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                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                               ----------------

                                   FORM 10-K

                               ----------------

(Mark one)

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                    For the fiscal year ended June 30, 1999

                                      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)

<TABLE>
      <S>                                       <C>
                      Delaware                             94-2842496
          (State or other jurisdiction of       (IRS Employer Identification No.)
           incorporation or organization)
       510 North Pastoria Avenue, Sunnyvale,
                     California                              94086
      (Address of principal executive offices)             (Zip Code)
</TABLE>

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

          Securities registered pursuant to Section 12(b) of the Act:
                         Common Stock, $0.01 par value

          Securities registered pursuant to Section 12(g) of the Act:
                                     None

                  Name of each exchange on which registered:
                            American Stock Exchange

   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 requirements for the past 90 days. Yes [X] No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

   The aggregate market value of the voting stock held by non-affiliates of
the registrant on September 1, 1999, based upon the closing price of the
common stock on the American Stock Exchange for such date, was approximately
$199,404,000. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.

   The number of outstanding shares of the registrant's common stock on
September 1, 1999 was 30,765,786.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Definitive Proxy Statement expected to be filed with the
Securities and Exchange Commission on or about September 28, 1999 and to be
used in connection with the Annual Meeting of Stockholders expected to be held
October 28, 1999 are incorporated by reference in Part III of this Form 10-K.

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                               TABLE OF CONTENTS

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 <C>      <S>                                                              <C>
 Part I
 Item 1.  BUSINESS......................................................      1
 Item 2.  PROPERTIES....................................................     22
 Item 3.  LEGAL PROCEEDINGS.............................................     22
 Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........     22
 Part II
 Item 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.......................................................     24
 Item 6.  SELECTED FINANCIAL DATA.......................................     24
 Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.....................................     25
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....     32
 Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................     33
 Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE......................................     55
 Part III
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............     56
 Item 11. EXECUTIVE COMPENSATION........................................     56
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT....................................................     56
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................     56
 Part IV
 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K......................................................     57
</TABLE>

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                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

                                     PART I

Item 1. Business

   The statements in this Annual Report on Form 10-K that relate to future
plans, events or performance are forward-looking statements. Actual results
could differ materially due to a variety of factors, including the factors
described under "Risk Factors" and the other risks described in this Annual
Report on Form 10-K. The Company undertakes no obligation to publicly update
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

Overview

   Identix Incorporated ("Identix" or the "Company") is a leader in designing,
developing, manufacturing and marketing comprehensive solutions for the capture
or comparison of fingerprints for security, fraud prevention, law enforcement
and other applications. Identix's products are classified into two groups: (i)
Biometric Security products that verify the identity of an individual through
the unique biological characteristics of a fingerprint and (ii) Biometric
Imaging products that electronically capture forensic quality fingerprint
images directly from an individual's fingers for law enforcement and other
applications. At the core of Identix's Biometric Security and Biometric Imaging
products are its proprietary fingerprint capture technologies. The Company's
products employ patented algorithms and proprietary customizable application
software suites, as well as industry leading expertise in optics and high
resolution printing technology. Identix's technologies and know-how enable it
to produce biometric solutions for federal, state and local governmental
entities and commercial customers worldwide. As of June 30, 1999, Identix and
recently acquired Identicator Technology, Inc. ("Identicator Technology") had
shipped over 115,000 Biometric Security products to customers in over 40
countries through its worldwide network of sales offices and distributorships.
In addition, law enforcement and other government agencies in more than 30
states and four foreign countries have installed Identix Biometric Imaging
products. Through ANADAC, Inc. ("ANADAC"), the Company provides information
technology, engineering and management consulting services, including the
installation and integration of Identix products, to private and public sector
clients. Identix also formed a joint venture in September 1997 with Sylvan
Learning Systems, Inc. ("Sylvan") for the purpose of providing fingerprinting
services.

Biometric Industry Overview

   The analysis of unique biological characteristics of an individual, also
known as biometrics, is being used increasingly for identification and
verification purposes. Examples of unique biological characteristics that can
be used to identify an individual include fingerprints, retinal blood vessel or
iris patterns of the eye, hand geometry, voice and facial structure. Among
these, fingerprint analysis has gained the most widespread use for biometric
identification and verification purposes. Fingerprint analysis is an accurate
and reliable method to distinguish one individual from another, employs well-
developed and proven technology and processes and is viewed as less intrusive
relative to certain other biometric identification methods. The process of
capturing, storing, retrieving and comparing fingerprints has become
increasingly automated as a result of advances in optics, electronics and
computing. These advances have enabled fingerprint verification technology to
be used to confirm an individual's identity for a variety of commercial and
governmental applications.

 Biometric Security

   The costs of fraud are estimated to be in the billions of dollars each year
in the United States alone. In addition, damages resulting from security
breaches, such as unauthorized persons gaining improper access to confidential
information, may not be quantifiable, but can be equally as problematic.
Accordingly, the ability to verify the identity of a specific individual is of
critical importance in reducing acts of fraud and increasing

                                       1
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security. Each day an individual is required to identify himself numerous times
with something the individual has in his possession or with the knowledge of
certain information, such as: magnetic stripe cards and PINs to transact
business at ATMs or point-of-sale terminals; passwords to log-on to a computer
or a computer network; keys, cards or passwords to enter the workplace; PINs,
passwords and account numbers to complete a commercial transaction on-line;
credit cards to make a credit purchase; time cards to begin work; and a
driver's license to write a check or transact business at a bank.

   However, these common verification methods generally cannot provide positive
identification. Keys, credit cards, ATM cards and card keys can be lost or
stolen. Passwords, account numbers or other information used for identity
verification can be divulged to or intercepted by unauthorized users through
electronic means and otherwise. In the workplace, time-and-attendance
information can be improperly altered by an employee punching a time card for a
tardy or absent co-worker.

   The analysis of unique biological characteristics offers a more accurate
method of verifying an individual's identity. Over the last decade,
technological advances, including significant advances in two-dimensional
imagers, high performance microprocessors and computer memory, have enabled the
commercial development of equipment to read, record and analyze unique
biological data. Potential applications of biometric identification and
verification systems span a broad range and include computer database and
network access and security, computer software, intranet and Internet security,
electronic commerce, communications devices, point-of-sale terminals, bank
transaction authorization, facility access and security, ATMs,
time-and-attendance, home security and automobiles. However, implementation of
biometric equipment for these diverse applications may require network
management software, customer-specific applications software and interfaces
that allow integration with the customer's existing computer systems to provide
complete biometric solutions.

 Biometric Imaging

   Fingerprint images have emerged as an important means of identification and
verification in both government and civilian markets. In law enforcement in
particular, fingerprint identification is widely utilized and has been accepted
by courts around the world. Historically, fingerprints have been collected
using the traditional "ink-and-roll" process. Typically, this process starts at
the local law enforcement agency where usually three or more complete sets of
ink-and-roll prints are taken, one for the local agency, one for the state and
one for the Federal Bureau of Investigation ("FBI"). The FBI reports that it
currently receives over 34,000 fingerprint cards each work day. The fingerprint
is then compared at the local agency, state and/or FBI with a database of
fingerprints by means of an Automated Fingerprint Identification Systems
("AFIS"), a computer system developed in the 1970s which uses minutiae-based
recognition algorithms which detect fingerprint characteristics to accomplish
fingerprint matching. Before the AFIS can make the comparison, an ink-and-roll
card is run through a scanner which creates a digital image of the fingerprint.
The AFIS then compares the digital image with an existing database of
fingerprints to identify an individual if that individual's fingerprint is in
the database and, at the same time, updates the database with that fingerprint
image.

   While the advent of computerized AFIS systems significantly improved the
ability to compare fingerprints against large databases of fingerprints, the
manual process of collecting and mailing ink-and-roll cards to the agency that
maintains the AFIS and scanning the fingerprint image into the AFIS has led to
significant bottlenecks. In addition, the fingerprinting process can be
complicated by a lack of cooperation of the person being fingerprinted, the
need to take multiple sets of prints and operator error. Various agencies have
reported that in excess of 30% of such cards are rejected because prints are
smudged or applied incorrectly. If the FBI or state agency rejects the card,
the local agency is often required to locate the individual, if possible, and
have another set of fingerprints taken. As a result, the time between taking a
set of fingerprints and receiving the results of the search may take several
days, several weeks or longer.

   Live-scan biometric imaging systems, which electronically capture and
digitize an image of the fingerprint directly from a person's finger, were
developed to replace the manual ink-and-roll process. The digitized fingerprint
image captured by the live-scan system can then be compared with a database of
stored fingerprint

                                       2
<PAGE>

images by an AFIS. If a state or federal agency can receive electronic
fingerprint cards, then the image can be electronically relayed to that agency
for comparison and the results can be returned to the local agency within
minutes or hours. In addition, because the fingerprint images are captured
electronically, multiple cards can be printed from one set of images,
eliminating the need to roll the fingerprint numerous times. Live-scan systems
also generally have quality assurance features that help reduce the chance of
operator error during the fingerprinting process.

   A number of domestic and certain international law enforcement communities
are in the process of converting from manual ink-and-roll fingerprint capture
to live-scan fingerprint capture. In the United States, the FBI has undertaken
a major program to upgrade its Identification Division and in July 1999
announced that it has officially activated its new identification facility in
West Virginia to receive a majority of fingerprint submissions electronically.
This announcement by the FBI, coupled with increased automation at the federal
and state levels, has prompted other federal, state and local agencies to adopt
live-scan systems as their primary method for conducting background and
identification checks. Other federal agencies, including immigration and
Naturalization Service ("INS"), Internal Revenue Service, U.S. Drug Enforcement
Agency, U.S. Marshals Service and the U.S. Secret Service use live-scan systems
to perform identification and background checks.

   The ability to capture a forensic quality fingerprint image electronically
and compare that fingerprint with a database of fingerprint images also has
important civilian (non-law enforcement) applications, such as conducting
employee background checks (for jobs in federal or state government, banking,
airport, child care, stock brokers and other securities professionals or
gaming) or screening potential foster parents. Millions of fingerprint cards
are taken each year in the United States for civilian purposes. Traditionally,
local police stations have performed this service, with completed fingerprint
cards submitted to state authorities or the FBI to perform a background
investigation. This process usually takes several weeks to complete. In
addition, if an ink-and-roll fingerprint card is rejected, an applicant must go
through the process again, which can delay further an applicant's start date.
In some cases, employers or agencies find themselves with such a backlog of
applicants awaiting fingerprinting or results of the background check that they
allow applicants to start the job without the background check being complete,
placing the employer at risk if an applicant has a criminal record. The need
for reliable and convenient fingerprint capture in a non-law enforcement
environment and the need to streamline the background checking process have
created a demand for live-scan products and fingerprinting services.

The Identix Solution

   The Company has developed an industry-leading set of biometric security and
imaging solutions for security, fraud prevention, password replacement, law
enforcement and other applications. The core of the Company's products are
proprietary fingerprint capture technologies developed through the application
of Identix's understanding of the science of fingerprint biometrics, optics,
algorithms, computing and networking.

   Biometric Security Solutions. In the Biometric Security market, the Company
provides a comprehensive line of integrated biometric hardware and software
solutions for a variety of applications, providing the Company's customers with
significant improvements over traditional security and identification measures.
The Company believes its Biometric Security technology is the most widely used
in the world. Identix and Identicator Technology have sold over 115,000
Biometric Security products to customers in over 40 countries through its
worldwide network of sales offices and distributorships to provide complete
biometric solutions for a wide variety of applications, including the
following:

   Network and computer database security: Identix has and continues to develop
a wide range of enterprise level security solutions for databases, network
security, e-commerce and other emerging computer user needs. For example,
Identicator Technology has created a series of small, economical fingerprint
readers and enterprise security software for Microsoft Windows 95/98/NT4
networks. These products are developed and marketed with leading PC and
peripheral manufacturers including Compaq, KeyTronic, Cherry Electronics

                                       3
<PAGE>

and SCM Microsystems Network, and to date, over 100,000 fingerprint scanners
and BioLogon Network Software units have been manufactured and distributed
worldwide.

   Building access: Numerous organizations have installed the Company's
Biometric Security products to secure building access, including the Pentagon
and various other United States government agencies, banks and industrial
plants.

   Bank transaction authorization: Three large international banks use the
Company's Biometric Security products for transaction authorization.
   Airport security: Identix's Biometric Security products have been chosen for
use in pilot programs at Chicago International O'Hare Airport to develop a
universal air cargo security access system that is based on a combination of
biometric identification and smart cards and general door access throughput the
airport.

   Time-and-attendance: Woolworth's Limited, a major Australian supermarket
chain, uses the Company's Biometric Security products to maintain accurate
time-and-attendance records for in excess of 80,000 employees in over 500
stores.

   ATM service: Armaguard, an Australian armored car and cash carrying company,
uses the Company's Biometric Security products to secure access for service
personnel to approximately 2,000 ATMs across Australia.

   Corrections: The California Department of Corrections and the California
Youth Authority (CYA) are installing the Company's Biometric Security
fingerprint readers and networking software for physical access control in
prisons and CYA facilities statewide. The systems enable authorized staff
members to enter and exit secure areas, provide an exact record of each entry
and exit and alert security staff if authorized persons do not biometrically
check out of the secured areas when expected.

   The Company believes that success in the Biometric Security industry
requires addressing the customer's needs by providing the necessary software
applications and necessary interfaces with the customer's legacy computer
systems. The Company has developed system management software to facilitate the
deployment of Biometric Security devices and to control and manage a
distributed network of Biometric Security devices. This management software
enables an authorized system manager to limit, as desired, the scope of access
of individuals and can create an audit trail of entries, alarms, enrollments,
system changes and impostor attempts. The Company has also developed a number
of customizable software applications to address specific customer's
identification and verification requirements. These applications include:

  .  BioLogon, a secure network-based solution for logging onto a Windows NT4
     network from a Windows 95/98/NT4 workstation

  .  a specialized tracking system for correctional institutional operations
     (Bio-Sentinel),

  .  and developer kits which allow Identix networking solutions to be
     integrated into other applications.

   The Company has developed solutions to interface Identix's Biometric
Security products with smart card readers, Microsoft networks and Novell
networks. In addition, the Company has also developed software to enable
biometric authentication across remote networks, including intranets and the
Internet.

   Biometric Imaging Solutions. In the Biometric Imaging market, the Company
has established a leadership position by providing systems for the efficient
capture and management of digital fingerprint images and demographic data for
various law enforcement, immigration and civilian employment, screening and
background checks. Law enforcement and other government agencies in over 30
states and four foreign counties have installed the Company's Biometric Imaging
products for the following applications:

   Law enforcement. Identix provides live-scan systems for state-wide law
enforcement networks in California, Arizona, Texas, Illinois, Ohio, New Jersey,
Maryland, Wisconsin and Georgia. Many large cities

                                       4
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and counties also use a network of Identix TouchPrint 600 live-scan systems for
law enforcement, including New York City Police Department, Cook County
(Chicago) Sheriff's Department, Boston Police Department, San Francisco Police
Department, Detroit Police Department and Police Constabularies in England and
Wales.

