                  |           |      |             |             | 85,000     |  
|                                              |                                                                             | Bad debt (recoveries) expense                       |            |                                  | (484,000   | )    |             |             | 148,000    |  
|                                              |                                                                             | Gain on disposal of fixed assets                    |            |                                  | (13,000    | )    |             |             |           |  
|                                              |                                                                             | Non-cash restructuring write-offs and other charges |            |                                  |           |      |             |             | 65,000     |  
|                                              | Changes in assets and liabilities:                                          |                                                     |            |                                  |            |      |             |             |           
|                                              |                                                                             | Accounts receivable                                 |            |                                  | 1,153,000  |      |             |             | (3,817,000 | )
|                                              |                                                                             | Inventories                                         |            |                                  | (123,000   | )    |             |             | 1,092,000  |  
|                                              |                                                                             | Prepaid expenses and other assets                   |            |                                  | 891,000    |      |             |             | 60,000     |  
|                                              |                                                                             | Accounts payable                                    |            |                                  | (614,000   | )    |             |             | (1,086,000 | )
|                                              |                                                                             | Accrued compensation                                |            |                                  | 931,000    |      |             |             | (500,000   | )
|                                              |                                                                             | Other accrued liabilities                           |            |                                  | (1,214,000 | )    |             |             | 2,968,000  |  
|                                              |                                                                             | Deferred revenue                                    |            |                                  | 749,000    |      |             |             | 463,000    |  
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|                                              | Net cash used in operating activities                                       |                                                     |            | (1,115,000                       | )          |      |             | (12,104,000 | )         
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|Cash flows from investing activities:         |                                                                             |                                                     |            |                                  |            |      |             |            
|                                              | Net proceeds from the sales of marketable securities                        |                                                     |            | 4,000,000                        |            |      |             |            |           
|                                              | Purchases of marketable securities                                          |                                                     |            | (2,987,000                       | )          |      |             |            |           
|                                              | Capital expenditures                                                        |                                                     |            | (438,000                         | )          |      |             | (454,000    | )         
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|                                              | Net cash provided by (used in) investing activities                         |                                                     |            | 575,000                          |            |      |             | (454,000    | )         
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|Cash flows from financing activities:         |                                                                             |                                                     |            |                                  |            |      |             |            
|                                              | Proceeds from sales of common stock                                         |                                                     |            | 479,000                          |            |      |             | 544,000     |           
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|                                              | Net cash provided by financing activities                                   |                                                     |            | 479,000                          |            |      |             | 544,000     |           
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|Net decrease in cash and cash equivalents     |                                                                             |                                                     | (61,000    | )                                |            |      | (12,014,000 | )          
|Cash and cash equivalents at period beginning |                                                                             |                                                     | 34,712,000 |                                  |            |      | 53,346,000  |            
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           
|Cash and cash equivalents at period end       |                                                                             | $                                                   | 34,651,000 |                                  |            | $    | 41,332,000  |            
|                                              |                                                                             |                                                     |            |                                  |            |      |             |             |           

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

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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, 2003 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 months ended September 30, 2003 are not
necessarily indicative of results to be expected for the entire fiscal year,
which ends on June 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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 adopted Emerging Issues Task Force Issue No. 00-21 Accounting
for Revenue Arrangements with Multiple Deliverables,(EITF 00-21) effective
April 1, 2003. There was no cumulative effect of a change in accounting
policy upon the adoption of EITF 00-21. Under EITF 00-21, a company must
determine whether any or all of the deliverables of a multiple deliverable
agreement can be separated from one another. If separation is possible,
revenue is recognized for each deliverable (based on objective and reliable
evidence of the fair value) as the applicable revenue recognition criteria
are achieved for that specific deliverable. Alternatively, if separation is
not possible, revenue recognition may need to be spread evenly over the
performance of all deliverables, or deferred until all elements of the
arrangement have been delivered to the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | 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 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. The Company is currently undergoing a General
Services Administration pre-award audit for the renewal of a GSA Multiple
Award Schedule contract. While the Company believes that the results of such
audit will have no material effect on the results of operation, any material
adverse findings or adjustments arising out of such audit may have a material
adverse effect on our business, financial condition and results of
operations.
|  
|   |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

6



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|   |  | 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 accrued revenue that becomes
billable per the terms of contract. Provisions for estimated contract losses
are recorded in the period such losses are determined.              
|  
|   |  | 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% of total
services revenue for the three months ending September 30, 2003 compared to
85% for the same period 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.                                                                                                                                                                                                      
|  
|3. |  | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company accounts for its employee and director stock option plans and
employee stock purchase plans in accordance with provisions of the Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Additional pro forma disclosures on the Companys stock plans are
presented in Note 9. The Company accounts for stock options issued to
non-employees in accordance with the provisions of SFAS 123, SFAS 148 and
Emerging Issues Task Force (EITF) 96-18 Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring or in Conjunction with
Selling Goods or Services. As permitted by SFAS No. 123, Accounting for
Stock Based Compensation, the Company continues to measure compensation cost
for the stock option plan using the intrinsic value method of accounting.
|  
|   |  | Had compensation cost for the Companys employee stock options been
recognized upon 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 September 30,
|                     |                                                                                                                                    |   |                                 
|                     |                                                                                                                                    |   | 2003                             |            | 2002
|                     |                                                                                                                                    |   |                                  |            |     
|Net loss as reported |                                                                                                                                    | $ | (4,656,000                       | )          |      | $ | (14,199,000 | )         
|                     | Add: Stock based compensation
expense included in reported
net loss, net of related tax
effects                                    |   |                                  | 234,000    |      |   |             | 585,000    |  
|                     | Deduct: Total stock based compensation
expense determined under fair value
based method for all awards, net
of related tax effects |   |                                  | (1,831,000 | )    |   |             | (2,064,000 | )
|                     |                                                                                                                                    |   |                                  |            |      |   |             |           
|Proforma net loss    |                                                                                                                                    | $ | (6,253,000                       | )          |      | $ | (15,678,000 | )         
|                     |                                                                                                                                    |   |                                  |            |      |   |             |           
|Net loss per share:  |                                                                                                                                    |   |                                  |            |      |   |             |           
|                     | As reported                                                                                                                        |   | $                                | (0.05      | )    |   | $           | (0.17      | )
|                     | Proforma                                                                                                                           |   | $                                | (0.07      | )    |   | $           | (0.18      | )
|Shares               |                                                                                                                                    |   | 86,015,000                       |            |      |   | 84,801,000  |           



