<PAGE>   1

                       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, 1998 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)

             California                                    94-2842496
---------------------------------              ---------------------------------
  (State or other jurisdiction of              (IRS Employer Identification No.)
  incorporation of organization)

510 N. Pastoria Avenue, Sunnyvale, California              94086
---------------------------------------------            ---------
   (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code (408) 731-2000

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

                        25,298,444 shares of Common Stock
                             as of October 31, 1998


<PAGE>   2
                              IDENTIX INCORPORATED

                                      INDEX



<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>            <C>                                                              <C>
PART I         FINANCIAL INFORMATION

      Item 1   Financial Statements

               Consolidated Balance Sheets - September 30, 1998 and 
                 June 30, 1998................................................   3

               Consolidated Statements of Operations - three months ended
                 September 30, 1998 and 1997..................................   4

               Consolidated Statements of Cash Flows - three months ended
                 September 30, 1998 and 1997..................................   5

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

      Item 2   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations..........................   8

      Item 3   Quantitative and Qualitative Disclosures about Market Risk.....  20

PART II        OTHER INFORMATION..............................................  21

      Item 1   Legal Proceedings

      Item 6   Exhibits

      Signatures..............................................................  22
</TABLE>

                                       2


<PAGE>   3



                              IDENTIX INCORPORATED
                           CONSOLIDATED BALANCE SHEETS

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                         SEPTEMBER 30,            JUNE 30,
                                                                             1998                   1998
                                                                         ------------           ------------
                                                                          (UNAUDITED)
<S>                                                                      <C>                    <C>         
ASSETS
   Current assets:
     Cash and cash equivalents                                           $    459,000           $    753,000
     Accounts receivable, less allowance for doubtful accounts
       of $858,000 and $866,000                                            27,591,000             28,576,000
     Inventories                                                            6,931,000              7,163,000
     Prepaid expenses and other assets                                        828,000                586,000
                                                                         ------------           ------------
        Total current assets                                               35,809,000             37,078,000

   Property and equipment, net                                              2,037,000              2,105,000
   Intangibles and other assets                                             2,661,000              2,768,000
   Investment in joint venture                                                     --                 61,000
                                                                         ------------           ------------
          Total assets                                                   $ 40,507,000           $ 42,012,000
                                                                         ============           ============

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
     Notes payable to banks                                              $  5,887,000           $  6,849,000
     Accounts payable                                                       6,901,000              8,428,000
     Accrued compensation                                                   2,214,000              1,837,000
     Other accrued liabilities                                                545,000                574,000
     Deferred revenue                                                       1,116,000              1,237,000
                                                                         ------------           ------------
        Total current liabilities                                          16,663,000             18,925,000

   Long term liabilities:
       Deferred revenue                                                       101,000                 88,000
       Other liabilities                                                      101,000                 89,000
                                                                         ------------           ------------
        Total liabilities                                                  16,865,000             19,102,000
                                                                         ------------           ------------

   Commitments and contingencies (Note 7)

   Shareholders' equity:
     Common stock, no par; 50,000,000 shares authorized;
        25,298,444 and 25,255,577 shares issued and outstanding            52,809,000             52,527,000
     Accumulated deficit                                                  (28,986,000)           (29,436,000)
     Cumulative translation adjustment                                       (181,000)              (181,000)
                                                                         ------------           ------------
        Total shareholders' equity                                         23,642,000             22,910,000
                                                                         ------------           ------------
          Total liabilities and shareholders' equity                     $ 40,507,000           $ 42,012,000
                                                                         ============           ============
</TABLE>





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

                                        3
<PAGE>   4


                              IDENTIX INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                  -----------------------------------
                                                      1998                  1997
                                                  ------------           ------------
<S>                                               <C>                    <C>         
Revenues:
   Net product revenues                           $  9,749,000           $  8,907,000
   Services revenues                                11,067,000              9,943,000
                                                  ------------           ------------
     Total revenues                                 20,816,000             18,850,000
                                                  ------------           ------------

Costs and expenses:
   Cost of product revenues                          4,818,000              4,136,000
   Cost of  services revenues                        9,593,000              8,564,000
   Research, development and engineering             1,461,000              1,037,000
   Marketing and selling                             2,462,000              2,206,000
   General and administrative                        1,827,000              2,384,000
                                                  ------------           ------------

     Total costs and expenses                       20,161,000             18,327,000
                                                  ------------           ------------
Income from operations                                 655,000                523,000

Other income (expense), net                             30,000                 44,000
Interest income (expense), net                        (131,000)               (21,000)
                                                  ------------           ------------
Income before tax and
  equity interest in joint venture                     554,000                546,000

Provision for income taxes                             (30,000)               (20,000)
Equity interest in joint venture,
  net of tax                                           (74,000)                    --
                                                  ------------           ------------


Net income                                        $    450,000           $    526,000
                                                  ============           ============


Basic net income per share                        $       0.02           $       0.02
                                                  ============           ============

Diluted net income per share                      $       0.02           $       0.02
                                                  ============           ============

Weighted average common shares used  
  to compute basic net income per share             25,285,000             24,961,000
                                                  ============           ============

Weighted average common shares used to 
  compute diluted net income per share              25,575,000             25,625,000
                                                  ============           ============
</TABLE>

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

                                       4
<PAGE>   5


                              IDENTIX INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED
                                                                        SEPTEMBER 30,
                                                              ---------------------------------
                                                                  1998                  1997
                                                              -----------           -----------
<S>                                                           <C>                   <C>        
Cash flows from operating activities
  Net income                                                  $   450,000           $   526,000
  Adjustments to reconcile net income to net
  cash provided by (used for) operating activities:
    Depreciation                                                  297,000               315,000
    Amortization of intangibles                                   171,000               242,000
    Amortization of deferred revenue                             (749,000)             (332,000)
    Equity interest in joint venture, net of tax                   74,000                    --
    Changes in assets and liabilities:
     Accounts receivable                                          985,000            (3,149,000)
     Inventories                                                  232,000              (688,000)
     Prepaid expenses and other assets                           (242,000)             (415,000)
     Accounts payable                                          (1,527,000)              504,000
     Accrued compensation                                         377,000               245,000
     Other accrued liabilities                                    (30,000)              357,000
     Deferred revenue                                             641,000               765,000
                                                              -----------           -----------

Net cash provided by (used for) operating activities              679,000            (1,630,000)
                                                              -----------           -----------

Cash flows used in investing activities:
  Capital expenditures                                           (229,000)             (205,000)
  Additions to intangibles and other assets                       (64,000)             (291,000)
                                                              -----------           -----------

Net cash used in investing activities                            (293,000)          $  (496,000)
                                                              -----------           -----------

Cash flows provided by (used for) financing activities:
  Borrowings under bank lines of credit                         5,935,000             3,688,000
  Payments under bank lines of credit                          (6,897,000)           (2,915,000)
  Proceeds from sale of common stock, net                         282,000               105,000
                                                              -----------           -----------

