##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q/A
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarterly period ended March 31, 2005 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission
File Number: 1-9641
 IDENTIX INCORPORATED
  Delaware
    
    94-2842496(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation of organization)5600 Rowland Road, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
  þ o
 þ o
 o þ




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PART I FINANCIAL INFORMATIONItem 1 Unaudited Financial StatementsCondensed Consolidated Balance Sheets -
March 31, 2005, June 30, 2004 and March 31, 2004
    
    
    3Condensed Consolidated Statements of Operations -
Three and Nine months ended March 31, 2005 and
2004
    
    
    4Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 2005 and
2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3 Quantitative and Qualitative Disclosures
About Market Risk
    
    
    29Item 4 Controls and Procedures
    
    
    29PART II OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    30Item 6 Exhibits
    
    
    30Signature
    
    
    31Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 906 Certification
  2




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IDENTIX INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 (Unaudited)
 March 31,March 31,
    
    
    June 30,
    
    
    20042005
    
    
    2004
    
    
    RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,450
    
    
    $
    35,944
    
    
    $
    35,926Marketable securities
    
    
    9,690
    
    
    
    9,472
    
    
    
    9,457Accounts receivable, net
    
    
    16,009
    
    
    
    11,412
    
    
    
    11,489Inventories
    
    
    6,275
    
    
    
    7,171
    
    
    
    8,208Prepaid expenses and other assets
    
    
    973
    
    
    
    1,052
    
    
    
    935Total current assets
    
    
    60,397
    
    
    
    65,051
    
    
    
    66,015Property and equipment, net
    
    
    1,683
    
    
    
    2,153
    
    
    
    2,687Goodwill
    
    
    141,213
    
    
    
    141,213
    
    
    
    141,256Acquired intangible assets, net
    
    
    14,646
    
    
    
    18,497
    
    
    
    19,863Other assets
    
    
    744
    
    
    
    1,913
    
    
    
    1,904Total assets
    
    $
    218,683
    
    
    $
    228,827
    
    
    $
    231,725LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,137
    
    
    $
    4,881
    
    
    $
    4,721Accrued compensation
    
    
    4,160
    
    
    
    2,948
    
    
    
    3,995Other accrued liabilities
    
    
    3,791
    
    
    
    4,992
    
    
    
    4,737Deferred revenue
    
    
    7,539
    
    
    
    6,408
    
    
    
    8,339Total current liabilities
    
    
    20,627
    
    
    
    19,229
    
    
    
    21,792Deferred revenue
    
    
    1,596
    
    
    
    462
    
    
    
    45Other liabilities
    
    
    181
    
    
    
    5,647
    
    
    
    6,620Total liabilities
    
    
    22,404
    
    
    
    25,338
    
    
    
    28,457Stockholders equity:Common stock, $0.01 par value; 200,000,000 shares authorized
88,921,193, 88,429,821 and 87,473,130 shares issued and outstanding,
respectively
    
    
    889
    
    
    
    884
    
    
    
    875Additional paid-in capital
    
    
    552,256
    
    
    
    549,956
    
    
    
    545,437Accumulated deficit
    
    
    (356,716
    )
    
    
    (347,193
    )
    
    
    (342,799
    )Deferred stock-based compensation
    
    
    
    
    
    
    (14
    )
    
    
    (100
    )Accumulated other comprehensive loss
    
    
    (150
    )
    
    
    (144
    )
    
    
    (145
    )Total stockholders equity
    
    
    196,279
    
    
    
    203,489
    
    
    
    203,268Total liabilities and stockholders equity
    
    $
    218,683
    
    
    $
    228,827
    
    
    $
    231,725
  3




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##### Table of Contents



IDENTIX
INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 Three Months Ended March 31,
    
    
    Nine Months Ended March 31,2004
    
    
    
    
    
    
    20042005
    
    
    Restated
    
    
    2005
    
    
    RestatedRevenues:Product revenues
    
    $
    12,119
    
    
    $
    6,674
    
    
    $
    30,683
    
    
    $
    17,821Service revenues
    
    
    8,133
    
    
    
    7,817
    
    
    
    24,750
    
    
    $
    21,193Total Revenues
    
    $
    20,252
    
    
    $
    14,491
    
    
    $
    55,433
    
    
    $
    39,014Cost and expenses:Cost of product revenues
    
    
    7,318
    
    
    
    5,094
    
    
    
    21,661
    
    
    
    13,701Cost of service revenues
    
    
    6,140
    
    
    
    7,585
    
    
    
    18,249
    
    
    
    16,656Research and development
    
    
    3,029
    
    
    
    2,184
    
    
    
    8,345
    
    
    
    7,207Marketing and selling
    
    
    3,179
    
    
    
    2,746
    
    
    
    8,744
    
    
    
    8,238General and administrative
    
    
    3,013
    
    
    
    3,166
    
    
    
    9,215
    
    
    
    9,880Amortization of acquired intangible assets
    
    
    250
    
    
    
    254
    
    
    
    754
    
    
    
    731Restructuring and other, net
    
    
    
    
    
    
    2,115
    
    
    
    (620
    )
    
    
    2,115Total costs and expenses
    
    
    22,929
    
    
    
    23,144
    
    
    
    66,348
    
    
    
    58,528Loss from operations
    
    
    (2,677
    )
    
    
    (8,653
    )
    
    
    (10,915
    )
    
    
    (19,514
    )Interest and other income, net
    
    
    763
    
    
    
    300
    
    
    
    1,425
    
    
    
    971Equity interest in loss of joint venture
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (302
    )Loss from continuing operations before income taxes
    
    
    (1,914
    )
    
    
    (8,408
    )
    
    
    (9,490
    )
    
    
    (18,845
    )(Provision) benefit for income taxes
    
    
    (11
    )
    
    
    1,591
    
    
    
    (33
    )
    
    
    1,572Loss from continuing operations
    
    
    (1,925
    )
    