|4. |  | Cash and Credit Facilities                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company financed its operations during the three months ended September
30, 2003 primarily from cash provided by its investing and financing
activities. As of September 30, 2003, the Companys principal sources of
liquidity consisted of $50,623,000 of working capital including $42,644,000
in cash and cash equivalents and short-term marketable securities.

7



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##### Table of Contents





|   |  | In addition, the Company if needed, has $506,000 in long-term marketable
securities that can be used to finance operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys existing line of credit (the Identix Line of Credit) was
entered into on May 30, 2003. This line of credit provides for up to the
lesser of $15,000,000 or the cash collateral base or the borrowing base.
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 which was 4.00% at September 30, 2003. The
Identix Line of Credit expires on October 30, 2004. Until the Company
establishes a net income before income taxes for two consecutive fiscal
quarters, the Company will be required to deposit with the lender an amount
equal to the sum of the aggregate outstanding principal amount of all prior
advances plus any portion of the line of credit reserved to support unexpired
letters of credit plus the amount of the requested advance before an advance
will be given. In addition, all advances must be used for working capital.
At September 30, 2003, there were no amounts outstanding under this line of
credit.
|  
|   |  | The Identix Line of Credit agreement contains financial, operating and
reporting covenants. At September 30, 2003, the Company was in compliance
with all covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|5. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Inventories are stated at the lower of standard cost (which approximates
actual cost determined on a first-in, first-out method) or market and
consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                 |  |               |            |          |  |   |           | 
|-------------------------------- |  | ------------- | ---------- | -------- |  | - | --------- | 
|                                 |  | September 30, |            | June 30,
|                                 |  |               |            |         
|                                 |  | 2003          |            | 2003    
|                                 |  |               |            |         
|Purchased parts and materials    |  | $             | 3,614,000  |          |  | $ | 3,351,000 | 
|Work-in-process                  |  |               | 4,966,000  |          |  |   | 4,893,000 | 
|Finished goods, including spares |  |               | 1,463,000  |          |  |   | 1,676,000 | 
|                                 |  |               |            |          |  |   |           | 
|                                 |  | $             | 10,043,000 |          |  | $ | 9,920,000 | 
|                                 |  |               |            |          |  |   |           | 



|6. |  | Restructuring, Write-offs and Other Merger Related Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In June 2002, the Company merged with Visionics and in connection with the
merger recorded restructuring charges of $18,798,000 for the termination of
110 employees, and the closure of its facilities in Dublin and Los Gatos
California. During the year ended June 30, 2003, the Company recorded
additional restructuring and other merger related charges of $10,206,000,
including a loss of $186,000 on the sublease portion of its Dublin facility.
The following is a summary of the charges incurred and payments made from the
time of the merger through June 30, 2003:

|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |            | 
|----------------------------- | ----- | - | --------------------------------------------------------- | ---------- | ---------------- | - | --------- | --------- | ------------- | - | ---------------- | ---------- | --------------- | - | ---------- | ---------- | 
|                              |       |   | Activity during the period June 25, 2002 to June 30, 2003
|                              |       |   |                                                           |            |                  |   |           |           |               |   | Cash Payments    |            |                 |   |           
|                              |       |   |                                                           |            |                  |   |           |           |               |   | through June 30, |            | Liability as of
|                              |       |   | Total Charges                                             |            | Non-Cash Charges |   | 2003      |           | June 30, 2003
|                              |       |   |                                                           |            |                  |   |           |           |              
|Severance and benefits        |       | $ | 8,376,000                                                 |            |                  | $ | 900,000   |           |               | $ | 6,862,000        |            |                 | $ | 614,000    |           
|Disposal of fixed assets      |       |   | 1,664,000                                                 |            |                  |   | 1,664,000 |           |               |   |                 |            |                 |   |           |           
|Lease exit costs              |       |   | 15,280,000                                                |            |                  |   | 388,000   |           |               |   | 2,741,000        |            |                 |   | 12,151,000 |           
|Internal merger costs & other |       |   | 3,684,000                                                 |            |                  |   |          |           |               |   | 3,653,000        |            |                 |   | 31,000     |           
|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |           
|                              | Total |   | $                                                         | 29,004,000 |                  |   | $         | 2,952,000 |               |   | $                | 13,256,000 |                 |   | $          | 12,796,000 | 
|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |           