Net cash provided by (used for) financing activities             (680,000)              878,000
                                                              -----------           -----------

Effect of exchange rate changes on cash
  and cash equivalents                                                 --               (97,000)
                                                              -----------           -----------

Net decrease in cash and cash equivalents                        (294,000)           (1,345,000)

Cash and cash equivalents at beginning of period                  753,000             2,510,000
                                                              -----------           -----------

Cash and cash equivalents at end of period                    $   459,000           $ 1,165,000
                                                              ===========           ===========
</TABLE>



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

                                       5
<PAGE>   6



                              IDENTIX INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

    These accompanying consolidated financial statements and related notes are
    unaudited. However, in the opinion of management, all adjustments
    (consisting only of normal recurring adjustments) which are necessary for a
    fair presentation of the financial position and results of operations for
    the interim periods have been included. These consolidated financial
    statements should be read in conjunction with the audited consolidated
    financial statements and notes thereto for the fiscal year ended June 30,
    1998 included in the Company's Form 10-K. The results of operations for the
    three months ended September 30, 1998 are not necessarily indicative of
    results to be expected for the entire fiscal year, which ends on June 30,
    1999.

    The consolidated financial statements include the accounts of Identix
    Incorporated ("Identix" or the "Company") and it's wholly owned
    subsidiaries: ANADAC, Inc. ("ANADAC"), Identix Australia Pty Limited
    ("Identix Australia"), and Biometric Applications and Technologies, Inc.
    ("BA&T"). The Company acquired BA&T on July 23, 1997 and accounted for the
    acquisition of BA&T as a pooling of interests.

2.  JOINT VENTURE

    On September 30, 1997, the Company entered into a joint venture agreement
    with Sylvan Learning Centers, Inc. to form Sylvan/Identix Fingerprinting
    Centers, L.L.C. ("SIFC") for the purpose of providing fingerprinting
    services through Sylvan's testing systems nationwide. The Company owns a 50%
    interest in SIFC. Since July 1, 1998 royalties in the amount of $22,000 from
    SIFC have been recorded as Other Income.

3.  INVENTORIES

    Inventories are stated at the lower of cost (determined on the first-in,
    first-out method) or market. Inventories consisted of the following:
<TABLE>
<CAPTION>

                                                    SEPTEMBER 30,         JUNE 30,
                                                        1998                1998
                                                    -------------        ----------
<S>                                                   <C>                <C>       
         Purchased parts and materials                $2,805,000         $3,518,000
         Work-in-process                               1,832,000            906,000
         Finished goods, including spares              2,294,000          2,739,000
                                                      ----------         ----------
                                                      $6,931,000         $7,163,000
                                                      ==========         ==========
</TABLE>

4.  EARNINGS PER SHARE

    Basic earnings per share is computed using the weighted average number of
    common shares outstanding during the period. Diluted earnings per share is
    computed using the weighted average number of common shares outstanding
    during the period after considering the effect of dilutive common stock
    options and warrants under the treasury method.


                                       6

<PAGE>   7

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                           September 30,
                                                    ----------------------------
                                                        1998             1997
                                                    -----------      -----------
<S>                                                 <C>              <C>        
Net income                                          $   450,000      $   526,000
Weighted average common shares outstanding           25,285,000       24,961,000
Dilutive effect of stock options and warrants           290,000          664,000
                                                    -----------      -----------
Weighted average common shares outstanding
assuming dilution                                    25,575,000       25,625,000
                                                    ===========      ===========
Basic net income per share                          $      0.02      $      0.02
                                                    ===========      ===========
Diluted net income per share                        $      0.02      $      0.02
                                                    ===========      ===========
</TABLE>


5.  COMPREHENSIVE INCOME

    Effective July 1, 1998, the Company adopted Statement of Financial
    Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
    The statement establishes presentation and disclosure requirements for
    reporting compressive income. Comprehensive income includes charges or
    credits to equity that are not the result of transactions with owners. The
    Company has no current period comprehensive income transactions.

6.  RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1997, the FASB issued Statement of Financial Accounting Standards
    No. 131 "Disclosures About Segments of an Enterprise and Related
    Information" ("SFAS 131"). This statement requires the Company to report
    certain financial information about operating segments in complete sets of
    financial statements of the Company and in condensed financial statements of
    interim periods. It also requires that the Company report certain
    information about its products and services, the geographic areas in which
    it operates and its major customers. The method the FASB chose for
    determining what information to report is referred to as the "management
    approach". The management approach is based on the way that management
    organizes the segments within the enterprise for making operation decisions
    and assessing performance. The operating segments that will be reported on
    for the year ending June 30, 1999 are "Product Business" and "Service
    Business."

7.  CONTINGENT LIABILITIES

    ANADAC, Inc. is a named defendant in four related personal injury lawsuits
    pending in the Circuit Court of Virginia. All of these suits arise from the
    collapse of a balcony at the University of Virginia during graduation
    ceremonies in May 1997 in which one person was killed and approximately 23
    others were injured. The Commonwealth of Virginia and the Curator of the
    University's Academical Village are also named defendants. It is alleged
    that the Commonwealth of Virginia and the Curator were negligent in failing
    to maintain and ensure the structural integrity of the historic structure
    which collapsed. It is alleged that ANADAC is liable for failing to identify
    signs of structural deterioration during a contracted 1994 inspection.
    ANADAC has been hired by the University of Virginia to create a budget for
    maintaining ten historic buildings based on a visual inspection and analysis
    of certain statistical information. ANADAC's assignment did not include a
    structural review of any nature and did not encompass the type of inspection
    that would uncover a defect of the nature that caused the balcony collapse.
    Of the four lawsuits, one was filed in the Circuit Court of Virginia in
    Fairfax in March 1998 and the three others were filed in the Circuit Court
    of Virginia in Charlottesville between July and September 1998. The
    aggregate amount of damages sought in these suits is $7,700,000.
    Approximately nine of the persons injured in the accident have settled with
    the Commonwealth of Virginia, releasing all potential claims with respect to
    the accident. Additional lawsuits may be filed by other injured persons with
    respect to the accident. The Company believes that the claims against ANADAC
    are without merit and will not have a material adverse effect on the
    Company.

    On May 31, 1995, Digital Biometrics, Inc. ("DBI"), a competitor, filed a
    lawsuit in the United States District Court for the Northern District of
    California against the Company alleging that certain of the Company's
    TouchPrint products violate a DBI patent and seeking injunctive relief and
    unspecified damages. The lawsuit has no implication for other Identix
    products. On August 22, 1996, the District Court granted the Company's
    motion determining that the TouchPrint 600 does not infringe the patent. On
    December 7, 1996, the District Court issued another ruling determining that
    the predecessor product of the TouchPrint 600, the TouchPrint 900 product,
    did not infringe the patent. As a result, the District Court entered
    judgment in favor of Identix and awarded Identix its costs of the suit. On
    January 7, 1997, DBI filed a Notice of Appeal. On July 2, 1998, the United
    States Court of Appeals for the Federal Circuit affirmed the District
    Court's judgment. The judgment in favor of Identix is now final.