    
    (6,817
    )
    
    
    (9,523
    )
    
    
    (17,273
    )Discontinued operations:Loss from discontinued IPS operations
    
    
    
    
    
    
    (1,050
    )
    
    
    
    
    
    
    (809
    )Gain on sale of IPS, net of provision for income taxes
    
    
    
    
    
    
    3,934
    
    
    
    
    
    
    
    3,934Income from discontinued operations
    
    
    
    
    
    
    2,884
    
    
    
    
    
    
    
    3,125Net loss
    
    $
    (1,925
    )
    
    $
    (3,933
    )
    
    $
    (9,523
    )
    
    $
    (14,148
    )Basic and diluted loss per share from continuing
operations
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )
    
    $
    (0.20
    )Basic and diluted income per share from discontinued
operations
    
    $
    
    
    
    $
    0.04
    
    
    $
    
    
    
    $
    0.04Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.11
    )
    
    $
    (0.16
    )Weighted average common shares used in basic
and diluted loss per share computation
    
    
    88,834
    
    
    
    86,645
    
    
    
    88,620
    
    
    
    86,267
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IDENTIX INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (Unaudited)
 Nine Months Ended March,20042005
    
    
    RestatedCash flows from operating activities:Net loss
    
    $
    (9,523
    )
    
    $
    (14,148
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    4,836
    
    
    
    6,065Inventory obsolescence provision
    
    
    1,086
    
    
    
    3,315Stock-based compensation expense
    
    
    14
    
    
    
    558Loss on property and equipment
    
    
    11
    
    
    
    Gain on sale of discontinued IPS operations, pre-tax
    
    
    
    
    
    
    (5,934
    )Equity interest in loss of joint venture
    
    
    
    
    
    
    302Bad debt recoveries, net
    
    
    (32
    )
    
    
    (625
    )Realized gain on sales of marketable securities
    
    
    (90
    )
    
    
    (24
    )Restructuring and other, net
    
    
    (620
    )
    
    
    1,610Changes in assets and liabilities:Accounts receivable
    
    
    (4,566
    )
    
    
    4,754Inventories
    
    
    (190
    )
    
    
    (2,155
    )Prepaid expenses and other assets
    
    
    1,248
    
    
    
    1,038Accounts payable
    
    
    256
    
    
    
    (2,834
    )Accrued compensation
    
    
    1,212
    
    
    
    669Other accrued liabilities
    
    
    (6,047
    )
    
    
    (2,454
    )Deferred revenue
    
    
    2,265
    
    
    
    1,394Net cash used in operating activities
    
    
    (10,140
    )
    
    
    (8,469
    )Cash flows from investing activities:Proceeds from sale of IPS, net of transaction costs
    
    
    
    
    
    
    7,808Cash acquired in acquisition, net of cash paid
    
    
    
    
    
    
    1,264Net proceeds from the sales of marketable securities
    
    
    19,300
    
    
    
    15,007Purchases of marketable securities
    
    
    (19,433
    )
    
    
    (14,943
    )Capital expenditures
    
    
    (526
    )
    
    
    (863
    )Net cash (used in) provided by investing activities
    
    
    (659
    )
    
    
    8,273Cash flows from financing activities:Proceeds from exercise of stock options and the issuance of stock
under employee benefit plans
    
    
    2,305
    
    
    
    1,410Net cash provided by financing activities
    
    
    2,305
    
    
    
    1,410Net decrease in cash and cash equivalents
    
    
    (8,494
    )
    
    
    1,214Cash and cash equivalents at period beginning
    
    
    35,944
    
    
    
    34,712Cash and cash equivalents at period end
    
    $
    27,450
    
    
    $
    35,926Non Cash Activities:Stock issued for acquisition of technology
    
    $
    
    
    
    $
    3,423Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    3,702
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IDENTIX INCORPORATED
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1.
    