8



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| |  | Fiscal 2004                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table represents a summary of restructuring, write-offs and
other merger related charges which relate to the merger of Identix and
Visionics that was consummated on June 25, 2002:

|                                |  |                                               |            |           |  |         |   |               |  |                       |   |  |  |                            |           |  |  |   |            | 
|------------------------------- |  | --------------------------------------------- | ---------- | --------- |  | ------- | - | ------------- |  | --------------------- | - |  |  | -------------------------- | --------- |  |  | - | ---------- | 
|                                |  | For the three months ended September 30, 2003
|                                |  | Restructuring Liability                       |            |           |  |         |   | Non-Cash      |  |                       |   |  |  | Restructuring Liability as
|                                |  | as of June 30, 2003                           |            | Additions |  | Charges |   | Cash Payments |  | of September 30, 2003
|                                |  |                                               |            |           |  |         |   |               |  |                      
|Severance and benefits          |  | $                                             | 614,000    |           |  | $       |  |               |  | $                     |  |  |  | $                          | 112,000   |  |  | $ | 502,000    | 
|Disposal of fixed assets        |  |                                               |           |           |  |         |  |               |  |                       |  |  |  |                            |          |  |  |   |           | 
|Lease exit costs                |  |                                               | 12,151,000 |           |  |         |  |               |  |                       |  |  |  |                            | 946,000   |  |  |   | 11,205,000 | 
|Internal merger costs and other |  |                                               | 31,000     |           |  |         |  |               |  |                       |  |  |  |                            |          |  |  |   | 31,000     | 
|                                |  |                                               |            |           |  |         |   |               |  |                       |   |  |  |                            |           |  |  |   |            | 
|Total                           |  | $                                             | 12,796,000 |           |  | $       |  |               |  | $                     |  |  |  | $                          | 1,058,000 |  |  | $ | 11,738,000 | 
|                                |  |                                               |            |           |  |         |   |               |  |                       |   |  |  |                            |           |  |  |   |            | 



|   |  | The restructuring liability is classified in the consolidated balance sheet
based on the anticipated timing of the respective payment. As of September
30, 2003, $8,673,000 of the above restructuring liability is classified as
long-term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Fiscal 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | During the three months ended September 30, 2002, the Company recorded merger
related expenses totaling $3,171,000 that consisted of $1,826,000 in
relocation costs and $1,345,000 related to employees with extended
terminations to assist in the integration. Such costs were expensed as
incurred.                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | During the three months ended September 30, 2002, the Company also recorded a
loss of $3,766,000 on the sublease of a portion of its Fairfax, Virginia
facility. The loss represented the difference between the remaining lease
obligation of $5,222,000, abandoned property and equipment of $445,000 and
costs to sublet the facility of $375,000, and the sublease income of
$2,276,000. During the three months ended September 30, 2002, the Company
recorded income of $182,000 through the reversal of a reserve relating to the
shut down of the Companys Virginia Beach-based Law Enforcement Solutions
Division (LESD) group as the actual costs to dispose of the division were
less than estimated.
|  
|7. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Basic earnings per share are computed by dividing net income (loss) 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 9,021,068 and 9,975,937 shares of common
stock were outstanding at September 30, 2003 and 2002, respectively, but were
not included in the computation of diluted net loss per share as their effect
was anti-dilutive. Also 234,558 shares of convertible preferred stock were
outstanding at September 30, 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.                                                                                                                                                                                              
|  
|8. |  | Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Comprehensive loss for the three months ended September 30, 2003 was
$4,651,000 compared to a loss of $13,942,000 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.                                                                                                                                                                                                                                                                                                                                                                       
|  
|9. |  | Reportable Segment Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                               

9



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|                      |  |                                  |            |      |  |   |             |  
|--------------------- |  | -------------------------------- | ---------- | ---- |  | - | ----------- | -
|                      |  | Three Months Ended September 30,
|                      |  |                                 
|                      |  | 2003                             |            | 2002
|                      |  |                                  |            |     
|Total revenues:       |  |                                  |            |      |  |   |             |  
|Product               |  | $                                | 12,718,000 |      |  | $ | 14,152,000  |  
|Services              |  |                                  | 8,614,000  |      |  |   | 10,910,000  |  
|                      |  |                                  |            |      |  |   |             |  
|                      |  | $                                | 21,332,000 |      |  | $ | 25,062,000  |  
|                      |  |                                  |            |      |  |   |             |  
|Loss from operations: |  |                                  |            |      |  |   |             |  
|Products              |  | $                                | (5,024,000 | )    |  | $ | (10,677,000 | )
|Services              |  |                                  | 174,000    |      |  |   | (3,933,000  | )
|                      |  |                                  |            |      |  |   |             |  
|                      |  | $                                | (4,850,000 | )    |  | $ | (14,610,000 | )
|                      |  |                                  |            |      |  |   |             |  

|                     |  |               |             |          |  |   |             | 
|-------------------- |  | ------------- | ----------- | -------- |  | - | ----------- | 
|                     |  | September 30, |             | June 30,
|                     |  |               |             |         
|                     |  | 2003          |             | 2003    
|                     |  |               |             |         
|Identifiable assets: |  |               |             |          |  |   |             | 
|Product              |  | $             | 232,499,000 |          |  | $ | 235,719,000 | 
|Services             |  |               | 8,685,000   |          |  |   | 9,551,000   | 
|                     |  |               |             |          |  |   |             | 
|                     |  | $             | 241,184,000 |          |  | $ | 245,270,000 | 
|                     |  |               |             |          |  |   |             | 