                                       7


<PAGE>   8


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

ITEM 2.

The forward looking 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.

RECENT EVENTS

Identix announced on November 16, 1998 the execution of a definitive agreement
to acquire privately-held Identicator Technology, Inc. Identicator Technology
designs and manufactures fingerprint security systems for information
technology, Internet, banking, data/network security, and e-business. Identix
will acquire all outstanding Identicator Technology shares in exchange for
5,050,000 shares of Identix common stock; the Identix shares to be issued in the
transaction are subject to certain lock-up and escrow provisions. The closing is
conditioned upon effectiveness of a registration statement with the SEC relating
to the issuance of the Identix stock and other customary closing conditions. The
acquisition is being accounted for under the purchase method.

OVERVIEW

Identix designs, develops, manufactures and markets two categories of products
for security, anti-fraud, law enforcement and other applications: (i) Biometric
Security ("Bio-Security") products that verify the identity of an individual
through the unique biological characteristics of a fingerprint and (ii)
Biometric-Imaging ("Bio-Imaging") products that electronically capture forensic
quality fingerprint images directly from an individual's fingers for law
enforcement and other applications. The Company provides information technology,
engineering and management consulting services to private and public sector
clients through its wholly owned subsidiary ANADAC. ANADAC's services support
the development, installation, integration and operation of hardware and
software technology solutions, including Identix products, for a variety of
client operating environments.

On July 23, 1997, the Company acquired BA&T, a privately held developer of
biometric and "smart" card applications and solutions. BA&T had been a software
development partner that integrated its software into Identix's Biometric
Security products. The acquisition was accounted for as a pooling of interests.

On September 30, 1997, the Company entered into a joint venture agreement with
Sylvan Learning Centers, Inc. to form Sylvan/Identix Fingerprinting Centers,
L.L.C. ("SIFC") for the purpose of providing fingerprinting services through
Sylvan's testing systems nationwide. The Company owns a 50% interest in SIFC.

RESULTS OF OPERATIONS

Revenues

Revenues for the period ended September 30, 1998 were $20,816,000 compared to
$18,850,000 for the same period in the prior fiscal year. The increase in
revenues of 10% was due to increases in both the Company's net product revenues
and services revenues.

The Company's net product revenues were $9,749,000 for the three month period
ended September 30, 1998, compared to $8,907,000 for the same period in the
prior fiscal year. For the three month period ended September 30, 1998, the
increase in net product revenues of 9% was due to increased sales of Bio-Imaging
products, mainly the TouchPrint 600 product line. In addition, increased sales
of the TouchPrint 600 product line have generated additional revenues from
maintenance support agreements and related customer support. The increase in
Bio-Imaging sales was partially offset by a decline in Bio-Security product
sales, which resulted primarily from a decline in sales to Asia due to the
deteriorated economic condition in the region.

International sales accounted for $1,058,000 or 11% of the Company's net product
revenues for the three month period ended September 30, 1998, compared to
$2,537,000 or 28% for the same period in the prior fiscal year. The decrease in
international sales for the three month period was due to a decline in sales in
Asia. The Company expects international sales to continue to represent a
significant portion of net product revenues, although the percentage may
fluctuate from period to period. Identix's international sales are predominately
denominated in U.S. dollars. 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.


                                       8
<PAGE>   9



IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .

The Company did not have any one product business customer account for more than
10% of total revenues for the three month period ended September 30, 1998. For
the three month period ended September 30, 1997, the Company's product revenue
included one customer which accounted for 12% of total revenues.

The Company's services revenues were $11,067,000 for the three month period
ended September 30, 1998 compared to $9,943,000 for the same period in the prior
fiscal year. The increases in services revenues of 11% for the three month
period ended September 30, 1998, was due primarily to increases in U.S.
government purchases through the Company's General Services Administration
("GSA") contract which is operated and maintained by ANADAC. The GSA contract
allows Government agencies to purchase the Company's products and services as
well as third party products and services at agreed upon prices and rates. The
Company and the GSA negotiate the prices and rates periodically or as new
products or services are added. The majority of the Company's services revenues
are generated directly from contracts with the U.S. government, principally the
Department of Defense ("DOD"). For the three month period ended September 30,
1998, revenues directly from the DOD and from other U. S. government agencies
accounted for 91% of the Company's total services revenues compared to 87% for
the same period in the prior fiscal year.

The Company's services business generates a significant amount of its revenues
from cost plus fixed fee ("CPFF") contracts, which accounted for approximately
18% of its services revenues for the three month period ended September 30,
1998, compared to 22% for the same period in the prior fiscal year. The decrease
in the percentage of services revenues generated by CPFF contracts is due to the
increase in other forms of contract revenue. CPFF contracts provide for the
reimbursement of allowable costs, including indirect costs plus a fee or profit.
The Company's services business also generates revenue from time-and-materials
("T&M") contracts and from firm fixed-price ("FFP") contracts. During the three
month period ended September 30, 1998, the Company derived 82% of its services
revenues from T&M and FFP contracts compared to 78% for the same period in the
prior fiscal year. T&M contracts typically provide for payment of negotiated
hourly rates for labor incurred plus reimbursement of other allowable direct and
indirect costs. 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. 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. In addition,
revenues generated from contracts with government agencies are subject to audit
and subsequent adjustment by negotiation between the Company and representatives
of such government agencies. ANADAC has just completed an audit by the Defense
Contract Audit Agency ("DCAA") for the period from July 1, 1992 to June 30,
1995. The Company believes there will be no material financial statement impact
as a result of the audit.

Gross Margin

Gross margin on net product revenues was 51% for the three month period ended
September 30, 1998, as compared to 54% for the same period in the prior fiscal
year. The decrease in gross margin in fiscal 1999 was primarily due to a

                                       9
<PAGE>   10

IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .


one time sale at a high gross margin in fiscal 1998. 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 month period ended
September 30, 1998 as compared to 14% for the same period in the prior fiscal
year. The decreases in gross margin for the three month period was primarily due
to an increase in services purchased through the GSA contact maintained by
ANADAC. The majority of GSA contracts carry a reduced gross margin. 

Research, Development and Engineering

Research, development and engineering expenses were $1,461,000 or 15% of net
product revenues for the three month period ended September 30, 1998, compared
to $1,037,000 or 12% of net product revenues for the same period in the prior
fiscal year. The increase in research, development and engineering expenses is
primarily due to the addition of engineering staff and related expenses to
further develop and enhance the Company's products. Management believes that
investment in research and development is critical to maintaining a strong
technological position in the industry and therefore expects research,
development and engineering expenses to continue to increase in absolute dollars
in future fiscal 1999 quarters.