    Basis of Presentation
 The accompanying condensed consolidated financial statements and related notes are unaudited.
However, in the opinion of management, all adjustments (consisting only of normal recurring
adjustments, unless otherwise noted), which are necessary for a fair statement 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 years ended June 30, 2004, as
restated, (See Note 3) and June 30, 2005 included in the Identix Incorporated Form 10-K for the
fiscal year ended June 30, 2005 Identix Incorporated is hereinafter referred to as Identix or
the Company. The results of operations for the three and nine months ended March 31, 2005 are
not necessarily indicative of results to be expected for the entire fiscal year.
 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
 Significant management judgments and estimates are made in connection with the revenues
recognized in any accounting period. For example, Identix must assess whether the fee
associated with a revenue transaction is fixed or determinable and the likelihood of collection
from the customer. Material differences could result in the amount and timing of revenues for
any period if management were to make different judgments or utilize different estimates.Identix derives revenue from sales of products and services. With respect to product
sales, the Company sells hardware, software or a combination of hardware and software products.
Service revenue is derived from maintenance contracts related to product sales, consulting and
training services. A hypothetical customer, depending on their needs, may order a single
hardware or software product or service or combine hardware products, software products and
services to create a multiple element arrangement. The Companys policies with respect to the
recognition of revenue related to the various combinations of our products and services are
described in the following paragraphs.Product RevenuesIn the case of hardware only sales, Identix recognizes revenue in accordance with
Securities and Exchange Commission Staff Accounting Bulletin (SAB) 104, Revenue Recognition.
Revenue related to product sales that require no installation as well as printers and other
peripheral devices, is recognized in accordance with the terms of the sale, generally when the
product is shipped, provided no significant obligations remain and collection of the receivable
is deemed reasonably assured. Certain of the Companys hardware sales to end users require
installation subsequent to shipment and transfer of title. Revenue related to hardware sales
that are contingent on installation is deferred until installation is complete, title has
transferred and customer acceptance has been obtained. Due to the Companys current policy and
practices, the Company considers acceptance of these products to be contingent upon successful
installation of the product. When hardware products are sold via authorized representatives,
dealers, distributors or other third party sales channels the obligation to install the machines
generally does not remain the Companys responsibility but is rather an obligation between the
authorized representative, dealer, distributor or other third party and their ultimate customer.
As a result, for sales to third party distributors, revenue is recognized at the time title is
transferred which is generally upon shipment. On rare occasions, Identix will be required to
install products on the behalf of the Companys third party distributors. In these cases,
revenue is recorded in the same manner as products sold to end users where acceptance of the
product by the third party distributor is contingent upon successful installation of the
product.For hardware arrangements (software products, if any, are incidental to the arrangement)
with multiple elements Identix applies the guidance in SAB 104 and Emerging Issues Task Force
Issue (EITF) 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. For
each multiple element arrangement, the Company determines if each element is a separate unit of
accounting pursuant to EITF 00-21 by ensuring (1) that the element has stand alone value to the
customer, (2) that there is objective evidence of the fair value for the element and (3) that if
the arrangement includes a
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general right of return relative to the delivered item, that delivery of the undelivered
items is considered probable and in the Companys control. The elements in a multiple element
arrangement typically consist of hardware products, installation, training and maintenance
services. To determine the fair value for each hardware element in an arrangement, Identix
relies upon vendor specific objective evidence (VSOE) of fair value using the price charged
when that element is sold separately. If VSOE of fair value is not available for hardware
elements, Identix relies upon vendor objective evidence of fair value in the form of competitor
pricing of the same or interchangeable products. To determine the fair value for training and
installation services, Identix relies upon VSOE of fair value using the price charged when that
element is sold separately. To-date Identix has not entered into a multiple element arrangement
where separation of the various elements was not possible. However, in the case where
separation is not possible for an element, the element may be combined with other elements and
the combined elements would be treated as a single unit of accounting and the appropriate
revenue recognition methodology would be applied.With respect to stand-alone software product sales, including ABIS systems, BioLogon and
software developer kits, revenue is recognized on software products in accordance with American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software
Revenue Recognition as amended, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions, as well as Technical Practice Aids issued
from time to time by the AICPA. 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, VSOE of fair value exists to allocate the total fee to all undelivered elements
of the arrangement and collection is deemed probable. VSOE of fair value is determined for
undelivered elements (e.g., maintenance, training or consulting) using the price charged when
that element is sold separately. In cases where Identix does not have VSOE of fair value for
all delivered elements in the transaction (e.g., for licenses), the residual method is used such
that the fair value of the undelivered elements is deferred and the remaining portion of the
arrangement fee is allocated to the delivered element(s) and is recognized as revenue. In
circumstances when the software and services being sold include services to provide significant
production, modification or customization of the software and the services cannot be segregated
into separate units of accounting, Identix accounts for the software sales under SOP 97-2 and
SOP 81-1 Accounting for performance of construction-type and certain production-type
contracts. In the cases where SOP 81-1 is applied, Identix uses the cost-to-cost method of
percentage of completion. Under this method, sales, including estimated earned fees or profits,
are recorded based on the percentage that total costs incurred bear to total estimated costs.In the event that a multiple element arrangement includes both hardware, software and
services and the software is more-than-incidental to the arrangement, but not essential to the
functionality of the hardware, Identix applies the guidance of EITF 03-05, Applicability of
AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software which allows the non-software elements and related services to be
accounted for under SAB 104 and EITF 00-21 and the software elements and related services to be
accounted for under SOP 97-2.The Companys sales arrangements do not provide a contractual right of return.Service RevenuesRevenue from maintenance arrangements such as those typically sold with the Companys live
scan systems are recognized ratably over the term of the arrangements. Maintenance that is
bundled with other elements is deferred based upon the fair value of the maintenance services.
Fair value is based on the renewal rate for continued maintenance arrangements.Revenue from installation services is recognized as the services are performed.
Installation services that are bundled with other elements are deferred based upon the fair
value of the installation services.Revenue for the Companys professional services offerings, including training and
consulting services, and revenue for IIS which performs a service by capturing fingerprints for
certain individuals where a back ground check is required as a condition of employment, is
recognized as the services are delivered or performed.
 3.
    
    Restatement of Consolidated Financial Statements for the Three and Nine Months Ended March 31, 2004
  7




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Three MonthsEnded
    
    
    
    
    
    
    Three MonthsMarch 31, 2004
    
    
    
    
    
    
    Ended(as previously
    
    
    
    
    
    
    March 31, 2004reported)
    
    
    Adjustments
    
    
    (restated)Loss from continuing operations before income taxes
    
    $
    (8,408
    )
    
    $
    
    
    
    $
    (8,408
    )Benefit (provision) for income taxes
    
    
    (9
    )
    
    
    1,600
    
    
    
    1,591Loss from continuing operations
    
    
    (8,417
    )
    
    
    1,600
    
    
    
    (6,817
    )Discontinued Operations:Loss from discontinued IPS operations
    
    
    (1,050
    )
    
    
    
    
    
    
    (1,050
    )Gain on sale of IPS, net of provision for income taxes
    
    
    5,934
    
    
    
    (2,000
    )
    
    
    3,934Income from discontinued operations
    
    
    4,884
    
    
    
    (2,000
    )
    
    
    2,884Net loss
    
    $
    (3,533
    )
    
    $
    (400
    )
    
    $
    (3,933
    )Basic and diluted loss per share:Continuing operations
    
    $
    (0.10
    )
    
    $
    0.02
    
    
    $
    (0.08
    )Discontinued operations
    
    
    0.06
    
    
    
    (0.02
    )
    
    
    0.04Basic and diluted net loss per share
    
    $
    (0.04
    )
    
    $
    
    
    
    $
    (0.04
    )Weighted average shares outstanding
basic and diluted
    
    
    86,645
    
    
    
    
    
    
    
    86,645
 Nine MonthsEnded
    
    
    
    
    