   Fingerprinting services for civilian application. Fingerprinting services
for a variety of civilian applications are provided by Sylvan/Indentix
Fingerprinting Centers L.L.C. The screening of applicants for various public
programs are performed for the State of Illinois and the California Department
of Social Services, on employees of United Airlines and Continental Airlines
personnel who deal with the US mail and on banking and securities personnel for
the American Banking Association and the National Association of Security
Dealers.

   Immigration. The INS uses Identix's Biometric Imaging products to perform
background checks on persons who enter the United States and persons seeking
naturalization.

   Social services. Social service agencies in five states use Identix's
Biometric Imaging products to provide forensic quality images to identify
welfare recipients and prevent collection of benefits by the same person under
different names.

   Motor vehicle licensing. Five states use the Company's Biometric Imaging
products to check whether driver's license applicants have received and/or had
revoked a license under different names in that state.

   In order to meet the forensic quality standards required for identifying
individuals from within large AFIS systems, the Company has applied its optics
and image processing expertise to develop a system that it believes captures
higher resolution and more accurate images than other available systems. The
Identix fingerprint capture unit produces rolled finger and "slap" (four
fingers at once) images at 600 dots per inch and 500 dots per inch,
respectively.

   The Company's live-scan products contain proprietary high-resolution
printing technology and a number of proprietary software features, including
data management software and software for digitizing and processing fingerprint
data in accordance with FBI standards. The Company's expertise in networking
and systems integration has allowed it to implement large scale systems in some
of the largest law enforcement agencies in the United States to automate and
improve the efficiency of the identification process. In addition, the Company
has developed proprietary quality assurance software that can tell the operator
if a smudged or otherwise unreadable fingerprint image was captured, allowing
the operator to recapture the image and has developed capture sequence control
software that detects sequence errors resulting from the accidental rolling of
the wrong finger for placement on the fingerprint card.

Strategy

   The Company's goal is to continue to develop and expand high level security
applications for information technology, banking, government and other
Biometric Security applications worldwide, to augment its presence in the
domestic Biometric Imaging markets and penetrate international Biometric
Imaging markets. The key elements of the Company's strategy include:

   Deliver Comprehensive Biometric Solutions. In both the Biometric Imaging and
Biometric Security fields, the Company strives to provide comprehensive
solutions for its customers. Identix is able to deliver complete Biometric
Security systems for a range of different uses by integrating fingerprint image
capture devices, fingerprint analysis algorithms, operating systems to manage
networks of biometric devices and end-user software solutions that the Company
believes best meet the end-user's needs. The Company considers Biometric
Security software and algorithms to be critical in providing comprehensive
customer solutions and strives to maintain its leading edge in these areas,
unlike certain other companies which are focusing solely on the development of
image capture devices. In the Biometric Imaging industry, the Company intends
to offer expanded capabilities to encompass all phases of the booking operation
in a single, integrated system, through modular expansion. In addition, the
Company's field service organization continues to expand the scope of its
services to law enforcement agencies, assisting in systems analysis and
providing interfaces between Identix

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and existing computer systems to improve the quality and efficiency of records
collection. In both Biometric Security and Biometric Imaging, the Company seeks
to continue to provide superior technical services and responsiveness and
complete customer solutions that meet or exceed specifications.

   Penetrate New Markets Through Strategic Relationships. The Company is
establishing strategic relationships with a select group of market leaders to
provide Biometric Security solutions for a variety of applications. An
extensive infrastructure already exists for many of the markets in which the
Company wishes to participate. In such cases, the Company has and will pursue
relationships with companies with strong positions in these markets. For
example, the Company has developed Biometric Security products in cooperation
Compaq Computers for low cost PC network security, Novell Incorporated for
Netware/NDS network support, and Motorola for the next generation of low cost
very small optional fingerprint readers. In addition, the Company has developed
relationships with two of the leading AFIS suppliers in the world,
NEC Technologies, Inc. ("NEC"), and Sagem Morpho, Inc. ("Sagem Morpho"), to
provide forensic quality Biometric Imaging to government agencies. The Company
intends to continue to focus on developing strategic relationships with OEMs,
system integrators and resellers who serve as prime contractors for large,
integrated systems in the domestic and international markets.

   Maintain and Enhance Leadership in Biometric Technology. The Company's
success depends on providing technologically advanced, cost-effective
solutions. Accordingly, the Company intends to continue to invest in research
and development and, where necessary, acquire companies or technologies that
are complementary to its business in order to maintain and enhance its
leadership position in biometric technology. These efforts include development
of low cost fingerprint capture devices, enhanced algorithms, applications
software, integration tools and software, highly integrated hardware designs,
and mechanical and electronic components designed for high volume production.

   Maintain a Global Presence and Perspective. The Company believes that there
are many opportunities to apply biometric technologies throughout the world and
that solutions provided in one area of the world can be used in other regions
for customers with similar requirements. Where fraud is prevalent, biometric
solutions have the potential of providing immediate substantial savings. The
Company has established a regional sales and support presence in North and
South America, Australia, Europe and Asia to address opportunities throughout
the world.

Biometric Security Products

   The Company's Biometric Security products operate by comparing an
individual's fingerprint with a previously recorded mathematical
characterization, or template, of that fingerprint. The template can be stored
in a computer's memory, in a stand-alone Biometric Security product or a smart
card. When requesting access or authorization the user identifies himself with
a PIN or coded identification card and then places his finger on the platen of
the Biometric Security system. The system compares the finger placed on the
platen with the stored template to confirm the user's identity. If the
fingerprint and the stored template match, the user is positively identified
and access or transaction processing is authorized. If the fingerprint and the
stored template do not match, access or transaction processing is denied.

   DFR-200. The DFR-200 is a small optical fingerprint reader about the size of
two match books. This fingerprint reader is used in PC security products
shipped by Compaq, KeyTronic and others, and works with BioLogon software to
scan a person's finger image and match it against a previously enrolled image
for positive user authentication.

   Algorithms. Before the acquisition of Identicator Technology, Identix used
proprietary pattern recognition algorithms it had developed in its Biometric
Security range of products. With the acquisition of Identicator Technology,
Identix now has available both the pattern matching algorithms and minutae
based algorithms developed by Identicator Technology. This provides Identix
with the benefits of being backward compatable with the TouchLock II products.

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   BioLogon. BioLogon is a family of software products for stand-alone and
networked PC security. BioLogon replaces hard-to-remember passwords with a
touch of a finger to gain access to PC's and networks. BioLogon is integrated
with Microsoft's Network Security Architecture. Other products in the family
include BioCard, which integrates smart cards for network access, BioShield,
which prevents access to applications and holds passwords in a password-bank,
and BioSafe, which allows users to create "safes" or groups of encrypted files
and folders.

   TouchLock II. TouchLock II is an access control system which may be used in
many different applications, including securing access to physical space such
as buildings, vaults and ATMs or authorizing financial transactions. TouchLock
products, which are very rugged and recognized for their mission-critical
reliability, have been installed in the Pentagon and various other United
States government agencies and in banks and industrial plants around the world.
These products may be connected in a network configuration through a personal
computer and have the flexibility to permit access to designated entry points,
thereby allowing a customer to install different levels of security at
different locations within the same system. In addition, TouchLock II can be
used as a stand-alone system eliminating the need for a personal computer or
network connection. TouchLock II is also marketed under the name Fingerscan
internationally.

   TouchClock II. TouchClock II is specifically designed for employee time-and-
attendance applications, to be used as an alternative to, or in conjunction
with, traditional punchcard time-and-attendance systems. TouchClock II can
track an individual's time of arrival and departure as well as breaks.
TouchClock II is based on the same core proprietary technology as TouchLock II.

   Fingerlan III. Fingerlan III is system management software for use with
TouchLock II and TouchClock II products designed to allow the authorized system
manager the ability to limit access of specific individuals to certain times or
to certain locations, as well as to create an audit trail of all entries,
alarms, enrollments, system changes and impostor attempts. Fingerlan III is
compatible with Microsoft Windows.

   Customized Software. The Company works with its customers to develop
software developer kits, including for BioLogon, Fingerlan III and technology
for 1:1 and 1:many matching. The Company also works with its customers to
develop software applications and provides software developer kits for
customized applications.

   Fingerscan V20. Through the acquisiton of Identicator Technology, Identix
has been able to create its latest access control product. Fingerscan V20
combines the Identicator Technology technology and algorithm with Identix
technology to create an innovative highly functional access control device. The
combination of the Identix and Identicator Technology technologies opens up the
possibilities of universal access. Users will be able to access a building, an
office door and a PC all with the placement one of their fingers. Fingerscan
V20 is backward compatable to TouchLock II products and provides additional
functionality by incorporating capability for ethernet, proximity cards and
smart cards.

Biometric Imaging Products

   The Company's Biometric Imaging products are used for the capture, storage
and management of high resolution forensic quality fingerprint images and other
identifying information.

   TouchPrint 600 Live-Scan System. The Company's TouchPrint products are
computer-based, inkless live-scan systems that electronically scan and capture
forensic quality fingerprint images directly from an individual's finger. The
fingerprint images then can be printed using a laser printer or transmitted
over telephone lines or a wide area network to AFIS systems for identification
matching at local, state or federal agencies. TouchPrint was designed for use
by law enforcement agencies as a more accurate and efficient method of
recording fingerprint and demographic information than the conventional "ink-
and-roll" method. The TouchPrint 600 workstation and printer system was the
first system accredited under the FBI's Image Quality Specifications standard.
Accreditation to this specification is required for direct electronic
submission of

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fingerprint images to the FBI's integrated AFIS. In addition to law enforcement
applications, other applications for the TouchPrint systems include background
checks of prospective employees by public and private sector employers.
TouchPrint 600 systems typically integrate a high resolution scanner with
digital signal and video processing boards, multi-processing application
software, a multi-tasking computer, monitors as well as a laser printer
enclosed in a cabinet.

   TouchPrint 600 Applicant Fingerprint System. The TouchPrint 600 Applicant
Fingerprint System produces forensic-quality tenprint records by electronically
scanning and capturing rolled and plain fingerprints. It employs the same high
quality scanner utilized in the FBI-accredited TP 600 workstation and provides
all the high performance imaging features required by law enforcement
applications. The unit is contained in a small table-top housing with an
integral keyboard for data entry and a single high contrast LCD display, thus
providing forensic quality imaging for the civil marketplace at a lower cost.

   TouchPrint 600 Card Scan System. The TouchPrint 600 Card Scan System
provides digitization of inked fingerprint images that were originally recorded
on 10-print card stock. The TouchPrint 600 Card Scan System is designed to be
used primarily by lower volume booking sites that want to participate in an
electronic fingerprint identification network. The TouchPrint Card Scan System
has a flat-bed scanner on which the user places the inked fingerprint card. The
system checks for lateral and angular misalignment of the card, digitizes the
complete card, applies automatic contrast equalization and extracts the digital
image of each individual fingerprint on the card. The digitized fingerprint
record can be forwarded by mail or electronically for identification processing
by the FBI, or a local or state AFIS or for archive at a records repository.

   TouchPrint 600 Palm Scanner. The TouchPrint 600 Palm Scanner is an inkless
live-scan system that electronically captures high quality palm images for
forensic matching. The TouchPrint 600 Palm Scanner can be integrated with
existing TouchPrint 600 live-scan networks. The palm images can be transmitted
to identification bureaus for examination using existing TouchPrint 600
communication software and printed using existing TouchPrint 600 printing
systems with upgrade.

   TouchPrint 600 Store & Forward System. The TouchPrint 600 Store & Forward
System located at central processing sites manage the flow of electronic
fingerprint records from a network of TouchPrint live-scan systems. The high-
performance, multi-function Store & Forward platform simultaneously supports
record receiving, interactive record editing, selective record transmitting and
record printing on locally attached printers.

   TouchPrint 600 Print Server. TouchPrint 600 Print Servers provide automated
receipt and printing of live-scan fingerprint records at remote or central
facilities. High-capacity record storage options ensure uninterrupted record
flow during peak load periods.

   Single Fingerprint Imagers. TouchView II, DFR90 and DFR98 are specifically
designed to capture and display a high-resolution video fingerprint image on a
customer-supplied workstation. These products are designed to be used primarily
by system integrators as optical fingerprint capture devices which supply
fingerprint images to a frame grabber that digitizes the image for computerized
fingerprint database systems for identification matching. The Company's single-
finger print imagers are incorporated by OEMs into turnkey systems and are used
for civilian applications in welfare fraud prevention, immigration and border
control, and motor vehicle licensing.

   DocuColor. The DocuColor mugshot and image file management system is an
image management system that provides the capability to create an "electronic
file folder" containing color video images, document images, fingerprints,
forms and digitized data. The system provides compact storage and easy
retrieval of a large volume of criminal justice information such that a user
can, by querying the system and utilizing certain physical characteristics of a
suspect, produce from a search of thousands of suspect records a photo line-up
for comparison. The system operates on a personal computer workstation. A
digital video camera is used for capturing color photographs and a high
resolution scanner is used to digitize documents to store in

                                       8
<PAGE>

an electronic file folder. A high-capacity relational database is used to index
and store information and images. Images and data from the electronic file
folders can be displayed on high resolution monitors or printed on black and
white or color printers. The DocuColor system provides networking capabilities
to allow multiple users access to a central database and image storage system.

ANADAC Services

   The Company provides information technology, engineering and management
consulting services to private and public sector clients through ANADAC, which
is headquartered in Arlington, Virginia. 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. ANADAC provides these services through business units
organized around the following areas:

   Information Technology Services. ANADAC's Information Technology
organizations provide business process analysis and business process
engineering as well as system design, development, integration and
implementation services to automate a client's workflow thereby improving
operational efficiency and solving business problems. The IT solutions
incorporate a variety of technologies such as digital imaging, biometric
imaging, networking, relational database development and management,
telecommunications and integration of nonhomogeneous software and hardware into
a single homogeneous environment.

   The IT organization focuses on providing acquisition, design, development
and integration support for imaging systems in a variety of different
applications ranging from law enforcement to office and business applications
to automated storage and retrieval. The IT organization utilizes the Company's
DocuColor image file management system to provide customers a file management
system that allows users to capture, catalog, index, store and retrieve data,
digital video images and document images using a file folder paradigm. The
IT organization also develops and implements biometric solutions using the
Company's products. For example, the IT organization has been a systems
integrator for the Maryland Department of Public Safety and Cook County
Sheriff's Department whereby they integrated the Company's TouchPrint 600 live-
scan system, the Company's DocuColor mugshot and file management system and the
customers' criminal justice information systems. The IT organization also
designs and implements other imaging systems using "off-the-shelf" or
commercially available products that satisfy its clients' requirements.