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

|                |  |                                          |            |      |  |   |            | 
|--------------- |  | ---------------------------------------- | ---------- | ---- |  | - | ---------- | 
|                |  | For the Three Months Ended September 30,
|                |  |                                         
|                |  | 2003                                     |            | 2002
|                |  |                                          |            |     
|Total revenues: |  |                                          |            |      |  |   |            | 
|North America   |  | $                                        | 20,599,000 |      |  | $ | 24,310,000 | 
|International   |  |                                          | 733,000    |      |  |   | 752,000    | 
|                |  |                                          |            |      |  |   |            | 
|                |  | $                                        | 21,332,000 |      |  | $ | 25,062,000 | 
|                |  |                                          |            |      |  |   |            | 

|                     |  |               |             |          |  |   |             | 
|-------------------- |  | ------------- | ----------- | -------- |  | - | ----------- | 
|                     |  | September 30, |             | June 30,
|                     |  |               |             |         
|                     |  | 2003          |             | 2003    
|                     |  |               |             |         
|Identifiable assets: |  |               |             |          |  |   |             | 
|North America        |  | $             | 240,317,000 |          |  | $ | 244,115,000 | 
|International        |  |               | 867,000     |          |  |   | 1,155,000   | 
|                     |  |               |             |          |  |   |             | 
|                     |  | $             | 241,184,000 |          |  | $ | 245,270,000 | 
|                     |  |               |             |          |  |   |             | 



|11. |  | Indemnification Arrangements and Product Warranties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As part of the Visionics acquisition in June 2002, the Company undertook, and
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 the Company could be required to make 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 Identix
to recover 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 September 30, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   

10



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| |  | 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 three months of fiscal 2004:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |  |   |          |  
|----------------------------- |  | - | -------- | -
|Balance at July 1, 2003       |  | $ | 374,000  |  
|Warranty Expense              |  |   | 183,000  |  
|Closed Warranty Claims        |  |   | (148,000 | )
|                              |  |   |          |  
|Balance at September 30, 2003 |  | $ | 409,000  |  
|                              |  |   |          |  



|12. |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 150, Accounting For
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. SFAS No. 150 was effective for the Company for financial instruments
entered into or modified after May 31, 2003 and otherwise was effective for
all existing financial instruments at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not
have a material impact on either the Companys financial position or results
of operations.
|   
|    |  | 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 second
quarter of fiscal year 2004, FIN 46 will be applied to interests in variable
interest entities (VIEs) acquired prior to February 1, 2003. Management
believes the adoption of FIN 46 will not have a material impact on the
Companys consolidated results of operations, financial position, or cash
flows.                        
|   
|13. |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | On October 3, 2003, the Company announced that it had been awarded a blanket
purchase order (BPA) from the Department of Homeland Security (DHS) with
an estimated value of approximately $27 million over a five year period to
provide live scan units and related services to the Citizenship and
Immigration Service. The BPA was part of a competitive bidding process where
unsuccessful bidders for public agency contracts are provided customary
rights to formally protest contract awards through various agency,
administrative and judicial channels.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | On October 23, 2003, the Company reported that a protest had been lodged by
one of its competitors against the award of the BPA to Identix. In response
to the protest, DHS issued a stop work order, meaning further procurement of
the Companys technology under the BPA is being held in abeyance until the
protest is resolved. DHS also formally informed the Company that, as a
result of DHS review of the BPA solicitation and the evaluation process
conducted by DHS of proposals received in response, DHS had decided to
conduct a new round of evaluations of previously submitted proposals. DHS
also formally requested that the U.S. General Accounting Office dismiss the
competitors protest.                                                                                                                                                                                                                                                                                                
|   
|    |  | While the Company continues to believe that the BPA award to Identix will not
be overturned and that any new evaluation by DHS will simply re-confirm that
the Company products and services represent the best overall value for the
customer, there can be no assurance that DHS new round of evaluations will
not result in substantial delays in purchases under the BPA or that it will
not result in the cancellation of all or a portion of the BPA award itself.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

11



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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.

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, 2003 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, 2003
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 annual impairment analysis
was performed during the fourth quarter of fiscal year 2003 and resulted in an
impairment charge to goodwill of $154,799,000.

RESULTS OF OPERATIONS

Revenues, Cost of Revenues and Gross Margins

Revenues for the three months ended September 30, 2003 were $21,332,000
compared to $25,062,000 for the same period in the prior fiscal year. The
decrease in overall revenue consisted of a decrease in product revenue of
$1,434,000 and a decrease in services of $2,296,000. The Company had one
customer, the Department of Defense (DOD) which accounted for 20% of the total
revenue for the three months ended September 30, 2003, compared to 29% for the
same period in the prior fiscal year.

Product revenues were $12,718,000 for the three months ended September 30,
2003, compared to $14,152,000 for the same period in the prior fiscal year.
The decrease in revenues of 10% for the three months ended September 30, 2003
was primarily due to the Visionics merger in June 2002 that resulted in a build
up of backlog that was recognized as revenue in the first quarter of fiscal
year 2003 which did not occur during the same time period in fiscal year 2004.
In addition, a decreased sales volume from the Companys Live Scan products and
competitive pricing pressures also contributed to this decrease. This

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decrease
was partially offset by increased sales of the Companys Software Development
Kits and the Companys Identification Based Information System (IBIS). The
Company may continue to experience downward competitive pricing pressures in
the future.