Marketing and Selling

Marketing and selling expenses were $2,462,000 or 12% of total revenues for the
three month period ended September 30, 1998 compared to $2,206,000 or 12% of
total revenues for the same period in the prior fiscal year. The increase in
marketing and selling expenses in absolute dollars is due to the increased
staffing and expenses to promote the Company's products and services and to
expand its sales organization worldwide.

General and Administrative

General and administrative expenses were $1,827, 000 or 9% of total revenues for
the three month period ended September 30, 1998, compared to $2,384,000 or 13%
of total revenues for the same period in the prior fiscal year. The decrease in
general and administrative expenses was primarily due to the decreased
litigation costs related to certain lawsuits which have been resolved and cost
savings related to the Company's recent restructuring. Litigation reserves and
expenses were $15,000 for the three month period September 30, 1998 compared to
$423,000 for the same period in the prior fiscal year.

Other Income and Expense, net

For the three month period ended September 30, 1998, net other income was
$30,000 compared to net other income of $44,000 for the same period in the prior
fiscal year.

Net Interest Expense

Net interest expense was $131,000 for the three month period ended September 30,
1998 compared to $21,000 for the same period in the prior fiscal year. The
difference was due to increased borrowings for working capital requirements
under the Company's lines of credit during the three month period ended
September 30, 1998 compared to the same period in the prior fiscal year.

During the three month period ended September 30, 1998, the weighted average
interest rate paid by Identix on borrowings under its line of credit (the
"Identix Line of Credit") was 8.5%. The weighted average interest rate paid by
ANADAC on borrowings under its line of credit (the "ANADAC Line of Credit")
during the three month period ended September 30, 1998 was also 8.5%.


                                       10
<PAGE>   11

IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .


Income Taxes

The provision for income taxes was $30,000 for the three months ended September
30, 1998 compared to $20,000 for the same period in the prior fiscal year. The
Company's tax rate is below the statutory rate due to the utilization of net
operating loss carryforwards incurred in prior years. The Company is subject to
certain alternative minimum tax requirements for which an estimate is made based
on the Company's anticipated effective tax rate at the end of the current fiscal
year.

Equity Interest in Joint Venture, Net of Tax

The equity interest in joint venture, net of tax, represents the Company's share
of the results of SIFC. For the three month period ended September 30, 1998,
equity interest in joint venture, net of tax, was a loss of $74,000. There was
no comparable figure in the same period in fiscal 1998 as the joint venture's
operations did not commence until October 1, 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company financed its operations during the three months ended September 30,
1998 primarily from its existing working capital at June 30, 1998 and borrowings
under the Identix Line of Credit and the ANADAC Line of Credit. As of September
30, 1998, the Company's principal sources of liquidity consisted of $19,146,000
of working capital including $459,000 in cash and cash equivalents and available
borrowings under the Identix Line of Credit and the ANADAC Line of Credit.

The Identix Line of Credit is a $7,000,000 bank line of credit secured by the
personal property of Identix. Under the bank line of credit, the Company may
borrow up to 80% of eligible accounts receivable and may borrow up to 35% of
eligible inventory. Amounts drawn bear interest at the bank's prime rate of
interest (8.25% at September 30, 1998). The line of credit expires on December
25, 1998. And management is currently renegotiating the Identix Line of Credit
for an increased amount. At September 30, 1998, $4,925,000 was outstanding and
$2,075,000 was available under the Identix Line of Credit. The Identix Line of
Credit agreement contains financial and operating covenants, including
restrictions on the Company's ability to pay dividends on the Company's common
stock.

The ANADAC Line of Credit is a $6,000,000 bank line of credit secured by
ANADAC's accounts receivable and certain other assets. Under the ANADAC Line of
Credit, ANADAC may borrow against qualified accounts receivable. Amounts drawn
bear interest at the bank's prime rate of interest (8.25% at September 30,
1998). The line of credit expires on November 30, 1998. And management is
currently renegotiating the ANADAC Line of Credit. The terms are expected to
remain the same. At September 30, 1998, $962,000 was outstanding and $5,038,000
was available under the ANADAC Line of Credit. The ANADAC Line of Credit
agreement contains financial and operating covenants.

The Company generated cash of $679,000 from operating activities during the
three months ended September 30, 1998 primarily due to net income of $450,000,
decreases in accounts receivable of $985,000 and inventory of $232,000 and an
increase in accrued compensation of $377,000. These sources of cash were
partially offset by decreases in accounts payable of $1,527,000. The decrease in
accounts receivable and inventories was due primarily to a continued focus by
the Company on working capital management. The increase in accrued compensation
was a result of the Company's addition of personnel. The decrease in accounts
payable was due to a decrease in the payment cycle to suppliers.

The Company used cash of $293,000 in investing activities during the three
months ended September 30, 1998, consisting primarily of purchases of property
and equipment of $229,000.


                                       11
<PAGE>   12



IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .

Identix used cash of $680,000 for financing activities during the three months
ended September 30, 1998. Financing activities consisted of net repayments of
$962,000 against the Company's lines of credit, partially offset by the proceeds
from exercises of stock options of $282,000.

Identix did not have any material capital expenditure commitments as of
September 30, 1998.

The Company believes that cash flow from operations together with existing
working capital and the two bank lines of credit maintained by the Company, will
be adequate to fund the Company's cash requirements for at least the remainder
of fiscal 1999. However, the Company may require additional equity or debt
financing beyond the amounts currently forecasted by the Company to meet its
working capital or capital equipment needs. There can be no assurance that the
Company would be able to obtain such financing or that the terms of such
financing would be favorable to the Company.


                                       12
<PAGE>   13




RISK FACTORS

The Company's future operations, financial performance, business and share price
may be affected by a number of factors, including the following, any of which
could cause actual results to vary materially from any forward-looking
statements made by the Company in this Report on Form 10-Q or in other reports,
press releases or other statements issued from time to time.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's quarterly operating results have in the past been, and will
continue to be, subject to significant variations resulting from a number of
factors, many of which are outside of the Company's control and any one of which
could substantially affect the Company's results of operations for any
particular fiscal period. The Company's revenues in any period have been, and in
the near term are expected to be, derived from large orders from a limited
number of customers. Accordingly, revenues in a particular quarter will be
dependent upon the timing and size of major orders and the timing of recognition
of revenues from those orders. A majority of the Company's revenues are derived
from the sale of products and services directly to governmental agencies or
OEMs, systems integrators or resellers who sell products and services to
government agencies. Government agencies are subject to political and budgetary
constraints and orders from them may be canceled or substantially delayed or the
receipt of revenues or payments substantially delayed due to political and
budgetary processes or other scheduling delays relating to the contract or
bidding process. In addition, the Company's contracts with local government
agencies may be contingent upon availability of matching funds from state or
federal entities.