    
    Nine MonthsMarch 31, 2004
    
    
    
    
    
    
    Ended(as previously
    
    
    
    
    
    
    March 31, 2004reported)
    
    
    Adjustments
    
    
    (restated)Loss from continuing operations before income taxes
    
    $
    (18,845
    )
    
    $
    
    
    
    $
    (18,845
    )Benefit (provision) for income taxes
    
    
    (28
    )
    
    
    1,600
    
    
    
    1,572Loss from continuing operations
    
    
    (18,873
    )
    
    
    1,600
    
    
    
    (17,273
    )Discontinued Operations:Loss from discontinued IPS operations
    
    
    (809
    )
    
    
    
    
    
    
    (809
    )Gain on sale of IPS, net of provision for income taxes
    
    
    5,934
    
    
    
    (2,000
    )
    
    
    3,934Income from discontinued operations
    
    
    5,125
    
    
    
    (2,000
    )
    
    
    3,125Net loss
    
    $
    (13,748
    )
    
    $
    (400
    )
    
    $
    (14,148
    )
 8




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##### Table of Contents



Nine MonthsEnded
    
    
    
    
    
    
    Nine MonthsMarch 31, 2004
    
    
    
    
    
    
    Ended(as previously
    
    
    
    
    
    
    March 31, 2004reported)
    
    
    Adjustments
    
    
    (restated)Basic and diluted loss per share:Continuing operations
    
    $
    (0.22
    )
    
    $
    0.02
    
    
    $
    (0.20
    )Discontinued operations
    
    
    0.06
    
    
    
    (0.02
    )
    
    
    0.04Basic and diluted net loss per share
    
    $
    (0.16
    )
    
    $
    
    
    
    $
    (0.16
    )Weighted average shares outstanding
basic and diluted
    
    
    86,267
    
    
    
    
    
    
    
    86,267
 March 31, 2004(as previously
    
    
    
    
    
    
    March 31, 2004reported)
    
    
    Adjustment
    
    
    (restated)Current liabilities:Accounts payable
    
    $
    4,721
    
    
    
    
    
    
    $
    4,721Accrued compensation
    
    
    3,995
    
    
    
    
    
    
    
    3,995Other accrued liabilities
    
    
    4,337
    
    
    
    400
    
    
    
    4,737Deferred revenue
    
    
    8,339
    
    
    
    
    
    
    
    8,339Total current liabilities
    
    
    21,392
    
    
    
    400
    
    
    
    21,792Deferred revenue
    
    
    45
    
    
    
    
    
    
    
    45Other liabilities
    
    
    6,620
    
    
    
    
    
    
    
    6,620Total liabilities
    
    
    28,057
    
    
    
    400
    
    
    
    28,457Stockholders equity:Common stock
    
    
    875
    
    
    
    
    
    
    
    875Additional paid-in capital
    
    
    545,437
    
    
    
    
    
    
    
    545,437Accumulated deficit
    
    
    (342,399
    )
    
    
    (400
    )
    
    
    (342,799
    )Deferred stock based compensation
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Accumulated other comprehensive loss
    
    
    (145
    )
    
    
    
    
    
    
    (145
    )Total stockholders equity
    
    
    203,668
    
    
    
    (400
    )
    
    
    203,268Total liabilities and stockholders equity
    
    $
    231,725
    
    
    $
    
    
    
    $
    231,725
 4.
    
    Reclassifications
  5.
    
    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. The Company accounts for stock options
issued to non-employees in accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation and 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 the Company continues to measure employee compensation cost for its
stock option plans using the intrinsic value method of accounting.Had compensation cost for the Companys employee stock plans been recognized based 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:
 9




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##### Table of Contents



For the Three Months ended March 31,
    
    
    For the Nine Months ended March 31,2004
    
    
    
    
    
    
    20042005
    
    
    Restated
    
    
    2005
    
    
    Restated(in thousands)
    
    
    (in thousands)Net Loss as reported
    
    $
    (1,925
    )
    
    $
    (3,933
    )
    
    $
    (9,523
    )
    
    $
    (14,148
    )Add: Employee stock-based compensation
expense included in reported
net loss
    
    
    
    
    
    
    145
    
    
    
    14
    
    
    
    558Deduct: Total employee stock-based
compensation
expense determined under fair value
based method for all awards
    
    
    (1,503
    )
    
    
    574
    
    
    
    (3,756
    )
    
    
    (2,732
    )Proforma net loss
    
    $
    (3,428
    )
    
    $
    (3,214
    )
    
    $
    (13,265
    )
    
    $
    (16,322
    )Net Loss per share:As Reported
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.11
    )
    
    $
    (0.16
    )Proforma
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )Shares
    
    
    88,834
    
    
    
    86,645
    
    
    
    88,620
    
    
    
    86,267
 In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised
2004), Share-Based Payment. SFAS No. 123R revised SFAS No. 123, and supercedes APB Opinion No.
25. The revised statement addresses the accounting for share-based payment transactions with
employees and other third parties, eliminates the ability to account for share-based payments
using APB Opinion No. 25 and requires that the compensation costs relating to such transactions
be recognized in the consolidated statement of operations based upon the grant-date fair value of
those instruments. The revised statement is effective for Identix as of its first quarter of
fiscal year 2006 which begins on July 1, 2005. The Company expects that adoption of SFAS 123R
will result in a significant charge to earnings and is currently determining the exact charge and
the method of adoption of SFAS No. 123R. See the Stock Based Compensation discussion above,
which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123,
on the Companys net loss and loss per common share for the three and nine months ended March 31,
2005.
 6.
    