International sales accounted for
$733,000 or 6% of the Companys product
revenues for the three months ended September 30, 2003 compared to $752,000 or
5% of the Companys product revenues 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.

The Company is currently undergoing a General Services
Administration pre-award audit for the renewal of a GSA Multiple Award Schedule
contract. While the Company believes that the results of such audit will have
no material effect on the results of operation, any material adverse findings
or adjustments arising out of such audit may have a material adverse effect on
our business, financial condition and results of operations.

Services revenues were $8,614,000 for the three months ended September 30, 2003
down 21% when compared to services revenues of $10,910,000 for the same period
in the prior fiscal year. The decrease for the three months ended September
30, 2003, is primarily the result of decreased revenues from the Naval Sea
Systems Command contracts that were in effect for the three months ended
September 30, 2002. The contracts period of performance ended June 30, 2003.
The majority of the Companys services revenues are generated directly from
contracts with the U.S. Government, principally the DOD. For the three months
ended September 30, 2003, revenues directly from the DOD and from other U. S.
Government agencies accounted for 70% of the Companys total services revenues
compared to 85%, for the same period in the prior fiscal year.

In January 2003, the Company was
notified that its service business was not
awarded a contract to continue providing professional support services and
material acquisition support to the Naval Sea Systems Command under contract
PMS-325. The original contract was a cost plus fixed fee award that expired on
June 30, 2003. 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. During the three months ended September 30, 2002 the Company
recognized approximately $2,400,000 under this contract. Due to the low
margins on this contract, its loss 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 months ended September 30, 2003, the Company
derived 89% of services revenues from FFP and T&M contracts. During the three
months ended September 30, 2002, the Company derived 93% 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 11% of its services revenues for the three
months ended September 30, 2003 and approximately 7% of its services revenues
for the same period 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 37% for the three months ended September
30, 2003 and 27% for the same period of the prior fiscal year. When the
Company merged with Visionics on June 25, 2002 there was a consolidation of the
two entitys inventories and product lines. The consolidation rendered some
inventory items obsolete. As a result, an inventory revaluation charge of
$809,000 was recorded in the first quarter of fiscal year 2003 which had the
effect of decreasing the Companys product gross margin for this time period.
An inventory revaluation of this nature was not necessary in the first quarter
of fiscal year 2004 and as a result the product gross margins increased in the
first quarter of fiscal year 2004 when compared to the same period in the prior
fiscal year. The Company expects gross margins to fluctuate in future periods
due to changes in the product mix, the costs of components and the competition
in the industry.

Gross margin on services revenues was 13% for the three months ended September
30, 2003 as compared to 10% for the same period in the prior fiscal year. In
fiscal year 2003, the Company was notified that its service business
was not awarded a contract to provide professional support services and material
acquisition support to the Naval Sea Systems Command under contract PMS-325.
This particular contract had a high percentage of subcontractor and reseller
costs associated with it that combined to create a lower margin on this
contract and on the services gross margin as a whole in the first quarter of
fiscal year

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2003.     Therefore, when the contract PMS-325 was terminated, it had
the effect of eliminating significant subcontractor and reseller expenses and
consequently the services gross margins increased accordingly.

Research, Development and Engineering

Research, development and engineering expenses were $2,255,000 or 18% of
product revenues for the three months ended September 30, 2003 compared to
$3,088,000 or 22% of product revenues for the same period in the prior fiscal
year. In the first quarter of fiscal year 2003, there were several ongoing
development projects in the areas of software and hardware that required a
significant amount of subcontractor work. Throughout fiscal year 2003, there
was a concerted effort by the Company to decrease its reliance on its principle
subcontractor. These factors combined with the completion of the development
projects ongoing in the first quarter of fiscal year 2003 resulted in the
$833,000 decrease of research development and engineering expenses identified
above.

Marketing and Selling

Marketing and selling expenses were $2,677,000 or 13% of total revenues for the
three months ended September 30, 2003, compared to $3,251,000 or 13% of total
revenues for the same period in the prior fiscal year. The decrease in
marketing and selling expenses expressed in dollars, was driven by a
significant reduction in bad debt expense for the first quarter of fiscal year
2004. This reduction was due to the cash collections of several large accounts
receivable which had been previously fully reserved. The specific receivables
had been in dispute for more than one year and consistent with Company policy,
were fully reserved.

General and Administrative

General and administrative expenses were $4,389,000 for the three months ended
September 30, 2003, compared to $4,883,000 for the same period in the prior
fiscal year. Deferred compensation expense decreased by $351,000 from the
first quarter of fiscal 2003 to the first quarter of fiscal 2004 as the number
of unvested options continues to decline. In addition, the Company reduced its
reliance of outside recruiters and temporary employees, lowering expenses in
each category by $156,000 and $122,000 respectively. Finally, certain
additional professional services were provided during the first quarter of
fiscal year 2003 which facilitated the merger with Visionics and these expenses
decreased by $112,000 since these services were no longer necessary. These
decreases were partially offset by certain costs related to terminated
employees which totaled approximately $200,000 for the three months ended
September 30, 2003.

Amortization of Acquired Intangible Assets

The amortization expense is primarily related to acquired intangible assets
such as developed technology, patents and capitalized software development
cost. The amortization expense related to acquired intangible assets was
$1,382,000 for the three months ended September 30, 2003 compared to $1,546,000
for the same period in the prior fiscal year. The decrease is primarily the
result of certain intangibles being fully amortized by September 30, 2003.