Other factors which can result in fluctuations in quarterly results of
operations include budgetary and purchasing cycles of government agencies;
changes in the mix of products and services sold and the mix of product sales by
distribution channels; the pricing of existing and future products by the
Company's competitors; the introduction of new or enhanced products by the
Company or its competitors and the market acceptance thereof; expenses related
to, and results of, litigation; percentage of and costs associated with firmed
fixed price ("FFP") contracts and time and materials ("T&M") contracts; the
availability and cost of key components; and fluctuations in general economic
conditions. The Company also may choose to reduce prices or to increase spending
in response to competition or to pursue new market opportunities, all of which
may adversely affect the Company's business, financial condition and results of
operations. Further, the lead-time for ordering parts and materials and building
the Company's products can be many months and the Company orders parts and
materials and builds products based on its forecasted demand for the products.
If demand for the Company's products lags significantly behind the Company's
forecasts, the Company runs the risk of building too large an inventory, which
may adversely affect cash flow and may result in write-offs or writedowns of
inventory because of product obsolescence. Due to the foregoing factors, the
Company's operating results may differ from the expectations of securities
analysts and investors, which could adversely affect the trading price of the
Company's common stock. The Company believes that period-to-period comparisons
of its results of operations should not be relied upon as indications of future
performance.

DEPENDENCE UPON NEW AND UNCERTAIN MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE

Substantially all of the Company's product revenues to date have been, and for
the foreseeable future are anticipated to be, derived from Bio-Security products
and Bio Imaging products. Bio-Security products represent a new approach to
identity verification, which has only been used in limited applications to date,
and these products have not gained widespread commercial acceptance. The
expansion of the market for the Company's products depends on a number of
factors, including the cost and reliability of the Company's products and
products of competitors, customers' perception of the perceived benefits of
these products, public perceptions of the intrusiveness of these products and
the manner in which agencies are using the fingerprint information collected,
public confidence as to confidentiality of private information, customers'
satisfaction with the Company's products and publicity regarding these products.
Public objections have been raised as to the use of biometric products for some
applications on civil liberties grounds and certain legislation has been
proposed to regulate the use of Bio-Security products. The Identix's future
success is dependent upon the development and expansion of markets for
Bio-Security products and Bio-Imaging products both domestically and
internationally. In addition, even if markets develop for Bio-Security products
and additional markets develop for Bio-Imaging products, there can be no
assurance that the Company's products will gain wide market acceptance in these
markets. A number of factors may limit the market acceptance of the Company's
products, including the performance and price of the Company's products compared
to competitive products or technologies, the practicalities of developing the
infrastructure necessary to support certain Bio-

                                       13


<PAGE>   14

Security applications such as ATMs and point-of-sale applications, the nature of
technological innovations and new product development activities by the Company
and its competitors, and the extent of marketing efforts by the Company's
collaborators or partners. If the markets for the Identix's products fail to
develop or develop more slowly than anticipated or if the Company's Bio-Security
products fail to gain wide market acceptance, or Bio Imaging products lose
market share, the Company's business, financial condition and results of
operations would be materially and adversely affected.

COMPETITION AND TECHNOLOGICAL CHANGE

The markets for Bio-Security and Bio-Imaging products are extremely competitive
and are characterized by rapid technological change, both as a result of
technical developments exploited by competitors, the changing technical needs of
customers and frequent introductions of new features. The Company expects
competition to increase as other companies introduce additional and more
competitive products. In order to compete effectively in this environment, the
Company must continually be able to develop and market new and enhanced products
and market those products at competitive prices. There can be no assurance that
the Company will be able to make the technological advances necessary to compete
successfully in its products business. Some of the Company's present and
potential competitors have financial, marketing and research resources
substantially greater than those of the Company.

Existing and new competitors may enter or expand their efforts in the Company's
product markets, or develop new products to compete against the Company's
products. No assurance can be given that the Company's competitors will not
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features or that new
products or technologies will not render obsolete the products of the Company.
Recently, a significant number of established and startup companies have become
engaged in developing software and hardware for fingerprint Bio-Security
applications that could compete directly with the Company's Bio-Security
products, including a number of companies that are developing semiconductor or
optically-based direct contact fingerprint image capture devices. In addition,
other companies are developing currently or have developed other methods of
biometric identification such as retinal blood vessel or iris pattern, hand
geometry, voice and facial structure, which could significantly reduce the
potential market for the Company's products if widely adopted. The Company's
Bio-Security products also face competition from non-biometric technologies such
as traditional key, card and surveillance systems, PINs and similar traditional
verification methods. The Company believes that in an effort to remain
competitive in the future it will need to invest increasing financial resources
in research and development.

In its services business, the Company faces substantial competition from
professional services providers of all sizes in the government professional
services market. ANADAC is increasingly being required to bid on FFP and similar
contracts that result in greater performance risk to ANADAC. If ANADAC is not
able to maintain a competitive cost structure, support specialized market
niches, retain its highly qualified personnel or align with technology leaders,
its ability to compete successfully will be materially and adversely affected.

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS

The Company's future success will depend upon its ability to address the needs
of the market by enhancing its current products and by developing and
introducing new products on a timely basis that keep pace with technological
developments and emerging industry standards (including FBI accreditation
standards), respond to evolving customer requirements and achieve market
acceptance. The development of new, technologically advanced products and
product enhancements is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological and market
trends. Any failure by the Company to anticipate or adequately respond to
technological developments or end user requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or revenue.

There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products on a timely basis if at all, that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and sale of these products, or that any of
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. If the Company is unable, for
technological or any other reason, to develop, introduce and sell its products
in a timely manner, the Company's business, financial condition and results of
operations would be materially and adversely affected. In addition, because a
number of the Company's Bio-Imaging products and Bio-Security products are
incorporated into systems marketed by other companies, or are co-marketed
together with other products or services sold by other companies, the failure to
introduce products in a 


                                       14


<PAGE>   15

timely manner may cause such companies to seek alternative suppliers or
marketing partners.

From time to time, the Company or its present or future competitors may announce
new products, capabilities or technologies that have the potential to replace
the Company's existing products. There can be no assurance that announcements of
currently planned or other new products will not cause customers to delay or
alter their purchasing decisions in anticipation of such products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, new product introductions may contribute
to fluctuations in quarterly operating results or result in the early
obsolescence of the Company's products, because customers may forego ordering
the Company's existing products. If the Company's new products have reliability
or quality problems, the Company may experience reduced orders, higher
manufacturing costs, delays in collecting accounts receivable and additional
service and warranty expense.