    Discontinued Operations (restated)
 On February 13, 2004, Identix consummated the sale of Identix Public Sector (IPS) to Alion
Science and Technology Corporation (Alion). For the three and nine months ended March 31, 2004,
the Company recognized income from discontinued operations of $2,884,000 and $3,125,000,
respectively. The IPS operations are presented in the Condensed Consolidated Statements of
Operations as discontinued operations for all periods presented. Under the terms of the
agreement, upon closing Alion paid the Company $8,850,000 million in cash. This amount is shown
as proceeds from the sale of IPS, net of transaction costs of $1,042,000, in the Consolidated
Statement of Cash Flows for the year ended June 30, 2004. The terms of the sale include the
potential for additional future payments to Identix of up to $500,000 pending satisfaction of
certain conditions. The terms of the sale also include an obligation on the Companys part to
indemnify Alion against certain potential liabilities; including breaches of representations and
warranties we made in the sales agreement, for an amount not to exceed $2,125,000. As of March
31, 2005, there have been no claims under this indemnification agreement.
 10




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##### Table of Contents



The following table represents the summarized results for the discontinued operations for the
three and nine months ended March 31, 2004:
 For the three
    
    
    For the Ninemonths ended
    
    
    Months endedMarch 31,
    
    
    March 31,2004
    
    
    2004(in thousands)
    
    
    (in thousands)Revenue
    
    $
    3,302
    
    
    $
    20,078Cost of sales
    
    
    2,564
    
    
    
    17,550Operating expenses
    
    
    1,788
    
    
    
    3,337Net (loss) income
    
    $
    (1,050
    )
    
    $
    (809
    )
 The information in the above table reflects activity through February 31, 2004, the date of
the disposition.
 The following table represents the components of the gain on the sale of IPS net of provision
for income taxes:
 For the threeand ninemonths endedMarch 31, 2004Restated(in thousands)Gain on sale of IPS
    
    $
    5,934Provision for income taxes
    
    
    (2,000
    )Gain on sale of IPS net of provision for income taxes
    
    $
    3,934
 7.
    
    Acquisition
 On February 23, 2004, the Company acquired the remaining 50% ownership of Sylvan Identix
Fingerprint Centers (SIFC) from Sylvan Learning Centers. SIFC is now known as Identix
Identification Services (IIS). The Company had previously held a 50% interest in this joint
venture and accounted for its investment under the equity method of accounting. The complete
results of operations of IIS have been included in the Companys consolidated statement of
operations since February 23, 2004. IIS provides services to corporations and government
agencies capturing fingerprints and transmitting the data for applicant background checks. IIS
maintains a network of Identix live scan systems at processing centers across the country where
certified technicians process applicants. In consideration for Sylvans 50% interest in the
joint venture, Identix paid Sylvan $875,000 in cash and paid acquisition costs of $50,000. At
the date of acquisition, Identix had a negative investment in the joint venture of $235,000.
The purchase price was allocated to other intangible assets of $840,000, goodwill of $268,000
and net liabilities of $418,000.
 8.
    
    Credit Facility
 The Companys existing line of credit was entered into on May 30, 2003 and renewed in October
2004. 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 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 5.50% at March 31, 2005. The line of credit expires on October 1, 2005.
Until the Company generates positive 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 June 30, 2004 and March 31, 2005 there were no amounts outstanding under this line of credit.
 The line of credit agreement contains financial, operating and reporting covenants that are not
binding until the Company draws on the line of credit.
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9.
    
    Inventories
 Inventories are stated at the lower of standard cost (which approximates actual cost determined
on a first-in, first-out method) or market and consisted of the following:
 March 31,
    
    
    June 30,
    
    
    March 31,2005
    
    
    2004
    
    
    2004Purchased parts and materials
    
    $
    2,846
    
    
    $
    1,620
    
    
    $
    2,152Work-in-process
    
    
    3,054
    
    
    
    4,361
    
    
    
    4,912Finished goods, including spares
    
    
    375
    
    
    
    1,190
    
    
    
    1,144$
    6,275
    
    
    $
    7,171
    
    
    $
    8,208
 During the three and nine months ended March 31, 2005 the Company recorded provisions for
excess and obsolete inventory items in the amount of $504,000 and $1,086,000 respectively and
$2,617,000 and $3,315,000 for the same periods in the prior fiscal year
 10.
    
    Restructuring and other, net
 At the time of the Companys merger with Visionics in June 2002, Identix 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. From the period of June 2002 to June 2004 the Company
incurred total merger costs of $29,864,000.The following is a summary of the charges incurred and payments made from the time of the
merger through June 30, 2004:
 Activity during the period June 25, 2002 to June 30, 2004LiabilitiesSatisfied in
    
    
    
    
    
    Cash PaymentsConnection with
    
    Non-Cash
    
    through June 30,
    
    Liability as ofTotal Charges
    
    IPS Disposition
    
    Charges
    
    2004
    
    June 30, 2004(in thousands)Severance and benefits
    
    $
    8,626
    
    
    $
    
    
    
    $
    900
    
    
    $
    7,606
    
    
    $
    120Lease exit costs
    
    
    15,890
    
    
    
    2,267
    
    
    
    388
    
    
    
    5,635
    
    
    
    7,600Disposal of fixed assets
    
    
    1,664
    
    
    
    
    
    
    
    1,664
    
    
    
    
    
    
    
    Internal merger costs & other
    
    
    3,684
    
    
    
    
    
    
    
    
    
    
    
    3,684
    
    
    
    Total
    
    $
    29,864
    
    
    $
    2,267
    
    
    $
    2,952
    
    
    $
    16,925
    
    
    $
    7,720
 Fiscal year 2005During the nine months ended March 31, 2005, the Company realized a net restructuring gain of
$620,000. The net gain consists of a charge recorded in the first quarter of fiscal year 2005
of $451,000 related to a reduction in the estimated lease recoveries associated with the Los
Gatos facilities lease and a gain of $1,071,000 recorded in the second quarter of fiscal year
2005 when the Company negotiated its release from its Los Gatos facilities lease. In the first
quarter, management believed the charge of $451,000 was necessary because at that time the real
estate markets in Northern California had continued their decline and it was not anticipated
that the Company would be able to negotiate an exit to the lease and no such discussions between
the Company and the lessor had commenced. The gain recorded in the second quarter represented
the difference between the Companys accrued lease exit costs of $6,363,000, on the date of the
release reduced by the negotiated payoff amount and associated transactions costs of $5,292,000.
The lease settlement amount of $5,292,000 was paid in January 2005, and is included in the
total cash payments for lease exit costs of $6,494,000 during the nine months ended March 31,
2005.
 12