Restructuring Write-offs and Other Merger Related Charges

In June 2002, the Company merged with Visionics and in connection with the
merger recorded restructuring charges of $18,798,000 for the termination of 110
employees, and the closure of its facilities in Dublin and Los Gatos
California. During the year ended June 30, 2003, the Company recorded
additional restructuring and other merger related charges of $10,206,000,
including a loss of $186,000 on the sublease portion of its Dublin facility.
The following is a summary of the charges incurred and payments made from the
time of the merger through June 30, 2003:

|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |            | 
|----------------------------- | ----- | - | --------------------------------------------------------- | ---------- | ---------------- | - | --------- | --------- | ------------- | - | ---------------- | ---------- | --------------- | - | ---------- | ---------- | 
|                              |       |   | Activity during the period June 25, 2002 to June 30, 2003
|                              |       |   |                                                           |            |                  |   |           |           |               |   | Cash Payments    |            |                 |   |           
|                              |       |   |                                                           |            |                  |   |           |           |               |   | through June 30, |            | Liability as of
|                              |       |   | Total Charges                                             |            | Non-Cash Charges |   | 2003      |           | June 30, 2003
|                              |       |   |                                                           |            |                  |   |           |           |              
|Severance and benefits        |       | $ | 8,376,000                                                 |            |                  | $ | 900,000   |           |               | $ | 6,862,000        |            |                 | $ | 614,000    |           
|Disposal of fixed assets      |       |   | 1,664,000                                                 |            |                  |   | 1,664,000 |           |               |   |                 |            |                 |   |           |           
|Lease exit costs              |       |   | 15,280,000                                                |            |                  |   | 388,000   |           |               |   | 2,741,000        |            |                 |   | 12,151,000 |           
|Internal merger costs & other |       |   | 3,684,000                                                 |            |                  |   |          |           |               |   | 3,653,000        |            |                 |   | 31,000     |           
|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |           
|                              | Total |   | $                                                         | 29,004,000 |                  |   | $         | 2,952,000 |               |   | $                | 13,256,000 |                 |   | $          | 12,796,000 | 
|                              |       |   |                                                           |            |                  |   |           |           |               |   |                  |            |                 |   |            |           

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Fiscal 2004

Merger costs decreased by $6,755,000 when comparing the first quarter of fiscal
year 2003 to the first quarter of fiscal year 2004. The decrease is due to all
merger costs being fully recognized during fiscal year 2003.

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

|                                |       |   |                                               |            |           |   |         |   |               |   |                       |   |  |   |                            |           |  |   |            |            | 
|------------------------------- | ----- | - | --------------------------------------------- | ---------- | --------- | - | ------- | - | ------------- | - | --------------------- | - |  | - | -------------------------- | --------- |  | - | ---------- | ---------- | 
|                                |       |   | For the
three months ended September 30, 2003
|                                |       |   | Restructuring Liability                       |            |           |   |         |   | Non-Cash      |   |                       |   |  |   | Restructuring Liability as
|                                |       |   | as of June 30, 2003                           |            | Additions |   | Charges |   | Cash Payments |   | of September 30, 2003
|                                |       |   |                                               |            |           |   |         |   |               |   |                      
|Severance and benefits          |       | $ | 614,000                                       |            |           | $ |        |   |               | $ |                      |   |  | $ | 112,000                    |           |  | $ | 502,000    |           
|Disposal of fixed assets        |       |   |                                              |            |           |   |        |   |               |   |                      |   |  |   |                           |           |  |   |           |           
|Lease exit costs                |       |   | 12,151,000                                    |            |           |   |        |   |               |   |                      |   |  |   | 946,000                    |           |  |   | 11,205,000 |           
|Internal merger costs and other |       |   | 31,000                                        |            |           |   |        |   |               |   |                      |   |  |   |                           |           |  |   | 31,000     |           
|                                |       |   |                                               |            |           |   |         |   |               |   |                       |   |  |   |                            |           |  |   |            |            | 
|                                | Total |   | $                                             | 12,796,000 |           |   | $       |  |               |   | $                     |  |  |   | $                          | 1,058,000 |  |   | $          | 11,738,000 | 
|                                |       |   |                                               |            |           |   |         |   |               |   |                       |   |  |   |                            |           |  |   |            |            | 

The restructuring liability is classified in the consolidated balance sheet
based on the anticipated timing of the respective payment. As of September 30,
2003, $8,673,000 of the above restructuring liability is classified as
long-term.

Fiscal 2003

During the three months ended September 30, 2002, the Company recorded merger
related expenses totaling $3,171,000 that consisted of $1,826,000 in relocation
costs and $1,345,000 related to employees with extended terminations to assist
in the integration. Such costs were expensed as incurred.

During the three months ended September 30, 2002, the Company also recorded a
loss of $3,766,000 on the sublease of a portion of its Fairfax, Virginia
facility. The loss represented the difference between the remaining lease
obligation of $5,222,000, abandoned property and equipment of $445,000 and
costs to sublet the facility of $375,000, and the sublease income of
$2,276,000. During the three months ended September 30, 2002, the Company
recorded income of $182,000 through the reversal of a reserve relating to the
shut down of the Companys Virginia Beach-based Law Enforcement Solutions
Division (LESD) group as the actual costs to dispose of the division were
less than estimated.

Interest and Other Income, net

For the three months ended September 30, 2003, interest and other income, net
was $316,000 compared to $376,000 for the same period in the prior fiscal year.
The decrease is the result of lower cash balances and lower Sylvan Identix
Fingerprinting Centers (SIFC) royalties at September 30, 2003 when compared
to the three months ended September 30, 2002.