DEPENDENCE ON STRATEGIC RELATIONSHIPS FOR PRODUCT DISTRIBUTION

The Company's strategy for the distribution of certain of its products requires
entering into various strategic relationships with OEMs, systems integrators and
resellers. Some of these relationships are formalized in agreements; however,
such agreements are often terminable with little or no notice, and subject to
periodic amendment. Although the Company believes that the OEMs, systems
integrators and resellers with which it works have an economic motivation to
promote or use the Company's products, the amount and timing of resources to be
devoted to these activities are not within the control of the Company. There can
be no assurance that such parties will actively promote the Company's products
or pursue installations which use the Company's equipment, that any distribution
or other arrangements with the Company will not be terminated or renegotiated or
that the Company will derive any revenues from such arrangements. The Company
intends to continue to seek strategic relationships to distribute and sell
certain of its products. There can be no assurance that the Company will be able
to negotiate acceptable strategic relationships in the future or that current or
future strategic relationships will be successful.

PUBLIC AGENCY CONTRACT CONSIDERATIONS

A majority of the Company's revenues are derived from the sale of products and
services either directly to governmental agencies or to OEMs, systems
integrators or resellers who sell products to government agencies. Government
agencies frequently require provisions in contracts that are not standard in
private commercial transactions, such as bonding requirements and provisions
permitting the purchasing agency to cancel the contract without penalty if
funding for the contract is no longer available or is not obtained. As public
agencies, the Company's prospective customers are also subject to public agency
contract requirements, which vary from jurisdiction to jurisdiction. Future
sales to public agencies will depend on the Company's ability to meet public
agency contract requirements, certain of which may be onerous or even impossible
for the Company 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 contain provisions that permit
cancellation in the event that funds are unavailable to the public agency. There
can be no assurance that the Company will be awarded any of the contracts for
which its products are bid or, if awarded, that substantial delays or
cancellations of purchases will not result from protests initiated by losing
bidders.

UNCERTAINTY RELATED TO CONTRACTS FOR SERVICES WITH GOVERNMENT AGENCIES

During the three months ended September 30, 1998 and the year ended June 30,
1998, the Company derived approximately 91% and 89%, respectively, of its
services revenue directly from contracts relating to the DOD and other U.S.
Government agencies. Loss of any material government contract due to budget cuts
or otherwise could have a material adverse effect on the Company's business,
financial condition and results of operations.

During the three months ended September 30, 1998 and the year ended June 30,
1998, the Company derived approximately 82% and 68%, respectively, of services
revenues from T&M contracts and FFP contracts. T&M contracts typically provide
for payment of negotiated hourly rates for labor incurred plus reimbursement of
other allowable direct and indirect costs. 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. The Company assumes certain
performance risk on FFP and T&M contracts and the failure to estimate accurately
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 such overruns for any FFP and T&M contracts it
is awarded. In addition, 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.



                                       15

<PAGE>   16

ANADAC has just completed such an audit for the period from July 1, 1992 to June
30, 1995. While the Company believes that the results of the DCAA audit will
have no material effect on the Company's revenues, there can be no assurance
that no adjustments will be made and that, if made, such adjustments will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

During the three months ended September 30, 1998 and the year ended June 30,
1998, the Company's net product revenues from international sales were 11% and
18%, respectively. A key component of the Company's strategy is to pursue
product sales in international markets. There can be no assurance that the
Company will be able to market, sell and deliver its products in these foreign
countries. In addition to the uncertainty as to the Company's ability to expand
its international presence, there are certain risks inherent in foreign
operations, including general economic conditions in each country, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, delays in or prohibitions on exporting products
resulting from export restrictions for certain technologies (including "crime
control" products and encryption technology), fluctuations in foreign currencies
and the U.S. dollar which can increase the sales price of the Company's products
in local currencies, loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks, the
overlap of different tax structures, risks of increases in taxes and other
government fees and involuntary renegotiation of contracts with foreign
governments.

The Company is also at risk from changes in foreign and domestic laws,
regulations and policies governing foreign operations. There can be no assurance
that laws or administrative practices relating to taxation, foreign exchange or
other matters of countries within which the Company operates or will operate
will not change. Any such change could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the laws of foreign countries treat the protection of proprietary rights
differently from, and may not protect the Company's proprietary rights to the
same extent as, laws in the United States.

The Company's international sales are predominantly denominated in U.S. dollars.
The Company 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.

DEPENDENCE ON LARGE ORDERS BY CUSTOMERS

The Company's revenues principally consist of large orders from a limited number
of customers. While the individual customers may vary from period to period, the
Company is nevertheless dependent upon these large orders for a substantial
portion of its total revenues. There can be no assurance that the Company will
be able to obtain large orders on a consistent basis. The Company's inability to
obtain sufficient large orders would have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover, the
timing and shipment of such orders may cause the operating results of the
Company in any given quarter to differ from the expectations of securities
analysts, which could adversely affect the trading price of the Company's common
stock. Losses arising from customer disputes regarding shipping schedules,
product condition or performance, or the Company's inability to collect accounts
receivable from any major customer could also have a material adverse effect on
the Company's business, financial condition and results of operations.

Orders for the Company's Bio-Imaging products are often subject to delays
associated with the lengthy approval processes that typically accompany large
capital expenditures by government agencies. The Company's total revenues depend
in significant part upon the decision of a government agency to adopt and
integrate the Company's products, which often involves a significant capital
commitment as well as significant future support costs. Similar delays may also
be experienced from government agencies procuring the Company's services. The
Company often has a lengthy sales cycle while the customer evaluates and
receives approvals for the purchase of the Company's products or services. Any
significant failure by the Company to receive an order after expending
significant funds and effort could have a material adverse effect on its
business, financial condition and results of operations. It may be difficult to
predict accurately the sales cycle of any large order. In the event one or more
large orders fail to be shipped as forecasted for a fiscal quarter, the
Company's total revenues and operating results for such quarter could be
materially and adversely affected. In addition, even if the Company receives
such an order, the order may be contingent upon availability of matching funds
from state or federal entities or may be cancelled or receipt of revenues may be
substantially delayed due to political and budgetary processes.

                                       16
<PAGE>   17

RISKS ASSOCIATED WITH ACQUISITIONS

As part of its business strategy, the Company intends to acquire assets and
businesses principally relating to or complementary to its current operations.
The Company acquired two companies in fiscal 1996 and one in fiscal 1998. These
and any other acquisitions by the Company will be accompanied by the risks
commonly encountered in acquisitions of companies. Such risks include, among
other things, potential exposure to unknown liabilities of acquired companies or
to acquisition costs and expenses exceeding amounts anticipated for such
purposes; fluctuations in the Company's quarterly and annual operating results
due to the costs and expenses of acquiring and integrating new businesses; the
difficulty and expense of assimilating the operations and personnel of the
companies; the potential disruption of the Company's ongoing business and
diversion of management time and attention; the inability of management to
maximize the Company's financial and strategic position by the successful
incorporation of acquired technology; the maintenance of uniform standards,
controls, procedures and policies; the impairment of relationships with and
possible loss of key employees and customers as a result of changes in
management; the incurrence of amortization expenses if an acquisition is
accounted for as a purchase; and dilution to the shareholders of the Company if
the consideration for the acquisition consists of the Company's equity. In
addition, the difficulty of integrating certain companies may be increased by
geographic distances. There can be no assurance that the Company will be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions.