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The following table represents a summary of restructuring and other, net between June 30, 2004
and March 31, 2005:
 For the nine months ended March 31, 2005RestructuringLiability
    
    
    
    
    
    
    
    
    
    Restructuringas of
    
    Additions/
    
    
    
    
    
    Liability as ofJune 30, 2004
    
    (reductions)
    
    Cash Payments
    
    March 31, 2005(in thousands)Severance and benefits
    
    $
    120
    
    
    $
    
    
    
    $
    9
    
    
    $
    111*Lease exit costs
    
    
    7,600
    
    
    
    (620
    )
    
    
    6,494
    
    
    
    486Total
    
    $
    7,720
    
    
    $
    (620
    )
    
    $
    6,503
    
    
    $
    597
 The restructuring liability is classified in the consolidated balance sheet based on the
anticipated timing of the respective payments. The remaining lease obligation at March 31,
2005, is for the Dublin California facility and will be paid out through March 2006. The
severance and benefits is related to the anticipated premiums on a life insurance policy for a
former key employee and the payments for this policy will continue until fiscal year 2012.Fiscal year 2004The following table represents a summary of the restructuring and other, net for the nine months
ended March 31, 2004:
 For the nine months ended March 31, 2004Restructuring
    
    
    
    
    
    LiabilitiesLiability
    
    
    
    
    
    Satisfied in
    
    
    
    
    
    Restructuringas of
    
    
    
    
    
    Connection with
    
    
    
    
    
    Liability as ofJune 30, 2003
    
    Additions
    
    IPS Disposition
    
    Cash Payments
    
    March 31, 2004(in thousands)Severance and benefits
    
    $
    614
    
    
    $
    250
    
    
    $
    
    
    
    $
    498
    
    
    $
    366Lease exit costs
    
    
    12,151
    
    
    
    610
    
    
    
    2,267
    
    
    
    2,261
    
    
    
    8,233Internal merger costs and other
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    Total
    
    $
    12,796
    
    
    $
    860
    
    
    $
    2,267
    
    
    $
    2,790
    
    
    $
    8,599
 11.
    
    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 8,776,177 and 8,578,000 shares of common stock were outstanding
at March 31, 2005 and 2004, 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 converted to common stock during the three months ended March 31, 2004.
 12.
    
    Comprehensive Loss
 Comprehensive loss for the three and nine months ended March 31, 2005 was $1,933,000 and
$9,529,000 compared to a loss (as restated) of $3,931,000 and $14,137,000 for the same periods
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.
 13




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13.
    
    Reportable Segment Data
 The Companys operating 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 that is responsible for generating the revenue and the
direct and indirect costs incurred are similarly assigned.
 Three Months Ended March 31,
    
    
    Nine Months Ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Total revenues:Biometric systems
    
    $
    17,921
    
    
    $
    12,922
    
    
    $
    48,885
    
    
    $
    36,197*Other
    
    
    2,331
    
    
    
    1,569
    
    
    
    6,548
    
    
    
    2,817$
    20,252
    
    
    $
    14,491
    
    
    $
    55,433
    
    
    $
    39,014Operating income/loss:Biometric systems
    
    $
    2,583
    
    
    $
    (8,752
    )
    
    $
    10,950
    
    
    $
    (19,369
    )*Other
    
    
    94
    
    
    
    99
    
    
    
    (35
    )
    
    
    (145
    )$
    2,677
    
    
    $
    (8,653
    )
    
    $
    10,915
    
    
    $
    (19,514
    )March 31,
    
    
    June 30,
    
    
    March 31,2005
    
    
    2004
    
    
    2004(in thousands)Identifiable assets:Biometric systems
    
    $
    212,101
    
    
    $
    223,400
    
    
    $
    226,315Other
    
    
    6,582
    
    
    
    5,427
    
    
    
    5,410$
    218,683
    
    
    $
    228,827
    
    
    $
    231,725
 
 *
    
    Revenue related to IIS is included in the Companys consolidated revenues from the date of
acquisition on February 23, 2004. 14.
    
    Foreign Operations Data
 In geographical reporting, revenues are attributed to the geographical location of the sales
and service organizations:
 Three Months Ended March 31,
    
    
    Nine Months Ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Total revenues:United States
    
    $
    16,466
    
    
    $
    11,674
    
    
    $
    48,227
    
    
    $
    34,109International
    
    
    3,786
    
    
    
    2,817
    
    
    
    7,206
    
    
    
    4,905$
    20,252
    
    
    $
    14,491
    
    
    $
    55,433
    
    
    $
    39,014March 31,
    
    
    June 30,
    
    
    March 31,2005
    
    
    2004
    
    
    2004(in thousands)*Identifiable long lived assets:United States
    
    $
    1,648
    
    
    $
    2,088
    
    
    $
    2,622International
    
    
    35
    
    
    
    65
    
    
    
    65$
    1,683
    
    
    $
    2,153
    
    
    $
    2,687
 
 *
    
    Long lived assets consist of property and equipment. 15.
    