Interest Expense

Interest expense was $8,000 for the three months ended September 30, 2003,
compared to $1,000 for the same period in the prior fiscal year. There have
been no borrowings under the Companys line of credit for the three months
ended September 30, 2003. 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.

Provision for Income Taxes

The Company recorded a provision for income tax expense of $9,000 for the three
months ended September 30, 2003 and a provision of $22,000 for the three months
ended September 30, 2002. The tax provision recorded for both fiscal years is
related to state liabilities.

Equity Interest in (Loss) Income of Joint Venture

The equity interest in income of the joint venture represents the Companys 50%
share of the results of SIFC. For the three months ended September 30, 2003,
the Companys equity interest in the joint venture loss was $105,000. For the
same period in the prior fiscal year the Companys equity interest was income
of $58,000.

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Liquidity and Capital Resources

The Company financed its operations during the three months ended September 30,
2003, primarily from cash provided by its investing and financing activities.
As of September 30, 2003, the Companys principal sources of liquidity
consisted of $50,623,000 of working capital including $42,644,000 in cash and
cash equivalents and short-term marketable securities. In addition, the
Company has $506,000 in long-term securities that can be used to finance
operations.

The Companys existing line of credit (the Identix Line of Credit) was
entered into on May 30, 2003. This line of credit provides for up to the
lesser of $15,000,000 or the cash collateral base or the borrowing base.
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 which was 4.00% at September 30, 2003. The Identix Line of Credit
expires on October 30, 2004. Until the Company establishes a net income before
income taxes for two consecutive fiscal quarters, the Company will be required
to deposit with the lender an amount equal to the sum of the aggregate
outstanding principal amount of all prior advances plus any portion of the line
of credit reserved to support unexpired letters of credit plus the amount of
the requested advance before an advance will be given. In addition, all
advances must be used for working capital. At September 30, 2003, there were
no amounts outstanding under this line of credit.

The Identix Line of Credit agreement contains financial, operating and
reporting covenants. At September 30, 2003, the Company was in compliance with
all covenants.

For the three months ended September 30, 2003, $575,000 and $479,000 of cash
was generated from investing and financing activities respectively which were
partially offset by the use of $1,115,000 for operating activities. The net
result of the Companys cash flow activities resulted in $61,000 of cash and
cash equivalents being consumed. The Company used $12,014,000 of cash and cash
equivalents during the three months ended September 30, 2002. For the three
months ended September 30, 2002, operating activities used $12,104,000 of cash
and investing activities used $454,000 of cash. These uses were partially
offset by the Companys financing activities that generated $544,000. 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
September 30, 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: |       | Occupied |           | Unoccupied |  | Total
|                                        |       |          |           |            |  |      
|2004                                    |       | $        | 3,720,000 |            |  | $     | 1,779,000 |            |  | $ | 5,499,000 |           
|2005                                    |       |          | 5,028,000 |            |  |       | 2,628,000 |            |  |   | 7,656,000 |           
|2006                                    |       |          | 4,395,000 |            |  |       | 2,599,000 |            |  |   | 6,994,000 |           
|2007                                    |       |          | 4,270,000 |            |  |       | 2,211,000 |            |  |   | 6,481,000 |           
|2008                                    |       |          | 2,854,000 |            |  |       | 1,127,000 |            |  |   | 3,981,000 |           
|Thereafter                              |       |          | 6,617,000 |            |  |       |          |            |  |   | 6,617,000 |           
|                                        |       |          |           |            |  |       |           |            |  |   |           |           
|                                        | Total |          | $         | 26,884,000 |  |       | $         | 10,344,000 |  |   | $         | 37,228,000 | 
|                                        |       |          |           |            |  |       |           |            |  |   |           |           

Included in the above future minimum payments is $10,344,000 related to two
leased facilities in Northern California that were vacated in connection with
the Companys merger with Visionics and were fully accrued for as of September
30, 2003. In addition, the Company is aggressively attempting to sublease the
unoccupied facilities.

While the Company believes that existing working capital may be adequate to
fund the Companys current cash requirements, 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

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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 May 2003, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 150, Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. SFAS No. 150 was
effective for the Company for financial instruments entered into or modified
after May 31, 2003 and otherwise was effective for all existing financial
instruments at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on either
the Companys financial position or results of operations.

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 second quarter of fiscal
year 2004, FIN 46 will be applied to interests in variable interest entities
(VIEs) acquired prior to February 1, 2003. Management believes the adoption
of FIN 46 will not have a material impact on the Companys consolidated results
of operations, financial position, or cash flows.

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 our 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 information collected;
| 
| |  | public perceptions regarding the confidentiality of private information;                                                     
| 
| |  | proposed or enacted legislation related to privacy of 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

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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 and/or
fingerprint biometric security applications that currently compete or will
compete directly with our current facial and fingerprint security and identity
related 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 and identity related
line of products and applications also compete with non-biometric technologies
such as certificate authorities, smart card security solutions, and traditional
key, card, surveillance systems and passwords. Many competitors offering
products that are competitive with our security and identity related line of
products and applications have significantly more financial and other resources
than the Company. The biometric security market is a rapidly evolving and
intensely competitive market, and we believe that additional competitors will
continue to 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., Cognitech
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 Motorola company), 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
design, 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.