RISK OF PRODUCT DEFECTS AND FAILURE TO MEET PERFORMANCE CRITERIA

Complex products such as those offered by the Company may contain undetected or
unresolved defects or may fail initially to meet customers' performance criteria
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company, defects or performance flaws will not be
found in new products or new versions of products following commercial release
or that performance failures will not result, causing loss of market share,
delay in or loss of market acceptance, additional warranty expense or product
recall. In addition, the failure of products to meet performance criteria could
result in delays in recognition of revenue and higher operating expenses during
the period required to correct such defects. There is a risk that for unforeseen
reasons the Company may be required to repair or replace a substantial number of
products in use or to reimburse persons for products that fail to work or meet
strict performance criteria. Any such occurrence could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company does carry product liability insurance, but there can be no
assurance that existing coverage is adequate for current operations or will be
adequate for future operations. The Company's business could be materially and
adversely affected by the assertion of product liability claims.

PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend in part on its ability
to maintain the proprietary nature of its technology, products and manufacturing
processes. The Company principally relies upon patent, copyright, trade secret
and contract law to establish and protect its proprietary rights. The success of
the Company's products business will depend in part on its proprietary
technology and the Company's protection of such technology. The Company holds
United States and foreign patents covering certain of its products and
technologies and has other patent applications pending. Identix has an ongoing
policy of filing patent applications to seek protection for novel features of
its products.

No assurance can be given that the claims allowed on any patents held by the
Company will be sufficiently broad to protect the Company's technology. In
addition, no assurance can be given that any patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company. The loss of
patent protection on the Company's technology or the circumvention of its patent
protection by competitors could have a material adverse effect on the Company's
ability to compete successfully in its products business. There can be no
assurance that any existing or future patent applications by the Company will
result in issued patents with the scope of the claims sought by the Company, or
at all, that any current or future issued or licensed patents, trade secrets or
know-how will afford sufficient protection against competitors with similar
technologies or processes, or that any patents issued will not be infringed upon
or designed around by others. In addition, there can be no assurance that others
will not independently develop proprietary technologies and processes, which are
the same as, substantially equivalent or superior to those of the Company.
Further, there can be no assurance that the Company has not or will not infringe
prior or future patents owned by others, that the Company will not need to
acquire licenses under patents belonging to others for technology potentially
useful or necessary to the Company, or that such licenses will be available to
the Company, if at all, on terms acceptable to the Company.


                                       17

<PAGE>   18

Litigation, which could result in substantial cost to the Company and diversion
of management attention, may also be necessary to enforce any patents issued to
the Company or to determine the scope and validity, of other parties'
proprietary rights. If the outcome of any such litigation is adverse to the
Company, its business, financial condition and results of operations could be
materially and adversely affected. To determine the priority of inventions, the
Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office or oppositions in foreign patent
offices, which could result in substantial cost to the Company and limitations
on the scope or validity of the Company's patents. The Company also relies on
trade secrets and proprietary know-how, which it seeks to protect by
confidentiality agreements with its employees and consultants, and with third
parties. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach, or that its trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.

RISKS ASSOCIATED WITH MANAGING EXPANSION OF OPERATIONS

The Company has experienced substantial growth in recent years and believes that
in order to be successful it must continue to grow rapidly. If the Company is to
grow rapidly, the Company will be required to expand, train and manage its
employee base, particularly skilled technical, marketing and management
personnel. Rapid growth will also require an increase in the level of
responsibility for both existing and new management and will require the Company
to implement and improve operational, financial and management information
procedures and controls. The Company competes with some of the major technology,
consulting and software companies in seeking to attract qualified personnel.
There can be no assurance that the management skills and systems currently in
place will be adequate or that the Company will be able to manage effectively
any significant growth it experiences and to hire or assimilate new personnel
necessary to pursue its growth strategy. Any failure to adequately manage growth
could materially and adversely affect the Company's business, financial
condition and results of operations.

DEPENDENCE UPON SOLE AND LIMITED SOURCES OF SUPPLY; RISKS ASSOCIATED WITH
IMPLEMENTATION OF LARGER SCALE MANUFACTURING CAPABILITIES

Certain of the components included in the Company's products are obtained from a
single source or a limited group of suppliers, the most important of which are
the charge coupled and CMOS imaging devices and ASICs for the Bio-Security
products and the charge coupled devices for the Bio-Imaging products. The
Company has no long term agreements with any of its suppliers. Although the
Company seeks to reduce dependence on these sole and limited sources of
suppliers, the partial or complete loss of certain of these sources or the delay
in receiving supplies from these sources could result in delays in manufacturing
and shipping of products to customers. This may require the incurrence of
development and other costs to establish alternative sources of supply. While
the Company attempts to maintain a few months of inventory on sole source
components, it may take the Company several months to locate alternative
suppliers if required, and/or to re-tool its products to accommodate components
from different suppliers. If the Company is required to seek alternative
suppliers, there can be no assurance that the Company will be able to obtain
such components within the time frames required by the Company at an affordable
cost, or at all. Any delays resulting from suppliers failing to deliver
components 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 material adverse effect on the Company's
business, financial condition and results of operations.

Historically, the volume of the Company's production requirements for the law
enforcement and public sectors has not placed significant capacity constraints
on the Company's manufacturing and assembling capabilities. However, if the
Company begins to market its products for potentially larger volume
applications, the Company may be required to fulfill larger orders in a short
period of time and to implement measures to decrease product costs. There can be
no assurance that the Company will be able to scale-up its manufacturing and
assembling capacities to fulfill such orders and to decrease manufacturing
costs. Any failure by the Company to implement higher volume manufacturing or
reduce product costs for commercial applications could have a material adverse
effect on the Company's business, financial condition and results of operations.

DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL

The Company's success will depend upon its ability to retain its current senior
management team and key technical, marketing and sales personnel and its ability
to identify, attract and retain additional highly qualified personnel. The
Company's employees may voluntarily terminate their employment with the Company
at any time, and competition for qualified employees, especially engineers, is
intense. The process of locating additional personnel with the combination of
skills and attributes required to carry out the Company's strategy is often
lengthy. The loss of the services of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on the
Company's business, 

                                       18
<PAGE>   19

financial condition and results of operations.

VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. In addition, the market price of the common stock, like the stock
prices of many technology companies, has been, and may continue to be, highly
volatile. Variations in quarterly operating results, the timing and volume of
procurements for the Company's products and services, announcements of
technological innovations or new products or services by the Company or by the
Company's competitors, announcements regarding product pricing by the Company or
its competitors, failure of the Company to meet earnings or revenue expectations
of securities analysts, the commencement of litigation, the developments in or
outcome of any litigation, developments in patent or other proprietary rights,
and economic and other external factors, among other factors, may have a
material adverse effect on the market price of the common stock.