    Indemnification Arrangements and Product Warranties
 The terms of the sale of IPS (see Note 6), include an obligation on the part of the
Company to indemnify Alion against liabilities, including for breaches of representations and
warranties made by the Company in the sales agreement, for an amount not to exceed $2,125,000.
This indemnification expires in February 2006.
 From time to time, the Company agrees to indemnify its customers against liability if the
Companys products infringe a third partys intellectual property rights. As of March 31, 2005
the Company was not subject to any pending litigation alleging that the Companys products
infringe the intellectual property rights of any third parties.
 14




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The Company offers a 90-day and one year warranty on various products and services. The
majority of the warranty liability that the Company has recorded is due to the one-year
warranties. 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 estimated costs to repair or otherwise satisfy
the claim. The following table presents the components of the Companys warranty liability for
the nine months ended March 31, 2005 and 2004:
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedMarch 31, 2005
    
    
    March 31, 2004(in thousands)
    
    
    (in thousands)Balance at June 30,
    
    $
    921
    
    
    $
    374Warranty Expense
    
    
    1,391
    
    
    
    1,044Closed Warranty Claims
    
    
    (922
    )
    
    
    (738
    )Balance at end of period
    
    $
    1,390
    
    
    $
    680
 16.
    
    Legal Matters
 In February 2003, Roger Benson filed a lawsuit against the Company and certain of its affiliated
entities in California Superior Court alleging that in 1998 he was issued a duplicate electronic
fingerprint number that was also held by a convicted felon. The complaint alleged that a live
scan fingerprint imaging machine manufactured by one of the defendants contributed to the
misidentification of Mr. Benson. In February 2005, Mr. Benson voluntarily dismissed his entire
case against all of the defendants. The voluntary dismissal followed Identix successful motion
for, and award of immaterial monetary sanctions against each of Mr. Benson and his attorney.
 In July 2004, Miguel and Lilia Espinoza filed a purported class action lawsuit against the
Company and certain of its affiliated entities in the State of Oregon. Mr. Espinoza claimed he
was misidentified as a convicted felon and that his misidentification resulted from the issuance
to him of a duplicate fingerprint identification number generated by a live scan system
manufactured by one of the defendants. The entities affiliated with Identix were dismissed from
the action by court order. Subsequently, the Company filed a motion for summary judgment on the
merits. In April 2005, the U.S. Magistrate Judge handling the case granted summary judgment in
favor of Identix stating that the live scan machine in question had correctly assigned different
fingerprint control numbers to Mr. Espinoza and the third party felon. In accordance with
applicable rules of civil procedure, the summary judgment ruling will now be reviewed by a U.S.
District Judge prior to any final entry. Based upon the current disposition of the litigation
discussed above, the Company believes that liabilities and costs arising from these lawsuits
will not have a material adverse impact on the Companys consolidated financial position,
results of operations or cash flows.
 17.
    
    New Accounting Pronouncements
 In October 2004, the EITF issued EITF Issue No. 04-10, Applying Paragraph 19 of Statement
of Financial Accounting Standards No. 131 in Determining Whether to Aggregate Operating Segments
that do not meet the Quantitative Thresholds. SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. This issue addresses how to
aggregate operating segments that do not meet the quantitative thresholds in SFAS No. 131. The
effective date of the standard has been delayed. When effective, the adoption of this standard
will require the Company to reexamine how segments are disclosed and will likely result in the
Company identifying its Identix Identification Services (IIS) subsidiary separately as a
reportable segment. Currently, the Company has two segments, Biometric systems and other, with
IIS currently classified as other along with the Companys Legislative Demographic Services
subsidiary.
 15




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16




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##### Table of Contents



Revenues, and Gross Margins
         17




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Research and Development
  Marketing and Selling
  General and Administrative
  Amortization of Acquired Intangible Assets
  18




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Restructuring and other, net
  The following table represents a summary of restructuring and other, net between June 30, 2004
and March 31, 2005:
 For the nine months ended March 31, 2005Restructuring
    
    
    
    
    
    
    
    
    
    RestructuringLiability
    
    
    
    
    
    
    
    
    
    Liabilityas of
    
    Additions/
    
    Cash
    
    as ofJune 30, 2004
    
    (reductions)
    
    Payments
    
    March 31, 2005(in thousands)Severance and benefits
    
    $
    120
    
    
    $
    
    
    
    $
    9
    
    
    $
    111*Lease exit costs
    
    
    7,600
    
    
    
    (620
    )
    
    
    6,494
    
    
    
    486Total
    
    $
    7,720
    
    
    $
    (620
    )
    
    $
    6,503
    
    
    $
    597
  Interest and Other Income, net
  Equity Interest in Loss of Joint Venture
  Provision for Income Taxes (restated)
  19




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##### Table of Contents



Discontinued Operations (restated)
   For the three
    
    
    For the Ninemonths ended
    
    
    Months endedMarch 31,
    
    
    March 31,2004
    
    
    2004(in thousands)
    
    
    (in thousands)Revenue
    
    $
    3,302
    
    
    $
    20,078Cost of sales
    
    
    2,564
    
    
    
    17,550Operating expenses
    
    
    1,788
    
    
    
    3,337Net (loss) income
    
    $
    (1,050
    )
    
    $
    (809
    )
   For the threeand ninemonths endedMarch 31, 2004Restated(in thousands)Gain on sale of IPS
    
    $
    5,934Provision for income taxes
    
    
    (2,000
    )Gain on sale of IPS net of provision for income taxes
    
    $
    3,934
 New Accounting Pronouncements
   20




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Liquidity and Capital Resources
       21




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##### Table of Contents



Periods or fiscal years ending June 30:
    
    Occupied
    
    Sublet
    
    Total2005
    
    $
    520
    
    
    $
    102
    
    
    
    6222006
    
    
    1,887
    
    
    
    386
    
    
    
    2,2732007
    
    
    1,575
    
    
    
    
    
    
    
    1,5752008
    
    
    1,284
    
    
    
    
    
    
    
    1,2842009
    
    
    341
    
    
    
    
    
    
    