   The IT organization has a Federal Supply Schedule (FSS) through the General
Services Administration ("GSA") which provides computerized catalog for federal
and state agencies to easily procure order equipment and services. Through the
GSA FSS program, ANADAC streamlines the acquisition process and allows federal
and state agencies to procure Identix equipment in an expedient matter.
Originally the IT organization implemented the GSA FSS program for internal
use; now however, the IT organization allows third parties for a fee to sell
through the Company's GSA contract. The current contract has a 5 year base
period of performance and a 5 year follow-on option.

   Defense Sciences. ANADAC's Defense Science organizations are leaders in
assisting clients manage complex programs with a wide variety of skills and
tools to support the planning, systems engineering, designing, scheduling, and
monitoring weapon systems for National Defense purposes. Their professionals
provide detailed analysis of process and procedures for tactical and non-
tactical systems. They assist in optimizing the allocation of scarce resources
and work closely with design engineers to achieve the optimum balance between
capability, supportability, and system costing. In September 1995, ANADAC's
Defense Sciences was awarded a contract for program management engineering
services by the Naval Sea Systems Command in support of the AEGIS Combat
Shipbuilding Program. The contract generated approximately $7 million per year
in revenue in the past four years, and is estimated to have a total contract
value of approximately $38 million.

   Facilities Services. ANADAC's Facilities Services assist large property
owners deal with many complex technical issues in the areas of facilities
design, engineering, cost estimating, project management, tenant

                                       9
<PAGE>

coordination, and move services. Their staff of facilities professionals
include engineers, as well as technicians skilled and experienced as owner
representatives in all aspects of facility management design, construction,
renovation, and maintenance. They work on behalf of clients to ensure that
their projects are completed successfully, on-time and within budget. An
example contract includes functioning as the construction manager for GSA's 10-
year renovation of the White House and Executive Office buildings.

   Legislative Demographic Services, Inc. ANADAC's wholly owned subsidiary
Legislative Demographic Services, Inc. provides demographic data information
and services principally to Fortune 500 companies, major associations, and
industries for use in lobbying Federal and state legislatures. The product line
matches customer data files and produces demographic data information by
politician to include, their committees, positions on issues and individual
voting records. This process allows customers to analyze politician's views,
and then mobilize employees, suppliers and/or members in an attempt to
influence political positions. Most recently, it's been used to analyze
potential political impacts on mergers, acquisitions, and industrial plant
closings.

   A substantial portion of ANADAC's business comes from government agencies,
which subjects the business to certain additional risks.

Fingerprinting Services

   Certain employers, including federal or state government agencies, child
care, securities and gaming licensing agencies require a background check,
including a fingerprint check, as a condition of employment. Usually, an
applicant is required to go to a police station for ink fingerprinting and then
submit the fingerprint card to the employer for submission to the state
authorities or the FBI to perform a background investigation. If the
fingerprint card is rejected, an applicant then must go through the process
again.

   The need for reliable and convenient fingerprint capture for diverse
applications has given rise to the fingerprinting business. In September 1997,
the Company entered into a joint venture agreement with Sylvan for the purpose
of providing fingerprinting services for a variety of civilian applications.
The joint venture (Sylvan/Identix Fingerprinting Centers LLC) currently has
more than fifty fingerprinting locations around the country. Its customers
include state agencies and school districts in Illinois and California, two
major airlines, the American Banking Association and the National Association
of Securities Dealers. Fingerprinting services are provided on a contract basis
using Identix live-scan systems and the joint venture earns fees for each user
of the services.


   The fingerprint services business provides the applicant and employer with
the following advantages: fingerprinting takes place in a non-police
environment; background checks can be completed more quickly allowing the
applicant to begin work sooner; re-submissions can be done automatically; the
rejection of cards because of poor print quality is virtually eliminated; and
employers may not be subject to the unnecessary risk of discovering that an
employee who has begun work may have a criminal record.

Product Development

   The Company continues to invest in research, development and engineering to
enhance the performance and functionality, and in certain cases reduce the
costs, of its existing products as well as to increase the breadth of the
Company's product offerings. The Company's expenditures for research,
development and engineering totaled $6,011,000, $4,572,000 and $2,754,000 in
the fiscal years ended June 30, 1999, 1998 and 1997, respectively.

   The Company's development programs have recently focused on: the next
generation Biometric Security devices which are being developed to be smaller,
faster, more reliable and cost effective than currently

                                       10
<PAGE>

available devices; Biometric Security end user software applications; the next
generation Biometric Imaging products; and enhancement of the Company's current
live-scan products.

Sales, Marketing and Support

   The Company markets its Biometric Security physical access products and
Biometric Imaging product lines directly to end users through its internal
sales force, and indirectly through authorized representatives, dealers,
distributors, VARs, system integrators and OEMs. The Biometric Security I.T.
products are marketed through a highly leveraged distribution model via OEMs
such as Compaq, KeyTronics, UNISYS, Cherry Electronics and SCM Microsystems,
and distribution for E-commerce through Internet suppliers. The Company's sales
organization is divided into four regions: North America; Asia Pacific; Latin
America; Europe, Middle East and Africa.

   Biometric Security Products. The Company's Biometric Security products are
sold through a worldwide network of direct sales personnel, distributors,
systems integrators, VARs and OEMs. Sales activity is concentrated in the
markets of enterprise network security, banking (financial transactions), time-
and-attendance, access control and government (personal verification). The
Company has sales, service and product marketing in most regional sales offices
to provide the customers with complete sales and maintenance support.

   Sales activity varies widely from single identification devices sold by
internet fulfillment houses to complex, networked solutions sold by system
integrators, such as PC network security, financial transaction authorization,
time-and-attendance and building access. The success of these sales depends on
the Company's ability to provide integrated solutions that are usually software
based and providing software developer kits. The majority of the service and
support activities relate to these software and integration issues.

   Biometric Imaging Products. The Company's Biometric Imaging products are
marketed domestically and internationally primarily through a direct sales
force and sales representatives. Identix also teams with two major AFIS
vendors, NEC and Sagem Morpho, to provide TouchPrint 600 systems or OEM
versions of those systems for law enforcement applications. In addition, the
Company works closely with skilled system integrators for civil and commercial
applications of its Biometric Imaging technology. The Company develops
proposals, either directly or in cooperation with its partners, and is often
directly involved in negotiating the contract terms.

   The Company's TouchPrint 600 live-scan system is generally sold through a
competitive bid process based on a competitive tender. Funding for these
projects often comes from federal, state and local agencies. The funding,
proposal, contract negotiation and implementation process can extend over
several months or years, although for existing customers that are adding to or
upgrading their systems, the sales cycle is considerably shorter and these
sales often are not required to go through the bid process.

   Product Support. Installation and maintenance support comes from the
Company's 24 hour/7 days per week TouchCare support center, regional technical
staffs as well as the Company's engineering staff. This support generally
includes travel to the customer site to explain the technical operation of the
system, clarify the configurations, detail any necessary software customization
and define the integration issues. The systems are then installed and supported
by the TouchCare support center, regional staffs and the Identix trained system
integrators, VARs or partners. The Company provides ongoing training at its
Sunnyvale, California facility for customers and distributors, as well as
providing on-site training for customers.

   The Company's Biometric Imaging products carry a 90-day warranty and
extended service and warranty are offered through a choice of maintenance
contracts. The Company's Biometric Security products carry between a 90-day to
a one year warranty and additional support is available for a fee after the
expiration of the warranty period. For equipment produced by other companies,
the Company passes on to its customers the standard warranties provided by
those manufacturers. Service centers are located in California, Michigan,
Virginia, Australia, Britain and Switzerland.

                                       11
<PAGE>

   ANADAC Services. ANADAC markets its services directly to United States
government agencies, including the DOD, and to commercial entities.

Backlog

   Product sales are generally made pursuant to purchase orders, which are
subject to cancellation. The Company typically ships its products within sixty
days of receipt of an order. For its government services business, amounts in
backlog are often not funded and, even if they are funded, are subject to
cancellation by the contracting agency. Accordingly, the Company believes that
backlog at any given time cannot be considered a meaningful indicator of future
financial performance.

   Identix had product backlog of $3,354,000 on June 30, 1999, all of which is
scheduled to be shipped and recognized as revenue in fiscal 2000. Identix had
product backlog of $4,865,000 on June 30, 1998 and $2,558,000 on June 30, 1997.

   ANADAC had services backlog of $121,684,000 on June 30, 1999, of which
$25,200,000 is scheduled to be provided and recognized as revenue in fiscal
2000. ANADAC had services backlog of $139,316,000 on June 30, 1998 and
$44,450,000 on June 30, 1997.

Patents and Trade Secrets

   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 that technology.

   The Company holds the following patents:

  .  one U.S. patent expiring in 2004 and ten foreign patents on one version
     of the Company's optical fingerprint reading device;

  .  one U.S. patent expiring in 2008 and six foreign patents on a
     fingerprint analysis algorithm;

  .  one U.S. patent expiring in 2013 covering an enhanced method of
     recording a fingerprint;

  .  one U.S. patent expiring in 2014 and two foreign patents on the
     Company's curved platen design palm scanner;

  .  one U.S. patent expiring in 2014 covering a system for obtaining a plain
     image of multiple fingerprints;

  .  one U.S. patent expiring in 2015 covering a version of the Company's
     optical fingerprint reading device including a heated optical platen;

  .  one U.S. patent expiring in 2015 covering a system for electronically
     acquiring fingerprint images;

  .  one U.S. patent expiring in 2016 covering a system for reducing smear in
     rolled fingerprint capture;

  .  one U.S. patent expiring in 2016 covering a method for enhancing live-
     scan fingerprint reader images.

   The Company also holds eight U.S. trademarks for its biometric security I.T.
products.

   Identix has an ongoing policy of filing patent and trademark applications to
seek protection for novel features of its products and currently has seven
patent applications pending in the United States and seven in foreign
countries, and twenty-one trademark applications pending in the United States.
There is a risk that claims allowed on any patents held by the Company may not
be broad enough to protect the Company's technology. In

                                       12
<PAGE>

addition, the Company's patents or trademarks may be challenged, invalidated or
circumvented and Identix cannot be certain that the rights granted thereunder
will provide competitive advantages to the Company. The loss of patent or
trademark protection on the Company's technology or the circumvention of its
patent or trademark protection by competitors could have a material adverse
effect on the Company's ability to compete successfully in its products
business. The Company cannot be certain that any existing or future patent or
trademark applications by the Company will result in issued patents or
trademarks with the scope of the claims sought by the Company, or at all.
Morever, any current or future issued or licensed patents may not afford
sufficient protection against competitors with similar technologies or
processes, and the possibility exists that already issued patents may infringe
upon or be designed around by others. In addition, there is a risk that others
will independently develop proprietary technologies and processes which are the
same as or substantially equivalent or superior to those of the Company. There
is a risk that the Company has infringed, or will in the future infringe,
patents or trademarks owned by others, that the Company will need to acquire
licenses under patents or trademarks belonging to others for technology
potentially useful or necessary to the Company, and that such licenses will not
be available to the Company, on acceptable terms, if at all.

   The Company may have to litigate to enforce our patents or trademarks or to
determine the scope and validity of other parties' proprietary rights.
Litigation could be costly and divert management's attention. An adverse
outcome in any litigation may have a severe negative impact on our financial
results and stock price. To determine the priority of inventions, we may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office or oppositions in foreign patent and trademark offices,
which could result in substantial cost to us and limitations on the scope or
validity of our patents or trademarks.

   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 is a risk that these agreements may
be breached, and that remedies available to the Company will not be adequate.
In addition, the Company's trade secrets and proprietary know-how may otherwise
become known or be independently discovered by others.

Competition

   The markets for Biometric Security and Biometric 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 the customers and frequent introductions of new features.
The Company expects competition to increase as other companies introduce
products that are competitively priced, that may have increased performance or
functionality or that incorporate technological advances not yet developed or
implemented by the Company. Some of the Company's present and potential
competitors have financial, marketing and research resources substantially
greater than those of the Company. In order to compete effectively in this
environment, the Company must continually develop and market new and enhanced
products at competitive prices, and have the resources to invest in its
significent research and development activities. There is a risk that the
Company may not be able to make the technological advances necessary to compete
successfully in its products business. 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. The Company's competitors
may develop new technologies or enhancements to existing products or introduce
new products that will offer superior price or performance features. New
products or technologies may render the Company's products obsolete.

   A significant number of established and startup companies are developing and
marketing software and hardware for fingerprint Biometric Security applications
that could compete directly with the Company's Biometric Security products.
Some of these companies are developing semiconductor or optically-based direct
contact fingerprint image capture devices. Other companies are developing and
marketing other methods of biometric identification such as retinal blood
vessel or iris pattern, hand geometry, voice and facial structure. If one or
more of these approaches were widely adopted, it would significantly reduce the
potential market for the Company's products. The Company's Biometric Security
products also compete with non-biometric technologies such as traditional key,
card and surveillance systems and passwords.

                                       13
<PAGE>

   The Company believes that the most important competitive factors for
Biometric Security products are the degree of security provided, ease of use,
functionality, price and reliability. In applications such as controlled access
to computers, ATMs and electronic funds transfer, the Company faces competition
from technologies relying on PIN numbers or passwords. In competing with these
non-biometric products, the Company believes that the most important
competitive issue is the trade-off between the additional security provided by
positive personal identification and the higher price. However, the replacement
of computer passwords by the Company's Biometric Security Information
Technology ("I.T.") products is a very cost effective solution. In some
instances, however, products using non-biometric technologies may be
complementary to, rather than competitive with, the Company's Biometric
Security products. For example, card key systems can be integrated with
Biometric Security systems to supply different levels of security within a
facility.

   The Company believes that the most important competitive factors for the
Biometric Imaging products are the quality of fingerprint images, the
capability to work within large criminal history networks, ease of use, price
and reliability. Identix's Biometric Imaging products face competition from a
number of competitors who are actively engaged in developing and marketing live
scan products, including Digital Biometrics, Inc., Heimann Biometric Systems
GmbH and Printrak International, Inc.

   In its Government Services business, the Company faces substantial
competition from professional service providers and systems integrators of all
sizes in the government marketplace. ANADAC is increasingly being required to
bid on firm fixed price 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, it may lose its ability to compete
successfully in the services business.

Manufacturing

   The Company limits its manufacturing activities to the assembly, repair and
testing of proprietary subassemblies. Printed circuit board and other
mechanical and optical assemblies assemblies are fabricated by highly
automated, ISO certified, contract manufacturing partners. The Company believes
this will permit rapid expansion of production capacity to meet any significant
increase in product demand and minimize the cost associated with the expansion
of internal manufacturing. The Company believes that the cost of material and
fabricated subassemblies will decline if manufacturing volumes increase.
Quality control audits are performed as part of the manufacturing process. The
Biometric Security information technology products are fully outsourced to
contract partners.