SHARE HOLDINGS OF ASCOM USA INC

As of October 31, 1998, Ascom USA Inc. ("Ascom"), beneficially owned
approximately 20% of the outstanding common stock. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. The Company is a party to a Voting Trust Agreement ("Voting Trust
Agreement") with Ascom whereby Ascom deposited all of its 5,048,924 shares of
the Company's common stock ("Voting Stock") into a voting trust ("Voting
Trust"). The Trustee has voting control of the Voting Stock. The Voting Trust
Agreement expires in 2004. Ascom has preemptive rights with respect to issuances
of the Company's securities and registration rights with respect to the
securities it holds. Ascom has recently requested registration of approximately
1,700,000 shares. The sale of a significant number of shares by Ascom in the
open market could have an adverse effect on the trading price of the Company's
common stock. The Company's ability to obtain additional financing on favorable
terms in the future may be adversely affected by the existence of these
preemptive rights and registration rights.

IMPACT OF YEAR 2000

The Company has evaluated the products and services it offers, as well as its
information technology infrastructure, in an effort to determine whether the
Company or its customers may have exposure to Year 2000 problems caused by
computer systems that only use a two-digit year value and, accordingly, will be
subject to error or failure when the year 2000 arrives. The Company has also
made inquiries of its key suppliers to determine their readiness with respect to
Year 2000 problems.

The Company has sold TouchPrint products that, at the request of the customers,
use a two-digit value for the year. In addition, certain older versions of the
software used in the TouchPrint products are not Year 2000 compliant. The
Company is informing its customers of the Year 2000 issues associated with the
TouchPrint products and how they can be remediated. The Company is also aware
that certain Biometric Security products that it has sold are not Year 2000
compliant. The Company has prepared software upgrades to address these problems
and is in the process of notifying its customers about the Year 2000 issues and
the software upgrade. The Company believes that the costs to the Company not
borne by customers for the remediation of Year 2000 issues with the TouchPrint
and Biometric Security products will be less than $250,000. The Company has
also identified certain internal software that requires updating in order to be
Year 2000 compliant. As part of the Company's maintenance contract for that
software, the vendor of that software has provided the Company with an upgrade
that addresses the Year 2000 problem. The Company has not installed the software
upgrade yet, but expects to have the installation completed by early 1999. 

The Company is at risk of disruption to its business if Year 2000 problems are
experienced by its key suppliers. The Company has sent inquiries to its
suppliers to determine their readiness with respect to Year 2000 problems. The
Company is still in the process of collecting responses. The Company will be
able to better determine what actions may be necessary to address potential
problems with key suppliers after it receives responses back from these
suppliers. A failure of a key supplier to provide the Company with necessary
components or services could result in a delay by the Company in providing
products or services to the Company's customers and have a material adverse
effect on the Company's business, financial condition and results of operations.

The Year 2000 problem is pervasive and complex and there can be no assurance
that the Company has been or will be able to identify all of the Year 2000
issues that may affect the Company or that any remedial efforts it takes will
adequately address any potential Year 2000 problems.


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<PAGE>   20


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk - The Company does not use derivative financial instruments
in its investment portfolio. The Company's investment portfolio is generally
comprised of municipal government securities that mature within one year. The
Company places investments in instruments that meet high credit quality
standards. These securities are subject to interest rate risk, and could decline
in value if interest rates fluctuate. Due to the short duration and conservative
nature of the Company's investment portfolio, the Company does not expect any
material loss with respect to its investment portfolio.

Foreign Currency Exchange Rate Risk - Certain of the Company's sales, cost of
manufacturing and marketing are transacted in local currencies. As a result, the
Company's international results of operations are subject to foreign exchange
rate fluctuations. The Company does not currently hedge against foreign currency
rate fluctuations. Gains and losses from such fluctuations are not material to
the Company's consolidated results of operations.



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<PAGE>   21


IDENTIX INCORPORATED

PART II        OTHER INFORMATION

     Item 1.   Legal Proceedings


               ANADAC, Inc. is a named defendant in four related personal injury
               lawsuits pending in the Circuit Court of Virginia. All of these
               suits arise from the collapse of a balcony at the University of
               Virginia during graduation ceremonies in May 1997 in which one
               person was killed and approximately 23 others were injured. The
               Commonwealth of Virginia and the Curator of the University's
               Academical Village are also named defendants. It is alleged that
               the Commonwealth of Virginia and the curator were negligent in
               failing to maintain and ensure the structural integrity of the
               historic structure which collapsed. It is alleged that ANADAC is
               liable for failing to identify signs of structural deterioration
               during a contracted 1994 inspection. ANADAC had been hired by the
               University of Virginia to create a budget for maintaining ten
               historic buildings based on a visual inspection and analysis of
               certain statistical information. ANADAC's assignment did not
               include a structural review of any nature and did not encompass
               the type of inspection that would uncover a defect of the nature
               that caused the balcony collapse. Of the four lawsuits, one was
               filed in the Circuit Court of Virginia in Fairfax in March 1998
               and the three others were filed in the Circuit Court of Virginia
               in Charlottesville between July and September 1998. The aggregate
               amount of damages sought in these suits is $7,700,000.
               Approximately nine of the persons injured in the accident have
               settled with the Commonwealth of Virginia, releasing all
               potential claims with respect to the accident. Additional
               lawsuits may be filed by other injured persons with respect to
               the accident. The Company believes that the claims against ANADAC
               are without merit and will not have a material adverse effect on
               the Company.  

               On May 31, 1995, Digital Biometrics, Inc. ("DBI"), a competitor,
               filed a lawsuit in the United States District Court for the
               Northern District of California against the Company alleging that
               certain of the Company's TouchPrint products violate a DBI patent
               and seeking injunctive relief and unspecified damages. The
               lawsuit has no implication for other Identix products. On August
               22, 1996, the District Court granted the Company's motion
               determining that the TouchPrint 600 does not infringe the patent.
               On December 7, 1996, the District Court issued another ruling
               determining that the predecessor product of the TouchPrint 600,
               the TouchPrint 900 product, did not infringe the patent. As a
               result, the District Court entered judgment in favor of Identix
               and awarded Identix its costs of suit. On January 7, 1997, DBI
               filed a Notice of Appeal. On July 2, 1998, the United States
               Court of Appeals for the Federal Circuit affirmed the District
               Court's judgment. The judgment in favor of Identix is now final.


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

               (a) Exhibits

                   Exhibit
                   Number            Description

                   27.1              Financial Data Schedule

               (b) No reports on Form 8-K were filed by the Company during the
                   quarter ended September 30, 1998.


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<PAGE>   22



                              IDENTIX INCORPORATED

                                   SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          IDENTIX INCORPORATED





November 16, 1998                          BY: /s/James P. Scullion
                                               ---------------------------------
                                           James P. Scullion
                                           Executive Vice President,
                                           Chief Financial Officer and Secretary


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