    341Thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    5,607
    
    
    $
    488
    
    
    $
    6,095
   RISK FACTORS
 This report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.
The Companys business, operating results, financial performance and share price may be materially
adversely affected by a number of factors, including but not limited to the following risk factors,
any one of which could cause actual results to vary materially from anticipated results or from
those expressed in any forward-looking statements made by the Company in this quarterly report on
Form 10-Q or in other reports, press releases or other statements issued from time to time.
Additional factors that may cause our results to vary are set forth in the Companys Annual Report
on Form 10-K.
 Our business will not grow unless the market for biometric products and services expands both
domestically and internationally.
  
    
    national or international events which increase or decrease the need or interest in biometric products or services;
    
    the cost, performance and reliability of our products and services and those of our competitors;
    
    customers perception of the perceived benefit of biometric products and services;
    
    public perceptions of the intrusiveness of these products and services and the manner in which
firms are using the information collected;
    
    public perceptions regarding the confidentiality of private information;
    
    proposed or enacted legislation related to privacy of information;
    
    customers satisfaction with our products and services; and
    
    marketing efforts and publicity regarding these products and services.
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We face intense competition from other biometric solution providers as well as identification and
security systems providers.
    The biometrics industry is characterized by rapid technological change and requires introduction of
new and enhanced products at competitive prices.
   We derive a significant amount of our revenue from government contracts, which are often
non-standard, involve competitive bidding, may be subject to cancellation without penalty and may
produce volatility in earnings and revenue.
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Our financial and operating results often vary significantly from quarter to quarter and may be
negatively affected by a number of factors.
  
    
    unavailability or delays in authorization of government funding or cancellations, delays or contract amendments by government agency customers;
    
    reduced demand for products and services caused, for example, by product offerings from new competitors;
    
    the inability to timely and successfully (i) complete development of complex designs, components and products,
(ii) complete new product introductions that may result in improved gross margins, (iii)
manufacture
in volume or install certain of our complex products or (iv) obtain relevant government agency
certifications for newly
introduced products on a timely basis;
    
    complete development of complex designs and components, or manufacture in volume and install certain of our products.
    
    changes in the mix of products and services we or our distributors sell;
    
    the readiness of customers to accept delivery of new products on a timely basis;
    
    protests of federal, state or local government contract awards by competitors;
    
    unforeseen legal expenses, including litigation and/or administrative protest costs;
    
    expenses related to acquisitions or mergers;
    
    impairment charges arising out of our assessments of goodwill and intangibles;
    
    other one-time financial charges;
    
    the lack of availability or increase in cost of key components and subassemblies;
    
    competitive pricing pressures; and
    
    unpredictable product installation schedules
  Our results of operations may be harmed by governmental credit and other policies.
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A security breach or failure in systems that we sell could result in the disclosure of private
personal information that could harm our business by adversely affecting the markets perception of
our products and services.
  The terrorist attacks of September 11, 2001, and the continuing threat of global terrorism, have
increased financial expectations that may not materialize.
  We may need to raise additional equity or debt financing in the future.
  Our lengthy and variable sales cycle will make it difficult to predict operating results.
   The substantial lead-time required for ordering parts and materials may lead to inventory problems.
  We rely in part upon original equipment manufacturers (OEM) and distribution partners to
distribute our products, and we may be adversely affected if those parties do not actively promote
our products or pursue installations that use our equipment.
   Loss of sole or limited source suppliers may result in delays or additional expenses.
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Our plan to pursue sales in international markets may be limited by risks related to conditions in
such markets.
    
    
    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.
 Individual stockholders owning a significant portion of our stock may have the ability to delay or
prevent a change in control or adversely affect the stock price through sales in the open market.
  We may be subject to loss in market share and market acceptance as a result of performance
failures, manufacturing errors, delays or shortages.
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We may be subject to repair, replacement, reimbursement and liability claims as a result of
products that fail to work or to meet applicable performance criteria.
  Failure by us to maintain the proprietary nature of our technology, intellectual property and
manufacturing processes could have a material adverse effect on our business, operating results,
financial condition, stock price, and on our ability to compete effectively.
      Acquisitions and dispositions of companies, assets or technologies may result in disruptions to our
business.
   
    
    exposure to unknown liabilities of acquired companies or assets;
    
    higher than anticipated acquisition costs and expenses;
    
    effects of costs and expenses of acquiring and integrating new businesses on our operating results and financial condition;
    
    effects of consolidated revenue loss associated with dispositions of material subsidiaries or assets;
    
    effects of costs and expenses of integrating and introducing new technologies;
    
    the difficulty and expense of assimilating the operations and personnel of the companies;
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
    
    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;
    
    failure to realize the potential of acquired technologies, complete product development, or
properly obtain or secure appropriate protection of intellectual property rights;
    
    the maintenance of uniform standards, controls, procedures and policies;
    
    loss of key employees and customers as a result of changes in management;
    
    the incurrence of amortization expenses;
    
    incurring impairment charges arising out of our assessments of goodwill and intangibles; and
    
    possible dilution to our stockholders.
  The manner of accounting for our merger with Visionics Corporation, which was completed in June
2002, may affect our reported results of operations.
  Failure to achieve and maintain effective internal controls over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and
stock price.
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Compliance with changing regulation of corporate governance and public disclosure may result in
additional expenses.
  Recording compensation expense in connection with stock option grants may cause our profitability
to be reduced significantly.
  If we fail to adequately manage the size of our business, it could have a severe negative
effect on our financial results or stock price.
  If we fail to attract and retain qualified senior executive and key technical personnel, our
business will not be able to expand.
    
  Interest Rate Risk. .
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Foreign Currency Exchange Rate Risk.
 
  Evaluation of Disclosure Controls and Procedures.
 Status of Material Weakness in Internal Control over Financial Reporting.
  Remediation of Material Weakness.
 Changes in Internal Control Over Financial Reporting.
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ExhibitNumber
    
    Description31.1
    
    CEO Certification31.2
    
    CFO Certification32
    
    906 Certifications
 
   IDENTIX INCORPORATEDBY:
    
    /s/ Elissa J. LindsoeElissa J. Lindsoe
Chief Financial Officer
 31