   The Company currently uses certain components and sub-assemblies which are
sole sourced, the most important of which are the charge coupled and CMOS
imaging devices, ASICs for the Biometric Security products and proprietary
optical coatings for the Biometric Imaging products. The partial or complete
loss of supplies available from sole or limited sources of supply or the delay
in receiving supplies from these sources could result in delays in
manufacturing and shipping of products to customers and require the incurrence
of development and other costs to establish alternative sources of supply.
While the Company attempts to maintain inventory on sole sourced components, it
may take the Company several months to locate alternative supplies if required,
or redesign its products to accommodate components from different suppliers. If
the Company is required to seek alternative suppliers, the Company may not 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 on a timely basis in sufficient quantities or of sufficient quality
or any significant increase in the price from existing or alternative suppliers
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Employees

   As of September 1, 1999, Identix had 147 employees working in its products
business, of whom 31 were engaged in research, development and engineering, 20
in production and production support, 68 in sales,

                                       14
<PAGE>

marketing and field service and 28 in general administration and finance. As of
September 1, 1999, Identix had 234 employees working in its services business,
of whom 206 were service providers, 8 were engaged in sales and marketing and
20 were engaged in general administration and finance. None of Identix's
employees is represented by a union and Identix has never experienced a work
stoppage. Management considers its employee relations to be good.

Financial Information about Segments

   For the financial information about the Company's operating segments, see
Note 9 to the Consolidated Financial Statements.

                                  RISK FACTORS

   The Company's 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 anticipated results or from
those expressed in any forward-looking statements made by the Company in this
Annual Report on Form 10-K or in other reports, press releases or other
statements issued from time to time.

All of our product revenues are derived from the sale of biometric products and
our business will not grow unless the market for biometric products expands
both domestically and internationally.

   Biometric products have not gained widespread commercial acceptance. We
cannot accurately predict the future growth rate, if any, or the ultimate size
of the biometric technology market. The expansion of the market for our
products depends on a number of factors including:

  .  the cost, performance and reliability of our products and products of
     competitors

  .  customers' perception of the perceived benefit of these products

  .  public perceptions of the intrusiveness of these products and the manner
     in which firms are using the fingerprint information collected

  .  public perceptions regarding the confidentiality of private information

  .  customers' satisfaction with our products

  .  marketing efforts and publicity regarding these products.

   Certain groups have publicly objected to the use of biometric products for
some applications on civil liberties grounds and legislation has been proposed
to regulate the use of biometric security products. Even if biometric markets
develop, our products may not gain wide market acceptance.

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

   A significant number of established and startup companies are developing and
marketing software and hardware for fingerprint biometric security applications
that do or will compete directly with our biometric security products. Some of
these companies are developing semiconductor or optically based direct contact
fingerprint image capture devices. Other companies are developing and marketing
other methods of biometric identification such as retinal blood vessel or iris
pattern, hand geometry, voice and facial structure. If one or more of these
approaches were widely adopted, it would significantly reduce the potential
market for our products.

   Our biometric security products also compete with non-biometric technologies
such as traditional key, card, surveillance systems and passwords.

                                       15
<PAGE>

   Our biometric imaging products face intense competition from a number of
competitors who are actively engaged in developing and marketing livescan
products, including Digital Biometrics, Inc., Heimann Biometric Systems GmbH
and Printrak International Inc.

   We expect competition to increase as other companies introduce products that
are competitively priced, that may have increased performance or functionality
or that incorporate technological advances not yet developed or implemented by
us. Some present and potential competitors have financial, marketing and
research resources substantially greater than ours. In order to compete
effectively in this environment, we must continually develop and market new and
enhanced products at competitive prices and must have the resources available
to invest in significant research and development activities.

In our services business, we face substantial competition from professional
services providers of all sizes in the government marketplace.

   ANADAC is increasingly being required to bid on firm fixed price 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 highly qualified personnel or align with technology leaders, we
may lose our ability to compete successfully in the services business.

The biometrics industry is characterized by rapid technological change and
evolving industry standards, which could render existing products obsolete.

   Our future success will depend upon our ability to develop and introduce a
variety of new products and product enhancements to address the changing,
sophisticated needs of the marketplace. Material delays in introducing new
products and enhancements or the failure to offer innovative products at
competitive prices may cause customers to forego purchases of our products and
purchase those of our competitors.

Our revenues and operating results often vary significantly from quarter to
quarter and may be negatively affected by a number of factors, including the
timing of large orders.

   Usually, most of our revenues in a quarter come from a small number of large
orders. Accordingly, revenues in a particular quarter depend on the timing and
size of major orders. The following are some other reasons why our financial
results may fluctuate from quarter to quarter:

  .  reduced demand for products caused by a competitor's price reductions or
     introduction of new or enhanced products

  .  changes in the mix of products and services we or our distributors sell

  .  cancellation, delays or contract amendments by government agency
     customers

  .  litigation costs

  .  expenses related to acquisitions

  .  other one-time financial charges

  .  the lack of availability or increase in cost of key components

  .  economic downturns domestically or internationally.

   We also may reduce prices or increase spending in response to competition or
to pursue new market opportunities.

   Our products often have a lengthy sales cycle while the customer evaluates
and receives approvals for purchase. If after expending significant funds and
effort we fail to receive an order, a severe negative impact on our financial
results and stock price could result. It is difficult to predict accurately the
sales cycle of any large

                                       16
<PAGE>

order. If we do not ship one or more large orders as forecasted for a fiscal
quarter, our total revenues and operating results for that quarter could be
materially and adversely affected.

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

We derive a majority of our revenue from government contracts, which are often
non-standard, involve competitive bidding and may be subject to cancellation
without penalty.

   Government contracts frequently include provisions that are not standard in
private commercial transactions. For example, government contracts may include
bonding requirements and provisions permitting the purchasing agency to cancel
the contract without penalty in certain circumstances. As public agencies, our
prospective customers are also subject to public agency contract requirements
that vary from jurisdiction to jurisdiction. Some of these requirements may be
onerous or impossible to satisfy.

   In addition, public agency contracts are frequently awarded only after
formal competitive bidding processes, which have been and may continue to be
protracted, and typically impose provisions that permit cancellation in the
event that funds are unavailable to the public agency. There is a risk that we
may not be awarded any of the contracts for which our products are bid or, if
awarded, that substantial delays or cancellations of purchases may follow as a
result of protests initiated by losing bidders. In addition, local government
agency contracts may be contingent upon availability of matching funds from
state or federal entities.

   During fiscal 1999, we derived approximately 90% of our services revenue
directly from contracts relating to the Department of Defense and other U.S.
Government agencies. The loss of a material government contract due to budget
cuts or otherwise could have a severe negative impact on our financial results
and stock price.

   During fiscal 1999, we derived approximately 83% of our services revenue
from time and materials contracts and firm-fixed-price contracts. We assume
certain performance risk on these contracts. If we fail to estimate accurately
ultimate costs or to control costs during performance of the work, our profit
margins may be reduced and we may suffer losses. In addition, revenues
generated from government contracts are subject to audit and subsequent
adjustment by negotiation with representatives of the government agencies. The
Defense Contract Audit Agency is in the process of auditing ANADAC for the
period from July 1, 1995 to June 30, 1997. While the Company believes that the
results of such audit will have no material effect on the Company's profits,
there can be no assurance that no adjustments will be made and that, if made,
such adjustments will not have a material effect on the Company's business,
financial condition and results of operation.

We rely on marketing partners to distribute our products and may be adversely
affected if those parties do not actively promote our products or pursue
installations that use our equipment.

   A significant portion of our product revenues comes from sales to marketing
partners including OEMs, systems integrators, distributors and resellers. Some
of these relationships are formalized in agreements; however, the agreements
are often terminable with little or no notice and subject to periodic
amendment. We cannot control the amount and timing of resources that our
marketing partners devote to activities on our behalf.

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

                                       17
<PAGE>

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

   We obtain certain components and complete products from a single source or a
limited group of suppliers. We do not have long-term agreements with any of our
suppliers. We will experience delays in manufacturing and shipping of products
to customers if we lose these sources or if supplies from these sources are
delayed.

   As a result, we may be required to incur additional development and other
costs to establish alternative sources of supply. It may take several months to
locate alternative suppliers, if required, or to re-tool our products to
accommodate components from different suppliers. We cannot predict if we will
be able to obtain replacement components within the time frames we require at
an affordable cost, or at all. Any delays resulting from suppliers failing to
deliver components on a timely basis in sufficient quantities and of sufficient
quality or any significant increase in the price of components from existing or
alternative suppliers could have a severe negative impact on our financial
results and stock price.

We depend on products and services provided by International Technology
Concepts, Inc.

   Our Biometric Security Division, Information Technology purchases certain
complete biometric security I.T. products, components of I.T. products and
engineering services related to the development of products from International
Technology Concepts. If we were to lose International Technology Concepts as a
supplier of these products and engineering services, we would be required to
find alternative suppliers for the products and services or hire additional
engineering personnel to provide the services, which could delay shipment of
products to customers and the development of new technology and products. There
is a risk that we would not be able to find such personnel or suppliers at a
reasonable cost, or at all. Any delay in product development or shipment may
have a material adverse effect on our financial results and stock price.

The success of our strategic plan to pursue sales in international markets may
be limited by risks related to international trade and marketing.

   During fiscal 1999, we derived 12% of our product revenues from
international sales. We currently have offices in Australia, Singapore, Brazil,
Britain and Switzerland. There is a risk that we may not be able to market,
sell and deliver our products in foreign countries. Our product revenues
attributable to international sales declined by 33% in fiscal 1999 from fiscal
1998, mainly due to a decline in sales resulting from economic instability in
Asia.

   In addition to the uncertainty as to our ability to maintain and expand our
international presence, there are certain risks inherent in foreign operations,
including:

  .  regional economic conditions

  .  delays in or prohibitions on exporting products resulting from export
     restrictions for certain products and technologies, including "crime
     control" products and encryption technology

  .  fluctuations in foreign currencies and the U.S. dollar

  .  loss of revenue, property and equipment from expropriation,
     nationalization, war, insurrection, terrorism and other political risks

  .  the overlap of different tax structures

  .  seasonal reductions in business activity

  .  risks of increases in taxes and other government fees

  .  involuntary renegotiation of contracts with foreign governments.

   In addition, foreign laws treat the protection of proprietary rights
differently from laws in the United States and may not protect our proprietary
rights to the same extent as U.S. laws.


                                       18
<PAGE>

We may need to raise additional debt or equity financing in the next twelve
months.

   As of June 30, 1999, we had $15,713,000 in working capital, which included
$3,013,000 in cash and cash equivalents. In addition, we had $2,760,000
available under our bank line of credit, which expires in December 1999. ANADAC
had $4,760,000 available under its bank line of credit, which expires in March
2000. In early July 1999, the Company raised cash of $15,000,000 through a
private placement of its common stock. However, we may need to raise additional
debt or equity financing in the next 12 months if current sources of capital
are not sufficient to finance our operations or if our lines of credit are not
renewed or if we fail to obtain a waiver of any covenant breaches under our
lines of credit. During fiscal 1999, the Company defaulted on two covenants in
the bank line of credit, for which the Company obtained waivers of default from
the bank. We may not be able to obtain additional equity or debt financing on
terms that are not excessively dilutive to existing stockholders or more costly
than existing sources of debt financing.

One stockholder owns a significant portion of our stock and may delay or
prevent a change in control or adversely affect the stock price through sales
in the open market.

   As of September 1, 1999, Ascom USA, Inc. beneficially owned approximately
15% of our outstanding common stock. This concentration of ownership may delay
or prevent a change in control of the Company. Ascom deposited all of its
shares into a voting trust that expires in 2004. Ascom has preemptive rights
with respect to issuances of Identix securities and registration rights with
respect to the securities it holds. In May 1999, the Company filed a
registration statement covering the resale of 1,700,000 shares by Ascom. If
Ascom sells a significant number of our shares in the open market pursuant to
the registration statement or otherwise, our common stock price may be
adversely affected. In addition, we may not be able to obtain additional
financing on favorable terms in the future because of Ascom's preemptive rights
and registration rights.

We may experience unanticipated expenses and other problems related to Year
2000 issues.

   Year 2000 problems are 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. We have a program for evaluating and addressing risks related to
the Year 2000 that is described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Year 2000 problem is
pervasive and complex and there is a risk that we have not identified all of
the Year 2000 issues that may affect us or that our remedial efforts do not
adequately address identified Year 2000 problems. Our products are used in
systems that perform a number of critical functions. For example, the biometric
security products are used to verify individual identity in a number of high-
risk situations such as prisons and airports. The biometric security products
are also used to protect computer data and to verify commercial transactions,
such as the authorization of money transfers by bank personnel. Further,
biometric imaging products are used in law enforcement to automate the booking
process and used to screen applicants for various public programs. Although we
believe that we should not have liability for a system failure relating to the
Year 2000, any failure in these or other critical applications could
potentially require us to expend substantial resources to assist in remediating
the failure or result in litigation to ascertain liability or recover costs.

Our products are complex and may contain undetected or unresolved defects when
sold or may not meet customer's performance criteria.

   Performance failure may cause loss of market share, delay in or loss of
market acceptance, additional warranty expense or product recall. The negative
effects of any failure could be exacerbated if the failure occurred in products
that provide personal security, secure sensitive computer data, authorize
significant financial transactions or perform other functions where a security
breach could have significant consequences.

   If a product fails to meet performance criteria, we may delay recognizing
revenue associated with a product and face higher operating expenses during the
period required to correct the defects. There is a risk that for unforeseen
reasons we may be required to repair or replace a substantial number of
products in use or to

                                       19
<PAGE>

reimburse customers for products that fail to work or meet strict performance
criteria. We carry product liability insurance, but existing coverage may not
be adequate to cover potential claims.

Failure by us to maintain the proprietary nature of our technology, products
and manufacturing processes would negatively impact our ability to compete
effectively.

   We principally rely upon patent, copyright, trade secret and contract law to
establish and protect our proprietary rights. There is a risk that claims
allowed on any patents or trademarks we hold may not be broad enough to protect
our technology. In addition, our patents or trademarks may be challenged,
invalidated or circumvented and we cannot be certain that the rights granted
thereunder will provide competitive advantages to us. Moreover, any current or
future issued or licensed patents, trade secrets or know-how may not afford
sufficient protection against competitors with similar technologies or
processes, and the possibility exists that already issued patents or trademarks
may infringe upon or be designed around by others. In addition, there is a risk
that others may independently develop proprietary technologies and processes,
which are the same as, substantially equivalent or superior to ours.

   There is a risk that we have infringed or in the future will infringe
patents or trademarks owned by others, that we will need to acquire licenses
under patents or trademarks belonging to others for technology potentially
useful or necessary to us, and that licenses will not be available to us on
acceptable terms, if at all.

   We may have to litigate to enforce our patents or trademarks or to determine
the scope and validity of other parties' proprietary rights. Litigation could
be costly and divert management's attention. An adverse outcome in any
litigation may have a severe negative impact on our financial results and stock
price. To determine the priority of inventions, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office or oppositions in foreign patent and trademark offices, which could
result in substantial cost to us and limitations on the scope or validity of
our patents or trademarks.