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 at any time 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 expensive. 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. For
example, the Company was recently awarded a Blanket Purchase Order from the
Department of Homeland Security (DHS) with an estimated value of
approximately $27 million, and such award was the subject of a formal protest
by one of our competitors. As a result of the protest, DHS decided to
undertake a new evaluation of previously submitted proposals. There can be no
assurance such new evaluation process will not result in substantial delays in
purchases under the DHA award or in the cancellation of all or part of the
Blanket Purchase Award itself. 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 months ended September 30, 2003, we derived approximately
70% of our services revenue directly from contracts relating to the Department
of Defense and other U.S. Government agencies. The loss of a material
government contract due to budget cuts or otherwise could have a severe
negative impact on our financial results and stock price. For example, in
January 2003, we were notified that our service business would not be awarded a
contract to continue providing professional support services and material
acquisition support to

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the Naval Sea Systems Command. The original contract
was a cost plus fixed fee award that expired on June 30, 2003. During the
twelve months ended June 30, 2003, $7,300,000 was recognized under the
contract. The contract that was not awarded to the Company would have
generated an estimated $3,250,000 per quarter of additional revenue over the
life of the contract.

For the three months ended September 30, 2003, we derived approximately
89% 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.

We are currently undergoing a General Services Administration pre-award
audit for the renewal of a GSA Multiple Award Schedule contract related to our
product business. While we believe that the results of such audit will have no
material effect on our results of operations, any material adverse findings or
adjustments arising out of such audit may have a material adverse effect on our
business, financial condition and results of operations.

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

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, for example, 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 and/or administrative protest costs;                                                                          
|
| |  |  | expenses related to acquisitions or mergers;                                                                                                                  
|
| |  |  | impairment charges arising out of our assessments of goodwill and intangibles;                                                                                
|
| |  |  | other one-time financial charges;                                                                                                                             
|
| |  |  | the lack of availability or increase in cost of key components and subassemblies; and                                                                         
|
| |  |  | the inability to timely and successfully complete development of
complex designs and components, or manufacture in volume and install
certain of our products.

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.

Our results of operations may be harmed by availability of governmental
funding, credit 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 by us at the time of acceptance of the
order, and may involve investment of additional resources. These

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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.

The substantial costs of our merger with Visionics Corporation, which was
completed in June 2002, and the manner of accounting for the merger may affect
Identix reported results of operations.

Approximately $30 million of costs have been incurred in connection with
our merger with Visionics. 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 has
been charged to expense in the period incurred, which increased our loss under
generally accepted accounting principals (GAAP) 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. 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.

While the vast majority of costs associated with the merger are behind us,
we may incur additional integration costs, for example, costs associated with
the sublease of our former office and manufacturing space in California, and
these costs may be higher than anticipated.

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. During the fourth quarter of fiscal year
2003, we recorded an impairment charge to goodwill in the amount of
$154,799,000.

The market price of our common stock could decline.

The market price of our common stock could decline if:



| |  |  | our merger with Visionics proves to be ultimately unsuccessful;                                                                                                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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, the war with Iraq, and the post-reconstruction
efforts in 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 existing working capital 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
dilative 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.

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

Our wholly owned subsidiary, Identix Public Sector, Inc. (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.

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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 and or install 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.

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 revenue 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.

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

We obtain certain hardware components and complete products, as well as
software applications, 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
three months ended September 30, 2003, we derived approximately 6%
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:

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| |  |  | regional economic or political conditions;                                                                                                                                                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | delays in or absolute prohibitions on exporting products
resulting from export restrictions for certain products and
technologies, including crime control products and encryption
technology;
|
| |  |  | loss of, or delays in importing products, services and
intellectual property developed abroad, resulting from unstable or
fluctuating social, political or governmental conditions;             
|
| |  |  | fluctuations in foreign currencies and the U.S. dollar;                                                                                                                                         
|
| |  |  | loss of revenue, property (including intellectual property) and
equipment from expropriation, nationalization, war, insurrection,
terrorism, criminal acts and other political and social risks;
|
| |  |  | the overlap of different tax structures;                                                                                                                                                        
|
| |  |  | seasonal reductions in business activity;                                                                                                                                                       
|
| |  |  | risks of increases in taxes and other government fees; and                                                                                                                                      
|
| |  |  | involuntary renegotiations of contracts with foreign governments.                                                                                                                               

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 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 September 30, 2003, the State of Wisconsin Investment Board and
Mazama Capital Management, L.L.C owned approximately 9% and 5% 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 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.

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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.

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 June 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;                                                                                   

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| |  |  | incurring impairment charges arising out of our assessments of goodwill and intangibles 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 our
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.

If we lose the services of 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

Evaluation of Disclosure Controls and Procedures.Based on their
evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

Changes in Internal Control Over Financial Reporting.There were no
changes in our internal control over financial reporting identified in
connection with our evaluation that occurred during our first fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

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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                                                                 
|        |  |                                                                             
|10.55   |  | Employment agreement between Identix and Linda Howard, dated August 22, 2003
|        |  |                                                                             
|31.1    |  | 302 Certification by the Chief Executive Officer                            
|        |  |                                                                             
|31.2    |  | 302 Certification by the Chief Financial Officer                            
|        |  |                                                                             
|32      |  | 906 Certifications                                                          



| | (b) |  | A Form 8-K was filed on August 7, 2003, which contained the Companys
fiscal year-end press release.
| | --- |  | ----------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Identix Incorporated, a corporation
organized and existing under the laws of the State of Delaware, has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Minnetonka, State of Minnesota, on
November 13,
2003.

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

26