   We also rely on trade secrets and proprietary know-how, which we seek to
protect by confidentiality agreements with our employees, consultants, service
providers and third parties. There is a risk that these agreements may be
breached, and that the remedies available to us may not be adequate. In
addition, our trade secrets and proprietary know-how may otherwise become known
to or be independently discovered by others.

If we fail to adequately manage growth of our business, it could have a severe
negative impact on our financial results or stock price.

   We have experienced significant growth in past years and believe that in
order to be successful we must grow rapidly. In order to do so, we must expand,
train and manage our 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. In addition, we
will be required to implement and improve operational, financial and management
information procedures and controls. The management skills and systems
currently in place may not be adequate and we may not be able to manage any
significant growth we experience effectively.

We may encounter difficulties in acquiring and effectively integrating
complementary assets and businesses.

   As part of our business strategy, we intend to acquire assets and businesses
principally relating to or complementary to our current operations. We acquired
Identicator Technology in fiscal 1999, one company in fiscal 1998 and two
companies in fiscal 1996. These and any other acquisitions by Identix will be
accompanied by the risks commonly encountered in acquisitions of companies.
These risks include, among other things:

  .  potential exposure to unknown liabilities of acquired companies

  .  higher than anticipated acquisition costs and expenses

                                       20
<PAGE>

  .  effects of costs and expenses of acquiring and integrating new
     businesses on our operating results and financial condition

  .  the difficulty and expense of assimilating the operations and personnel
     of the companies

  .  the potential disruption of our ongoing business

  .  diversion of management time and attention

  .  failure to maximize our financial and strategic position by the
     successful incorporation of acquired technology

  .  the maintenance of uniform standards, controls, procedures and policies

  .  loss of key employees and customers as a result of changes in management

  .  the incurrence of amortization expenses

  .  possible dilution to our stockholders.

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

Loss of current senior executives and key technical, marketing and sales
personnel would adversely affect our business.

   Our personnel may voluntarily terminate their relationship with us at any
time, and competition for qualified personnel, especially engineers, and is
intense. The process of locating additional personnel with the combination of
skills and attributes required to carry out our strategy could be lengthy,
costly and disruptive. We are dependent on the services of certain key
personnel, including the following:

  .  Randall C. Fowler, Chairman, CEO and founder of Identix, has
     approximately thirty years of experience in the biometrics industry and
     is considered one of the industry's pioneers.

  .  James P. Scullion, President and Chief Financial Officer, and Daniel F.
     Maase, Vice President, Biometric Imaging Division, have a combined total
     of 20 years experience with Identix and have a substantial amount of
     acquired knowledge regarding Identix and the biometrics industry
     generally and play a major role in the execution of Identix's strategic
     plan.

  .  Oscar Pieper, Vice President, Business Development, has approximately
     thirty years of experience in the biometrics industry and is considered
     one of the industry's pioneers.

  .  Grant Evans, Vice President, Biometric Security Division, Information
     Technology, has established relationships with major companies and plays
     a central role in the company's marketing strategy.

  .  Yuri Khidekel, Vice President, Software, Biometric Security Division,
     Information Technology, and Yury Shapiro, Vice President, Hardware,
     Biometric Security Division, Information Technology, serve as key
     researchers and developers and are responsible for Identicator
     Technology's research and development activities.

If we lose the services of key personnel, it could have a severe negative
impact on our financial results and stock price.

Our business operations may be adversely affected in the event of an
earthquake.

   Our corporate headquarters and most of our research and development
operations are located in Silicon Valley in Northern California, a region known
for seismic activity. An earthquake or other significant natural disaster could
have a material adverse impact on our business, financial condition and
operating results.


                                       21
<PAGE>

Item 2. Properties

   Identix leases approximately 40,000 square feet of space in Sunnyvale,
California for manufacturing, research and administration. The monthly lease
payments are $35,000 a month plus taxes, insurance and maintenance costs and
the lease expires April 30, 2001. Sales and service offices are leased in
Sydney, Zurich, Rio de Janiero and Singapore with an aggregate net monthly
lease payment of approximately $10,000. Identix also services customers from
sales offices in California, Georgia, Virginia, Florida, Maryland and Michigan.
Identix also has small offices in Illinois primarily providing engineering
services. ANADAC leases approximately 42,000 square feet in four locations in
Virginia with aggregate monthly lease payments of $83,000, which expire at
various dates through 2001. ANADAC also services customers from offices leased
in Mississippi, Massacuchetts and Maryland. The leases contain escalation
provisions requiring rental increases for increases in operating expense and
real estate taxes. The Company believes that its facilities are adequate for
its operations for the foreseeable future.

Item 3. Legal Proceedings

   The Company is not party to any material legal proceedings.

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

   No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended June 30, 1999.

Supplemental Item. Executive Officers of the Company

   The executive officers of Identix, and their ages as of September 1, 1999,
are as follows:

<TABLE>
<CAPTION>
             Name           Age                              Position
             ----           ---                              --------
   <S>                      <C> <C>
   Randall C. Fowler.......  60 Chairman, Chief Executive Officer and Director
   James P. Scullion.......  43 President, Chief Financial Officer, Director and Secretary
   Paul J. Bulger..........  38 President and Chief Executive Officer of ANADAC, Inc.
   Daniel F. Maase.........  55 Vice President, Biometric Imaging Division
   Oscar R. Pieper.........  63 Vice President, Business Development
   Grant Evans.............  41 Vice President, Biometric Security Division, Information Technology
   William Spence..........  39 Vice President, Biometric Security Division, Physical Access
   Gary L. Cauble..........  48 Vice President, Information Systems
   John E. Bruce-Smith.....  42 Vice President, Finance & Accounting
   Michael Pearson.........  49 Vice President, Biometric Imaging Sales
   Edward Clark............  51 Vice President, Manufacturing
</TABLE>

   Randall C. Fowler is Chairman of the Board of Directors and Chief Executive
Officer of the Company, positions he has held since founding the Company in
1982. Mr. Fowler was the President of the Company from 1982 until 1998. Mr.
Fowler is a Director of Ophthalmic Imaging Systems, a position he has held
since 1998.

   James P. Scullion was appointed President of Identix in April 1999. He was
previously Executive Vice President since July 1996 and Vice President, Finance
since 1990. He has been a Director of the Company since 1998. He is Chief
Financial Officer of the Company, a position he has held since 1990. From 1986
to 1990, he was Vice President, Finance and Chief Financial Officer at
DataTrak, Inc., a manufacturer of security access systems.

   Paul J. Bulger, President and Chief Executive Officer of ANADAC joined
ANADAC in March 1994 as Corporate Vice President for Business Development until
being appointed Chief Operating Officer in June 1998. He was appointed to his
present position in January 1999. Prior to that, he was a stategic planning
consultant with W. S. Thompson Associates from March 1992 to February 1994.

                                       22
<PAGE>

   Daniel F. Maase, Vice President, Biometric Imaging Division, joined the
Company in November 1988 and served as Vice President, Engineering from
December 1988 until he was appointed to his present position in February 1998.
Prior to joining Identix he was an Operations Manager at Varian Associates, a
manufacturer of instruments and microwave power devices, medical equipment and
semiconductors, from 1987 to 1988.

   Oscar R. Pieper, Vice President, Business Development, founded Identicator
Technology in 1994 and served as President until July 1999, when he was
appointed to his present position. He is also the President of Identicator
Inc., a position he has held since founding that company in 1971.

   Grant Evans, Vice President, Bio Security Division--Information Technology,
consulted to Identicator Technology Inc. from 1997 to April 1999 and served as
Vice President Sales & Marketing of Identicator Technology, Inc. from 1997
until being appointed to his present position in July 1999. Prior to
Identicator Technology, he was Vice President of Business Development for
Logistix Inc. from 1994 to 1997.

   William J. Spence, Vice President, Biometric Security Division--Physical
Access Control, joined the Company in May 1999. Prior to joining Identix, he
worked for Recognition Systems, Inc., a leading provider of hand geometry
biometric products initially as Regional Sales Manager in 1991, and since 1995
as Vice President of Sales and Marketing.

   Gary L. Cauble, Vice President, Management Information Systems, joined the
Company in August 1995 as Vice President Manufacturing before being appointed
to his present position in April 1999. Prior to joining Identix, from 1990 to
1995, he was assistant Division Manager/Operations Manager at Bell Industries.

   John E. Bruce-Smith, Vice President, Finance & Accounting, joined Identix
Australia Pty Limited as Controller in November 1997 and served as Controller
of Identix from April 1998 through August 1998, before being appointed to his
present position in September 1998. Prior to joining Identix, he worked as a
financial project manager at Racal Telecommunications Ltd in England from
February 1997 through September 1997. Prior to that, Mr. Bruce-Smith served in
various financial capacities with AWA Limited in Sydney from 1990 through 1996,
most recently serving as Assistant Chief Financial Officer.

   Michael Pearson, Vice President, Biometric Imaging Sales, joined the Company
in October 1996 as Director, North American Sales & Marketing before being
appointed to his present position in April 1999. Prior to joining Identix, he
was with Sagem Morpho Inc. from 1988 to 1996, in various senior sales
capacities.

   Edward Clark, Vice President, Manufacturing, joined the Company in August
1998 as Director of Manufacturing Operations before being appointed to his
present position in April 1999. Prior to joining Identix, he was Manager of
Materials and DiePak Manufactiring at AEHR Test Systems, Inc. from 1996 to
1998. Prior to that, Mr. Clark was Manager of Materials and Logistics at
Nancy's Speciality Foods, Inc. from 1992 to 1995 and Director of Materials at
Greyhawk Systems, Inc. from 1986 to 1992.

                                       23
<PAGE>

                                    PART II

Item 5. Market for the Company's Common Stock and Related Stockholder Matters

   The Company's common stock is listed on the American Stock Exchange ("AMEX")
under the symbol IDX.

   The following table sets forth the range of high and low closing prices as
reported on the AMEX for the fiscal periods indicated.

<TABLE>
<CAPTION>
                                                               High      Low
                                                               ----      ---
   <S>                                                         <C>       <C>
   Fiscal year ended June 30, 1999
   Fourth Quarter............................................. 11 11/16   6 5/16
   Third Quarter.............................................. 10 1/4     5 1/2
   Second Quarter.............................................  10         5
   First Quarter..............................................  8 3/8     4 9/16
   Fiscal year ended June 30, 1998
   Fourth Quarter.............................................  8 9/16    5 5/8
   Third Quarter.............................................. 10 1/2     8 1/2
   Second Quarter............................................. 11 5/8     9 5/16
   First Quarter.............................................. 11 13/16   8 3/4
</TABLE>

   The last reported sale price of the common stock on the AMEX on September 1,
1999 was $8.0625. As of September 1, 1999, there were 1,285 stockholders of
record.

   The Company has not paid any cash dividends on its common stock during the
last five fiscal years. The Company currently intends to retain any earnings
for use in its business and does not anticipate paying any cash dividends in
the foreseeable future. In addition, the Company's bank lines of credit
restrict the Company's ability to pay dividends.

Item 6. Selected Financial Data

   The selected consolidated financial data set forth below with respect to the
Company's statements of operations data for the years ended June 30, 1999, 1998
and 1997 and with respect to the balance sheets at June 30, 1999 and 1998 are
derived from the Company's audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. Consolidated statement of
operations data for the years ended June 30, 1996 and 1995, and consolidated
balance sheet data at June 30, 1997, 1996 and 1995 have been derived from
audited consolidated financial statements of the Company not included in this
Annual Report on Form 10-K. The following selected consolidated financial data
should be read in conjunction with the consolidated financial statements for
Identix and the notes thereto appearing in Item 8 of this Annual Report on Form
10-K and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in Item 7 of this Annual Report on Form 10-K.
Historical operating results are not necessarily indicative of the results that
may be expected in any future period.

<TABLE>
<CAPTION>
                                  Fiscal year ended June 30,
                         ----------------------------------------------------
                           1999         1998     1997     1996         1995
                         --------     -------- -------- --------     --------
                            (in thousands, except per share data)
<S>                      <C>          <C>      <C>      <C>          <C>
Statement of Operations
 Data:
Revenues................ $ 81,762     $ 79,374 $ 52,543 $ 38,541     $ 27,014
Net income (loss).......  (13,419)(1)      768      518   (3,441)(2)     (715)
Net income (loss) per
 share:
  Basic.................    (0.52)        0.03     0.02    (0.15)       (0.04)
  Diluted...............    (0.52)        0.03     0.02    (0.15)       (0.04)
Share used in computing
 net income (loss) per
 share:
  Basic.................   25,932       25,104   24,817   23,485       19,371
  Diluted (3)...........   25,932       25,669   25,586   23,485       19,371
</TABLE>

                                       24
<PAGE>

<TABLE>
<S>                                          <C>    <C>    <C>    <C>    <C>
Balance Sheet Data:
Cash and cash equivalents................... $3,013 $  753 $2,510 $  981 $3,842
Working capital............................. 15,713 18,153 15,477 14,914  9,571
Total assets................................ 71,446 42,012 32,440 27,107 18,104
Long-term debt and convertible debt.........    --     --     --     127    --
Shareholders' equity........................ 51,589 22,910 20,898 19,472 12,274
</TABLE>
--------
(1) Includes a $10,044,000 write-off of acquired in-process research and
    development and a reorganization charge of $1,648,000 related to the
    acquisition of Identicator Technology, Inc.
(2) Includes a $4,723,000 write-off of acquired in-process research and
    development related to the acquisition of Fingerscan Pty Ltd.
(3) See Note 1 to the Consolidated Financial Statements for an explanation of
    net income (loss) per share.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward-looking Statements

   The statements in this Annual Report on Form 10-K 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" in Item 1 and the other
risks identified in this Annual Report on Form 10-K. The Company undertakes no
obligation to publicly update these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Overview

   Identix designs, develops, manufactures and markets two categories of
products for security, anti-fraud, law enforcement and other applications: (i)
Biometric Security products that verify the identity of an individual through
the unique biological characteristics of a fingerprint and (ii) Biometric
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 Biometric Applications and
Technology, Inc. ("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. The Company's fiscal
1997 consolidated financial statements include the accounts and operations of
BA&T. See Note 2 of Notes to Consolidated Financial Statements.

   On September 30, 1997, the Company entered into a joint venture agreement
with Sylvan Learning Systems, Inc. for the purpose of providing fingerprinting
services through Sylvan's testing centers nationwide. As of October 1, 1997,
the business of IAS has been conducted through the joint venture,
Sylvan/Identix Fingerprinting Centers, LLC ("SIFC").

   In February 1998, the Company implemented a restructuring of the Biometric
Security Division. Management of the Division was transferred from Fingerscan
Pty Ltd ("Fingerscan") in Australia to Identix. The following functions were
transferred to personnel employed in the U.S. by Identix: management control
and responsibility for profitability; global sales and service; engineering;
product development and manufacturing. The remaining operations of Fingerscan
consist of a sales and service office for the Australian market. Management
determined that the functional currency of Fingerscan had changed from the
Australian to the U.S. dollar and that the above actions constituted a
substantial liquidation of Fingerscan.


                                       25
<PAGE>

   On April 26, 1999, the Company acquired Identicator Technology, Inc.
("Identicator Technology"), a privately-held developer of biometric fingerprint
identification technology for information technology applications. The
acquisition was accounted for as a purchase. Identicator Technology is now part
of the Company's Biometric Security Division and its operations are currently
located in San Bruno, California. The Company's Fiscal 1999 Consolidated
Financial Statements include the results of Identicator Technology from the
date of acquisition. See Note 2 of Notes to Consolidated Financial Statements.

Results of Operations

 Fiscal Years Ended June 30, 1999 and 1998

   Revenues. Total revenues for fiscal 1999 were $81,762,000 compared to
$79,374,000 for fiscal 1998. For fiscal 1999 the increase in total revenues of
3% is due to an increase in the Company's services revenues.

   The Company's product revenues were $34,228,000 for fiscal 1999, compared to
$34,720,000 in fiscal 1998. For fiscal 1999, the decrease in product revenues
of 1% was due to decreased shipments of the Company's Biometric Imaging product
group, mainly the TouchPrint 600 product line. This decline in product revenue
was net of revenues generated by Identicator Technology from the acquisition
date of $958,000. International sales accounted for $4,083,000 or 12% of the
Company's product revenues for fiscal 1999, compared to $6,350,000 or 18% for
fiscal 1998. The decrease in international sales for the year was primarily due
to a decline in sales in Asia and the decline in Biometric Security product
sales which compose the majority of international revenues. The Company's
international sales are generally 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. The Company's product business did not have any
one customer account for 10% or more of total revenues in either fiscal 1999 or
fiscal 1998.

   The Company's services revenues were $47,534,000 for fiscal 1999 compared to
$43,576,000 for fiscal 1998. The increase in services revenues of 9% for fiscal
1999 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 General
Services Administration 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 fiscal 1999, revenues directly from the DOD
and from other U.S. government agencies accounted for 90% of the Company's
total services revenues compared to 87% in fiscal 1998.

   During fiscal 1999, the Company derived approximately 83% of its services
revenues from time-and-materials ("T&M") contracts and from firm fixed-price
("FFP") contracts compared to 79% in fiscal 1998. The increase in the
percentage of revenues generated by T&M and FFP contracts is primarily due to
the increase in third party services purchased through the Company's GSA
contract. 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 is currently undergoing
such an audit by the Defense Contract Audit Agency for the period from July 1,
1995 to June 30, 1997.

                                       26
<PAGE>

   The Company's services business generates a significant amount of its
revenues from cost plus fixed fee ("CPFF") contracts, which accounted for
approximately 17% of its services revenues for fiscal 1999, compared to 21% for
fiscal 1998. The decrease in the percentage of revenues generated by CPFF
contracts is primarily due to the increase in third party services purchased
through the Company's GSA contract. CPFF contracts provide for the
reimbursement of allowable costs, including indirect costs plus a fee or
profit.

   On July 1, 1998, the Company transferred certain revenue producing contracts
to SIFC that had been previously sub-contracted to SIFC, resulting in no
fingerprinting services revenues in fiscal 1999 compared to $1,078,000 in
fiscal 1998. The Company now receives license fees which are recorded in
interest and other income.

   Gross margin. Gross margin on product revenues was 49% for fiscal 1999, as
compared to 51% in fiscal 1998. The decrease in gross margin was primarily due
to competitive pricing in the biometric imaging market. 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 fiscal 1999 as compared to 14%
for fiscal 1998. The decrease in gross margin for the year was primarily due to
an increase in third party services sold through the GSA contract maintained by
ANADAC which often has a lower profit margin.

   Research, Development and Engineering. Research, development and engineering
expenses were $6,011,000 or 18% of product revenues for fiscal 1999, compared
to $4,572,000 or 13% for fiscal 1998. 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, and the
addition of Identicator Technology's engineering expense from April 26, 1999.
The Company 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 fiscal 2000.

   Marketing and Selling. Marketing and selling expenses were $10,207,000 or
12% of total revenues for fiscal 1999 compared to $9,107,000 or 11% of total
revenues for fiscal 1998. The increase in marketing and selling expenses in
absolute dollars is due to the increased staffing to promote the Company's
products and services globally, to expand its customer support organization and
to the addition of Identicator Technology's selling and marketing costs from
April 26, 1999. The Company expects marketing and selling expenses to continue
to increase in absolute dollars in fiscal 2000.

   General and Administrative. General and administrative expenses were
$7,458,000 or 9% of total revenues for fiscal 1999, compared to $8,221,000 or
10% of total revenues for fiscal 1998. The decrease in general and
administrative expenses was primarily due to the reorganizaion of the Biometric
Security Division in 1998, in which the majority of the administrative
functions were transferred from Fingerscan in Australia to Identix and a
reduction in litigation charges of $346,000. The decrease was partially offset
by an increase in staffing and other related administrative expenses to support
the growth in operations and the development of supporting infrastructure, as
well as the addition of Identicator Technology's general and administrative
functions and amortization of acquired intangible assets from April 26, 1999.

   Reorganization and Other Non-Recurring Costs. Reorganization and other non-
recurring costs were $1,648,000 for fiscal 1999 compared to $717,000 for fiscal
1998. The costs for fiscal 1999 were primarily from the rationalization of
redundant functions and products following the acquisition of Identicator
Technology, which resulted in severance costs, write-off of capitalized
software and an increase in the inventory obsolesence reserve. In 1998, these
costs consisted primarily of a $460,000 write-off of cumulative translation
adjustment and, to a lesser extent, the write-off of deferred offering costs
and severance costs relating to the streamlining of the Company's international
operations.

   Interest and Other Income (Expense), net. For fiscal 1999, interest and
other income was $383,000 compared to interest and other income of $66,000 for
fiscal 1998. Interest and other income for fiscal 1999 is primarily composed of
license fee income from SIFC which was $175,000 and interest income of $74,000.

                                       27
<PAGE>

   Interest Expense. Interest expense was $445,000 for fiscal 1999, compared to
$239,000 for fiscal 1998. The increase was due to increased levels of
borrowings under the lines of credit to fund working capital requirements.

   The weighted average interest rate paid by the Company on borrowings under
its line of credit (the "Identix Line of Credit") for fiscal 1999 and 1998 was
8.25% and 8.5%, respectively. The weighted average interest rate paid by ANADAC
on borrowings under its bank line of credit (the "ANADAC Line of Credit")
during fiscal 1999 and 1998 was 8.0% and 8.5%, respectively.

   Income Taxes. Income tax expense was $21,000 and $45,000 for fiscal 1999 and
fiscal 1998, respectively, and consisted of certain State franchise taxes. In
fiscal 1999, the Company's effective tax rate is below the statutory rate due
to the net loss incurred.

   Equity Interest in Joint Venture. The equity interest in joint venture was a
loss of $299,000 for fiscal 1999 compared to a loss of $171,000 in fiscal 1998
and represents the Company's 50% share of the results of SIFC.

 Fiscal Years Ended June 30, 1998 and 1997

   Revenues. Revenues for fiscal 1998 were $79,374,000, compared to $52,543,000
for fiscal 1997. For fiscal 1998 the increase in revenues of 51% is due to
increases in both the Company's product revenues and services revenues.

   The Company's product revenues were $34,720,000 for fiscal 1998, compared to
$26,652,000 in fiscal 1997. For fiscal 1998, the increases in product revenues
of 30% was due to increased shipments of the Company's Biometric Imaging
product group, 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 Biometric Imaging sales was partially offset by a decline in the Company's
Biometric Security product group sales, which resulted primarily from a decline
in sales in Asia related to the adverse economic events in the region.
International sales accounted for $6,350,000 or 18% of the Company's product
revenues for fiscal 1998, compared to $8,178,000 or 31% for fiscal 1997. The
decrease in international sales for the year was primarily due to a decline in
sales in Asia. The Company did not have any customer account for 10% or more of
total product revenues in either fiscal 1998 or fiscal 1997.

   The Company's fingerprinting services revenues were $1,078,000 for fiscal
1998. For certain contracts that Identix held prior to the commencement of
SIFC, Identix subcontracted the fingerprinting services to the joint venture at
amounts equal to the amounts billed to the customers; therefore, no gross
margin was recognized by the Company except for a 5% license fee charged to
SIFC for use of certain of the Company's trademarks.

   The Company's services revenues were $43,576,000 for fiscal 1998 compared to
$25,891,000 for fiscal 1997. The increases in services revenues of 68% for
fiscal 1998 was due primarily to increases in U.S. government purchases through
the Company's GSA contract which is operated and maintained by ANADAC. The
majority of the Company's services revenues are generated directly from
contracts with the U.S. government, principally the DOD. For fiscal 1998,
revenues directly from the DOD and from other U.S. government agencies
accounted for 87% of the Company's total services revenues compared to 77% in
fiscal 1997.

   The Company's services business generates a significant amount of its
revenues from CPFF contracts, which accounted for approximately 21% of its
services revenues for fiscal 1998, compared to 39% for fiscal 1997. The
decrease in the percentage of services revenues generated by CPFF contracts was
primarily due to the increase in third party services purchased through the
Company's GSA contract. During fiscal 1998, the Company derived approximately
79% of its services revenues from T&M and FFP contracts compared to 46%

                                       28
<PAGE>

in fiscal 1997. The increase in the percentage of services revenues generated
by T&M and FFP contracts is primarily due to the increase in third party
services purchased through the Company's GSA contract.

   Gross Margin. Gross margin on product revenues was 51% for fiscal 1998, as
compared to 50% in fiscal 1997 primarily due to changes in the product mix.

   Gross margin on services revenues was 14% for fiscal 1998 as compared to 20%
for fiscal 1997. The decrease in gross margin for the year was primarily due to
an increase in third party services purchased through the GSA contact
maintained by ANADAC.

   Research, Development and Engineering. Research, development and engineering
expenses was $4,572,000 or 13% of product revenues for fiscal 1998, compared to
$2,754,000 or 10% for fiscal 1997. The increase in research, development and
engineering expenses was primarily due to the addition of engineering staff and
related expenses to further develop and enhance the Company's products.

   The actual revenues from products acquired from Fingerscan Pty Ltd based on
the F3 and F4 technologies have been significantly less than the revenues
estimated in determining the fair value of the in-process research and
development acquired. In valuing the acquired in-process research and
development, management of Fingerscan in 1996 estimated that F3 revenue for
fiscal years 1997 through 2001 would be $160,000,000 and that F4 revenue for
fiscal years 1998 through 2003 would be $45,000,000. The F3 technology was
completed and incorporated into two products, which were introduced toward the
end of fiscal 1998. Forecast revenue from F3 products is minimal. The F4
research and development project did not result in any discrete, identifiable
product from which revenues are expected to be derived. In both projects, there
were significant technical problems that took longer to overcome than
originally expected. Further, the market demand for biometric security products
based on these technologies has been smaller than originally expected due to
the price of these products and a lack of market awareness.

   Marketing and Selling. Marketing and selling expenses were $9,107,000 or 11%
of total revenues for fiscal 1998 compared to $8,076,000 or 15% of total
revenues for fiscal 1997. The increase in marketing and selling expenses in
absolute dollars was primarily due to the increased staffing and expenses to
promote the Company's products and services and to expand its customer support
organization.

   General and Administrative. General and administrative expenses were
$8,221,000 or 10% of total revenues for fiscal 1998, compared to $6,878,000 or
13% of total revenues for fiscal 1997. The increase in general and
administrative expenses was primarily due to an increase in staffing and other
related administrative expenses to support the growth in operations and the
development of supporting infrastructure. The increase was partially offset by
a decrease in litigation charges which were $491,000 for fiscal 1998 compared
to $736,000 for fiscal 1997.

   Reorganization and Other Non-Recurring Costs. Reorganization and other non-
recurring costs were $717,000 for fiscal 1998. These costs consisted primarily
of a $460,000 write-off of cumulative translation adjustment and, to a lesser
extent, the write-off of deferred offering costs and severance costs relating
to the streamlining of the Company's international operations.

   Interest and Other Income (Expense), net. For fiscal 1998, interest other
income was $66,000 compared to interest other income of $232,000 for fiscal
1997. The decrease in interest and other income was primarily due to a foreign
currency transaction loss of $202,000.

   Interest Expense. Interest expense was $239,000 for fiscal 1998, compared to
$264,000 for fiscal 1997. The difference was due to lower levels of borrowings
under the lines of credit.

   The weighted average interest rate paid by the Company on borrowings under
the Identix Line of Credit for fiscal 1998 and 1997 was approximately 8.5% each
year. The weighted average interest rate paid by ANADAC on borrowings under the
ANADAC Line of Credit during fiscal 1998 and 1997 was 8.5% and 8.3%,
respectively.

                                       29
<PAGE>

   Income Taxes. The provision for income taxes was $45,000 and $57,000 during
fiscal 1998 and 1997, respectively, and consisted of certain State franchise
taxes.

   Equity Interest in Joint Venture. The equity interest in joint venture was a
loss of $171,000 for fiscal 1998 and represents the Company's 50% share of the
results of SIFC. The joint venture did not exist in fiscal 1997.

Liquidity and Capital Resources

   The Company financed its operations during fiscal 1999 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 June 30, 1999, the Company's
principal sources of liquidity consisted of $15,713,000 of working capital,
including $3,013,000 in cash and cash equivalents, and amounts available for
future borrowings under the Identix Line of Credit and the ANADAC Line of
Credit.

   The Identix Line of Credit is a $10,000,000 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. Amounts drawn bear
interest at the bank's prime rate of interest plus 0.5% (8.25% at June 30,
1999). The line of credit expires on December 24, 1999. At June 30, 1999,
$2,000,000 was outstanding, $1,500,000 was committed under a standby letter of
credit and $2,760,000 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. During fiscal 1999, the Company was in default on two
of its bank line of credit covenants. The Company has obtained waivers of
default from the bank for breaches of the covenants.

   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 (7.75% at June 30, 1999).
The line of credit expires on March 31, 2000. At June 30, 1999, $1,089,000 was
outstanding and $4,760,000 was available under the ANADAC Line of Credit. The
ANADAC Line of Credit agreement contains financial and operating covenants.

   Cash provided by operating activities was $5,808,000 during fiscal 1999.
Cash provided by operating activities in fiscal 1999 primarily reflects a net
loss of $13,419,000 which includes a write-off of acquired in-process research
and development of $10,044,000 and also reflects reductions in accounts
receivable of $3,295,000 and inventories of $1,094,000, partially offset by
increases in prepaid expenses of $457,000 and deferred revenue of $382,000.

   The Company used cash of $2,123,000 in investing activities during fiscal
1999, consisting primarily of purchases of property and equipment of $1,246,000
and transaction costs related to the acquisition of Identicator Technology of
$869,000.

   The Company's financing activities used cash of $1,425,000 during fiscal
1999. Financing activities consisted of repayments, net of borrowings, of
$3,561,000 against the Company's lines of credit and proceeds from exercises of
stock options and warrants to purchase common stock of $2,136,000.

   Identix did not have any material capital expenditure commitments as of June
30, 1999.

   The Company believes that cash flow from operations, together with existing
working capital and two existing bank lines of credit, will be adequate to fund
the Company's cash requirements through fiscal 2000. Further, subsequent to
June 30, 1999, the Company raised cash of $15,000,000 in a private equity
placement. See Note 12 of Notes to Consolidated Financial Statements. However,
the Company may require additional equity or debt financing beyond the amounts
currently forecasted 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 financing would be favorable to the Company.

                                       30
<PAGE>

Impact of Year 2000

   Identix has instituted a program to determine whether Identix has exposure
to Year 2000 problems. Year 2000 problems are 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.

   Identix's Year 2000 program consists of the following phases: (1) evaluation
of Identix products; (2) development of solutions to Year 2000 issues for
Identix products; (3) customer notification and support regarding Identix
products; (4) evaluation and remediation of Identix's information technology
infrastructure; (5) assessment of Year 2000 compliance of third party providers
of critical components and services; and (6) development of contingency plans
to address Year 2000 issues. Identix's Year 2000 program is overseen by its
Year 2000 Committee.

   Identix has completed phases 1, 2 and 4 of the Year 2000 program. In these
phases, Identix performed an evaluation of its products to determine their Year
2000 readiness. To the extent that a Year 2000 issue was identified, Identix
has developed solutions to remediate the Year 2000 issues. Identix is not
taking remedial action for those products that will reach the end of their
support life before the end of 1999.

   Phase 3 consists of notifying customers of Year 2000 issues with Identix
products and providing support to the customer's remediation efforts. The
notification process has been substantially completed by June 30, 1999.
Identix's remediation support activities have commenced and will continue at
least through December 31, 1999. Identix's products are included in complex
systems and the process undertaken by its customers to assess and remediate
Year 2000 issues may be lengthy. For example, Identix has sold TouchPrint
products that, at the request of the customers, use a two-digit value for the
year. In this case, customer remediation is likely to require a change in the
customer's workflow.

   Phase 4 was completed by March 31, 1999. Identix has identified certain
internal software that required updating in order to be Year 2000 complaint. As
part of Identix's maintenance contract for that software, the vendor of that
software has provided Identix with an upgrade that addresses the year 2000
problem. Further, certain hardware has been identified as non-compliant and
been replaced.

   Identix is at risk of disruption to its business if Year 2000 problems are
experienced by its key suppliers. The purpose of phase 5 is to determine the
Year 2000 readiness of suppliers of critical components and services. Identix
has sent inquiries to its suppliers to determine their readiness with respect
to Year 2000 problems. Identix is still in the process of collecting and
evaluating responses. As of June 30, 1999 the vast majority of critical
suppliers have made written claims assuring they would be able to continue to
supply Identix into the year 2000. A failure of a key supplier to provide
Identix with necessary components or services could result in a delay by
Identix in providing products or services to its customers and have a severe
negative impact on Identix's stock price or financial performance.

   Identix has not yet undertaken phase 6, the development of contingency plans
to address Year 2000 concerns. Identix plans to complete this in the second
half of calendar 1999 to the extent that it identifies areas where there is a
significant possibility that Year 2000 compliance will not be achieved.

   Identix believes that its costs, not borne by customers, for its Year 2000
program will be less than $250,000, excluding costs associated with existing
internal personnel. The costs of the program to date have been less than
$30,000. Identix has used existing personnel for the Year 2000 program and has
no current plans to add staff specifically for this purpose. Identix has not
separately tracked the internal costs associated with the Year 2000 program.

   The Year 2000 problem is pervasive and complex and there is a risk that
Identix has not identified all of the Year 2000 issues that may affect it and
that any remedial efforts it takes will not adequately address any potential
Year 2000 problems. Identix's products are used in systems that perform a
number of critical functions. For example, the biometric security products are
used to verify individual identity in a number of

                                       31
<PAGE>

high-risk situations such as prisons and airports. The biometric security
products are also used to protect computer data and to verify commercial
transactions, such as the authorization of money transfers by bank personnel.
Although Identix believes that it should not have liability for a system
failure relating to the Year 2000, such a failure in these or other critical
applications could potentially require Identix to expend substantial resources
to assist in remedying the failure or result in litigation to ascertain
liability or recover costs. Identix believes that this represents the most
reasonably likely worst-case scenario with respect to the Year 2000.

   Identix has made forward-looking statements regarding its Year 2000 program.
These statements include the expected completion schedule for various phases of
the Year 2000 program, the costs to and liabilities of Identix associated with
the Year 2000 and Identix's Year 2000 readiness. There are many factors that
could cause actual events or results to differ materially from those stated in
the forward-looking statements. These factors include the complexity associated
with identifying Year 2000 problems, the inability to ascertain Year 2000
readiness and compliance of component and service suppliers, and the reaction
of customers to Year 2000 issues. All of these factors make it impossible for
Identix to ensure that it has identified all Year 2000 issues that may affect
it or all costs or liabilities that it may be exposed to as a result of Year
2000 issues.

   The information contained in this Form 10-K related to the Year 2000
constitutes Year 2000 Readiness Disclosure for purposes of the Year 2000
Information and Readiness Disclosure Act. That act does not limit liability
under the securities laws.

Item 7A. 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 money market 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 revenues, cost
of revenues and marketing expenses 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.

                                       32
<PAGE>

Item 8. Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Financial Statements:
  Report of Independent Accountants.......................................  34
  Consolidated Balance Sheets as of June 30, 1999 and 1998................  35
  Consolidated Statements of Operations for the years ended June 30, 1999,
   1998 and 1997..........................................................  36
  Consolidated Statements of Shareholders' Equity for the years ended June
   30, 1999, 1998 and 1997................................................  37
  Consolidated Statements of Cash Flows for the years ended June 30, 1999,
   1998 and 1997..........................................................  38
  Notes to Consolidated Financial Statements..............................  39
Financial Statement Schedules:
  Schedule II Valuation and Qualifying Accounts and Reserves for the years
   ended June 30, 1999, 1998 and 1997.....................................  59
</TABLE>

                                       33
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Identix Incorporated

   In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Identix Incorporated and its subsidiaries at June 30, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, California
July 26, 1999

                                       34
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            June 30,
                                                    --------------------------
                                                        1999          1998
                                                    ------------  ------------
                                     ASSETS
<S>                                                 <C>           <C>
Current assets:
  Cash and cash equivalents........................ $  3,013,000  $    753,000
  Accounts receivable, net.........................   25,993,000    28,576,000
  Inventories......................................    5,275,000     7,163,000
  Prepaid expenses and other assets................    1,043,000       586,000
                                                    ------------  ------------
    Total current assets...........................   35,324,000    37,078,000
Property and equipment, net........................    2,141,000     2,105,000
Intangibles and other assets.......................   33,981,000     2,768,000
Investment in joint venture........................          --         61,000
                                                    ------------  ------------
      Total assets................................. $ 71,446,000  $ 42,012,000
                                                    ============  ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Notes payable.................................... $  4,796,000  $  6,849,000
  Accounts payable.................................    9,767,000     8,428,000
  Accrued compensation.............................    1,940,000     1,837,000
  Other accrued liabilities........................    1,324,000       574,000
  Deferred revenue.................................    1,784,000     1,237,000
                                                    ------------  ------------
    Total current liabilities......................   19,611,000    18,925,000
Deferred revenue...................................      156,000        88,000
Other liabilities..................................       90,000        89,000
                                                    ------------  ------------
      Total liabilities............................   19,857,000    19,102,000
                                                    ============  ============

Commitments and contingencies (Note 11)

Shareholders' equity:
  Common stock, $0.01 par value; 50,000,000 shares
   authorized;
   28,625,958 and 25,255,577 shares issued and
   outstanding.....................................   94,625,000    52,527,000
  Accumulated deficit..............................  (42,855,000)  (29,436,000)
  Accumulated other comprehensive loss.............     (181,000)     (181,000)
                                                    ------------  ------------
    Total shareholders' equity.....................   51,589,000    22,910,000
                                                    ------------  ------------
      Total liabilities and shareholders' equity... $ 71,446,000  $ 42,012,000
                                                    ============  ============
</TABLE>

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

                                       35
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              Fiscal year ended June 30,
                                         --------------------------------------
                                             1999         1998         1997
                                         ------------  -----------  -----------
<S>                                      <C>           <C>          <C>
Revenues:
  Product revenues.....................  $ 34,228,000  $34,720,000  $26,652,000
  Fingerprinting services revenues.....           --     1,078,000          --
  Services revenues....................    47,534,000   43,576,000   25,891,000
                                         ------------  -----------  -----------
    Total revenues.....................    81,762,000   79,374,000   52,543,000
                                         ------------  -----------  -----------
Costs and expenses:
  Cost of product revenues.............    17,293,000   16,887,000   13,359,000
  Cost of fingerprinting services
   revenues............................           --     1,028,000          --
  Cost of services revenues............    41,399,000   37,477,000   20,633,000
  Research, development and
   engineering.........................     6,011,000    4,572,000    2,754,000
  Marketing and selling................    10,207,000    9,107,000    8,076,000
  General and administrative...........     7,458,000    8,221,000    6,878,000
  Amortization of acquired intangible
   assets..............................       739,000      208,000      236,000
  Reorganization and other non-
   recurring costs.....................     1,648,000      717,000          --
  Write-off of acquired in-process
   research and development............    10,044,000          --           --
                                         ------------  -----------  -----------
    Total costs and expenses...........    94,799,000   78,217,000   51,936,000
                                         ------------  -----------  -----------
Income (loss) from operations..........   (13,037,000)   1,157,000      607,000
Interest and other income (expense),
 net...................................       383,000       66,000      232,000
Interest expense.......................      (445,000)    (239,000)    (264,000)
                                         ------------  -----------  -----------
Income (loss) before taxes.............   (13,099,000)     984,000      575,000
Provision for income taxes.............       (21,000)     (45,000)     (57,000)
                                         ------------  -----------  -----------
Income (loss) before equity interest in
 joint venture.........................   (13,120,000)     939,000      518,000
Equity interest in joint venture.......      (299,000)    (171,000)         --
                                         ------------  -----------  -----------
Net income (loss)......................  $(13,419,000) $   768,000  $   518,000
                                         ============  ===========  ===========
Net income (loss) per share:
  Basic................................  $      (0.52) $      0.03  $      0.02
                                         ============  ===========  ===========
  Diluted..............................  $      (0.52) $      0.03  $      0.02
                                         ============  ===========  ===========
Shares used in computing net income
 (loss) per share:
  Basic................................    25,932,000   25,104,000   24,817,000
  Diluted..............................    25,932,000   25,669,000   25,586,000
</TABLE>

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

                                       36
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                               Common Stock                    Accumulated Other
                          ---------------------- Accumulated     Comprehensive
                            Shares     Amount       Other        Income (Loss)      Total
                          ---------- ----------- ------------  ----------------- -----------
<S>                       <C>        <C>         <C>           <C>               <C>
Balance as of June 30,
 1996...................  24,320,464 $50,024,000 $(30,534,000)     $ (18,000)    $19,472,000
Sale of common stock
 under stock option
 plans..................      66,739     190,000          --             --          190,000
Sale of common stock
 under warrant
 exercise...............     105,575     332,000          --             --          332,000
Issuance of common stock
 related to acquisition
 of Biometric
 Applications and
 Tracking...............     450,000     737,000     (188,000)           --          549,000
Other comprehensive
 income (loss)..........                                            (163,000)       (163,000)
Net income..............         --          --       518,000            --          518,000
                          ---------- ----------- ------------      ---------     -----------
Balance as of June 30,
 1997...................  24,942,778  51,283,000  (30,204,000)      (181,000)     20,898,000
Sale of common stock
 under stock option
 plans..................     287,799   1,191,000          --             --        1,191,000
Sale of common stock
 under warrant
 exercise...............      25,000      53,000          --             --           53,000
Net income..............         --          --       768,000            --          768,000
                          ---------- ----------- ------------      ---------     -----------
Balance as of June 30,
 1998...................  25,255,577  52,527,000  (29,436,000)      (181,000)     22,910,000
Sale of common stock
 under stock option
 plans..................     320,708   1,756,000          --             --        1,756,000
Sale of common stock
 under employee stock
 purchase plan..........      35,610     253,000          --             --          253,000
Sale of common stock
 under warrant
 exercise...............      40,000     127,000          --             --          127,000
Issuance of common
 stock, warrants and
 options related to
 acquisition of
 Identicator
 Technology.............   2,974,959  39,962,000          --             --       39,962,000
Retirement of common
 stock related to
 acquisition of
 Biometric Applications
 and Tracking...........       (896)         --           --             --              --
Net loss................         --          --   (13,419,000)           --      (13,419,000)
                          ---------- ----------- ------------      ---------     -----------
Balance as of June 30,
 1999...................  28,625,958 $94,625,000 $(42,855,000)     $(181,000)    $51,589,000
                          ========== =========== ============      =========     ===========
</TABLE>

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

                                       37
<PAGE>

                              IDENTIX INCORPORATED
                            Year Ended June 30, 1999

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                              Fiscal year ended June 30,
                                         --------------------------------------
                                             1999         1998         1997
                                         ------------  -----------  -----------
<S>                                      <C>           <C>          <C>
Cash flows from operating activities:
  Net income (loss)....................  $(13,419,000) $   768,000  $   518,000
  Adjustments to reconcile net income
   (loss) to net cash provided by (used
   for) operating activities:
    Depreciation.......................     1,444,000    1,345,000    1,116,000
    Amortization of intangibles........     1,483,000      871,000      814,000
    Amortization of deferred revenue...    (3,512,000)  (2,127,000)    (937,000)
    Interest in joint venture, net of
     tax...............................       299,000      171,000          --
    Write-off of acquired in-process
     research and development..........    10,044,000          --           --
    Increase in inventory reserves.....     1,251,000      338,000      284,000
  Changes in assets and liabilities,
   net of effects of acquisitions:
    Accounts receivable, net...........     3,295,000   (9,839,000)  (2,406,000)
    Inventories........................     1,094,000   (2,206,000)  (1,115,000)
    Prepaid expenses and other assets..      (457,000)    (263,000)     (57,000)
    Accounts payable...................       306,000    2,114,000    3,005,000
    Accrued compensation...............       (35,000)     322,000      279,000
    Other accrued liabilities..........       121,000     (505,000)     424,000
    Deferred revenue...................     3,894,000    2,826,000    1,014,000
                                         ------------  -----------  -----------
  Net cash provided by (used for)
   operating activities................     5,808,000   (6,185,000)   2,939,000
                                         ------------  -----------  -----------
Cash flows used in investing
 activities:
  Capital expenditures.................    (1,246,000)    (883,000)  (1,379,000)
  Investment in joint venture..........      (100,000)    (232,000)         --
  Additions to intangibles and other
   assets..............................           --      (631,000)    (975,000)
  Cash received in acquisitions........        92,000          --         6,000
  Transaction costs related to
   acquisition.........................      (869,000)         --           --
                                         ------------  -----------  -----------
  Net cash used for investing
   activities                              (2,123,000)  (1,746,000)  (2,348,000)
                                         ------------  -----------  -----------
Cash flows provided by (used for) by
 financing activities:
  Borrowings under bank lines of
   credit..............................    20,626,000   20,150,000   16,530,000
  Payments under bank lines of credit..   (24,187,000) (15,220,000) (16,457,000)
  Principal payments on long-term
   note................................           --           --      (233,000)
  Proceeds from sale of common stock
   and warrants........................     2,136,000    1,244,000      522,000
  Capital contribution.................           --           --       737,000
  Other, net...........................           --           --         2,000
                                         ------------  -----------  -----------
  Net cash provided by (used for)
   financing activities................    (1,425,000)   6,174,000    1,101,000
                                         ------------  -----------  -----------
Effect of exchange rate changes on cash
 and cash equivalents..................           --           --      (163,000)
                                         ------------  -----------  -----------
Net increase (decrease) in cash and
 cash equivalents......................     2,260,000   (1,757,000)   1,529,000
Cash and cash equivalents at beginning
 of year...............................       753,000    2,510,000      981,000
                                         ------------  -----------  -----------
Cash and cash equivalents at end of
 year..................................  $  3,013,000  $   753,000  $ 2,510,000
                                         ============  ===========  ===========
Supplemental disclosures of cash flow
 information:
  Cash paid during the year for
   interest............................  $    441,000  $   291,000  $   206,000
  Cash paid during the year for income
   taxes...............................        65,000       45,000       57,000
</TABLE>

See Note 2 for stock issued in acquisition.

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

                                       38
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

   Identix Incorporated (the "Company") designs, manufactures, develops and
markets two categories of products for security, anti-fraud, law enforcement
and other applications: (i) Biometric Security products that verify the
identity of an individual through the unique biological characteristics of a
fingerprint and (ii) Biometric Imaging products that electronically capture
forensic quality fingerprint images 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, Inc.
("ANADAC"). The principal markets for the Company's products are the Americas,
Asia, Australia, Europe and the Middle East.

   On July 23, 1997, the Company acquired Biometric Applications and
Technology, Inc. ("BA&T") pursuant to a share purchase agreement. The
acquisition was accounted for as a pooling of interests (See Note 2).

   On April 26, 1999, the Company acquired Identicator Technology, Inc.
("Identicator Technology") pursuant to a share purchase agreement whereby
Identicator Technology became a wholly owned subsidiary of the Company. The
acquisition was accounted for as a purchase (See Note 2).

   Ascom USA Inc., an indirect subsidiary of Ascom Holding AG, a Swiss Company,
beneficially owned approximately 16% of the Company's common stock at June 30,
1999 (See Note 7).

Basis of Consolidation

   The consolidated financial statements include the accounts of Identix
Incorporated and its wholly owned subsidiaries: ANADAC, Identix Australia,
Identicator Technology, BA&T and Identix International, Inc; and all
significant intercompany balances and transactions have been eliminated on
consolidation. In the consolidated statements of operations, the Company has
reclassified certain amounts for fiscal 1998 and 1997 to be consistent with the
fiscal 1999 presentation.

Management Estimates and Assumptions

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Joint Venture

   On September 30, 1997, the Company entered into a joint venture agreement
with Sylvan Learning Centers, Inc. to form SIFC for the purpose of providing
fingerprinting services. The Company owns a 50% interest in the joint venture.
For certain contracts held by Identix prior to the joint venture, Identix
subcontracted the fingerprinting services to the joint venture from September
1997 to June 1998 and the revenues from these contracts were presented
separately as fingerprinting services revenue in the consolidated statement of
operations. From July 1998, the contracts were assigned to SIFC. The company
derives license fees from SIFC.

                                       39
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Revenue Recognition

   Revenue from product sales is recognized in accordance with the terms of
sale, generally upon shipment by the Company, provided no significant vendor
obligations remain and collection of the receivable is deemed probable.
Extended service and maintenance contract revenue is deferred and recognized
ratably over the life of the service period of the related agreement. The
majority of the Company's services are performed for the U.S. Government under
various fixed price, time and material and cost reimbursement contracts.
Revenues on fixed-price contracts are generally recognized on the percentage-
of-completion method based on costs incurred in relation to total estimated
costs. Revenues on time-and-materials contracts are recognized to the extent of
billable rates times hours worked plus materials expense incurred. Revenues for
cost-plus fixed fee contracts are recognized as costs are incurred, including a
proportionate amount of the fee earned. Unbilled accounts receivable at June
30, 1999 represent revenue accrued which becomes billable per the terms of
contract. Provisions for estimated contract losses are recorded in the period
such losses are determined.

   Services revenues directly from contracts with the U.S. Government,
principally with the Department of Defense, and from subcontracts with other
U.S. Government contractors, were approximately 90% of total services revenues
for fiscal 1999, 87% for fiscal 1998 and 77% for fiscal 1997. Contract costs
for services revenues to the U.S. Government, including indirect expenses, are
subject to audit and subsequent adjustment by negotiation between the Company
and U.S. Government representatives. Revenues are recorded in amounts expected
to be realized upon final settlement. ANADAC is currently undergoing such an
audit by the Defense Contract Audit Agency for the period from July 1, 1995 to
June 30, 1997.

Major Customer and International Revenues

   In fiscal 1999, 1998 and 1997, the Company had no non-U.S. Government
customers that accounted for 10% or more of total revenues.

   Product revenues included international revenues of $4,083,000 in fiscal
1999, $6,350,000 in fiscal 1998, and $8,178,000 in fiscal 1997.

Cash and Cash Equivalents

   Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased. These investments consist of income
producing securities, which are readily convertible to cash and are stated at
cost, which approximates market.

Concentration of Credit Risk

   Financial instruments which potentially subject the Company to credit risk
consist principally of accounts receivable and investments. The Company
performs on-going credit evaluations of its customers' financial conditions and
limits the amount of credit extended when deemed necessary. The Company
maintains an allowance for potential credit losses which are based upon the
expected collectibility of all accounts receivable. Management believes that
any risk of loss is significantly reduced due to the Company's substantial
number of government customers.

   Currently, the Company's policy is to limit its exposure in financial
instruments by investing its excess cash with major banks in money market
securities. The Company, by policy, limits the amount of exposure to any one
financial institution.

                                       40
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Inventories

   Inventories are stated at the lower of cost (determined on a first-in,
first-out cost method) or market. The Company provides for obsolete, slow
moving or excess inventories in the period when obsolescence or inventory in
excess of expected demand is first identified.

Property and Equipment

   Property and equipment are stated at cost. Depreciation is computed using
the straight-line method with the estimated useful lives of the assets ranging
from two to five years. Amortization of equipment held under capital leases and
leasehold improvements is computed using the straight-line method and the
shorter of the remaining lease term or the estimated useful life of the related
equipment or improvements. Repair and maintenance costs are expensed as
incurred.

Intangibles and Other Assets

   Intangible assets include goodwill, purchased technology, capitalized
contract rights, capitalized software development costs and assembled
workforce. Goodwill is amortized over five to twelve years. Purchased core
technology is amortized over five years. Capitalized contract rights are
amortized over the terms of the related contracts, usually one to five years.
Assembled workforce is amortized over three years.

   Certain software development costs incurred are capitalized after
technological feasibility has been demonstrated. Technological feasibility is
determined when planning, designing, coding and testing have been completed
according to design specifications. Commencing with product introduction, such
capitalized amounts are amortized on a product-by-product basis at the greater
of the amount computed using (a) the ratio of current revenues for a product to
the total of current and anticipated future revenues or (b) the straight-line
method over the remaining estimated economic life of the product. Generally,
the Company assigns an estimated economic life of one to five years to
capitalized software costs. Amortization of capitalized software costs is
charged to cost of product revenues. Research and development expenditures are
charged to research and development in the period incurred.

   The Company evaluates asset recoverability at each balance sheet date or
when an event occurs that may impair recoverability of the asset. The Company
determines the recoverability of the carrying amount of each intangible asset
by reviewing the following factors: the undiscounted value of expected
operating cash flows in relation to its net capital investments, the estimated
useful or contractual life of the intangible asset, the contract or product
supporting the intangible asset, and in the case of purchased technology and
capitalized software development costs, the Company periodically reviews the
recoverability of the asset value by evaluating its products with respect to
technological advances, competitive products and the needs of its customers.

Product Warranty

   The Company provides a warranty for manufacturing and material defects on
all units sold. A reserve for warranty costs, based on estimates made by
management utilizing projected costs to repair units, is recorded at the time
of sale and periodically adjusted to reflect actual experience.

Income Taxes

   Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the income tax bases of assets
and liabilities and the amounts reported for financial reporting purposes for
all periods presented. (See Note 8).

                                       41
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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 No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") are presented in Note 6.

Comprehensive Income

   Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
Other comprehensive income (loss) includes charges or credits to equity that
are not the result of transactions with owners. Accumulated other comprehensive
income (loss) consisted of foreign currency translation adjustment. As the
Company substantially liquidated its foreign operation in February 1998, there
has been no other comprehensive income (loss) from that date.

Foreign Currency Translation

   The Company's foreign subsidiary used its local currency as the functional
currency until March 31, 1998. Following the substantial liquidation of the
subsidiary in February 1998, the functional currency has been the US dollar.
Accordingly, assets and liabilities were translated at the exchange rate in
effect at that date and revenue and expenses are recorded in US dollars at
current exchange rates. Foreign currency transaction losses included in
interest and other income were $202,000 in fiscal 1998. Such amounts were not
material in fiscal 1999 and fiscal 1997.

Earnings Per Share

   Basic earnings per share is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share gives effect to all
dilutive potential common shares outstanding during the period including stock
options and warrants, using the treasury stock method.

                                       42
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Following is a reconciliation of the calculation of basic and diluted
earnings per share for the periods presented below:

<TABLE>
<CAPTION>
                                               Fiscal Year Ended June 30,
                                           -----------------------------------
                                               1999         1998       1997
                                           ------------  ---------- ----------
   <S>                                     <C>           <C>        <C>
   Net income (loss)...................... $(13,419,000) $  768,000 $  518,000
                                           ------------  ---------- ----------
   Share used in computing net income
    (loss) per share:
     Basic................................   25,932,000  25,104,000 24,817,000
     Dilutive effect of stock options and
      warrants............................          --      565,000    769,000
                                           ------------  ---------- ----------
     Diluted..............................   25,932,000  25,669,000 25,586,000
                                           ------------  ---------- ----------
   Net income (loss) per share:
     Basic................................ $      (0.52) $     0.03 $     0.02
                                           ------------  ---------- ----------
     Diluted.............................. $     ( 0.52) $     0.03 $     0.02
                                           ============  ========== ==========
</TABLE>

   Options and warrants outstanding during fiscal year 1999 were not included
in the computation of net loss per share as their effect was anti-dilutive.
Options to purchase 934,287 and 560,322 shares of common stock at weighted
average exercise prices of $10.21 and $11.09 per share were outstanding at June
30, 1998 and 1997, respectively, but were not included in the computation of
diluted net income per share because they were anti-dilutive.

   Shares held by the Company's employee stock ownership plan are treated as
outstanding for purposes of computing earnings per share.

NOTE 2--ACQUISITIONS

Identicator Technology, Inc.

   On April 26, 1999, pursuant to an agreement and plan of reorganization and
merger, the Company acquired Identicator Technology, a privately-held company
headquartered in San Bruno, California. The acquisition was accounted for as a
purchase and, accordingly, the Company's results for fiscal 1999 include the
operations of Identicator Technology from the date of acquisition.

   In connection with the acquisition, the Company agreed to issue 2,908,112
shares of common stock and to assume options and warrants to purchase 2,074,979
and 66,847 shares of its common stock respectively, with exercise prices of
$0.26 and $8.07 per share. The market value of the Company's common stock of
$8.08 was determined using the average quoted market price for the two days
preceding and following the announcement of the acquisition in November 1998.

   The value of the Identix options and warrants that were to be exchanged for
vested and unvested Identicator Technology options and warrants was determined
in November 1998 using a Black/Scholes option pricing model with the following
assumptions:

<TABLE>
      <S>                                                             <C>
      Expected life.................................................. 2--5 years
      Volatility.....................................................        52%
      Risk free interest rate........................................  5.8--6.2%
      Dividend yield.................................................         0%
</TABLE>

                                       43
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes the components of the purchase consideration:

<TABLE>
<CAPTION>
                                                              Fair  Total Fair
                                                     Shares   Value    Value
                                                    --------- ----- -----------
   <S>                                              <C>       <C>   <C>
   Common shares outstanding......................  2,908,112 $8.08 $23,502,000
   Common shares issuable on exercise of options..  2,074,979 $7.80  16,176,000
   Common shares issuable on exercise of
    warrants......................................     66,847 $4.25     284,000
                                                    ---------       -----------
                                                    5,049,938       $39,962,000
                                                    =========       ===========
</TABLE>

   Immediately prior to consummation of the transaction, the warrants were
exercised and the proceeds from exercise were paid to Identicator Technology.

   In addition, the Company assumed liabilities of Identicator Technology
totaling $3,404,000 and incurred acquisition costs of $869,000, resulting in a
total purchase price of $44,235,000. The Company also issued options to
purchase 400,000 shares of common stock to certain individuals upon the closing
of the merger. These options were issued in connection with employment
agreements and are subject to vesting requirements. These options have not been
included in the determination of the purchase price and are accounted for in
accordance with APB 25.

 Allocation of Purchase Price.

   The total purchase price of $44,235,000 was allocated to the fair value of
the assets acquired as follows:

<TABLE>
<CAPTION>
                                                                    Amortization
                                                                        Life
                                                                    ------------
   <S>                                                  <C>         <C>
   Tangible assets....................................  $ 1,502,000
   In-process research and development................   10,044,000
   Core technology....................................    4,663,000    5 years
   Assembled workforce................................      202,000    3 years
   Goodwill...........................................   27,824,000   12 years
                                                        -----------
     Total............................................  $44,235,000
                                                        ===========
</TABLE>

 In-Process Research and Development.

   The fair value of the purchased in-process research and development was
determined using the stage of completion method based on the future cash flows
that are projected to be generated by the products under development over a 5-
year period.

   In-process research and development activities consisted of hardware and
software product concept formulation, mechanical and optical design,
engineering prototyping, software code programming and testing procedure design
and development. The purchased in-process research and development was focused
on the next generations of fingerprint readers, which are expected to be of
significantly reduced size and cost. Also under development was software
required to integrate and support the next generation readers, to enhance the
existing functionality of current products and to add additional capabilities.

   The important elements of the in-process projects at the time of acquisition
included product concepts and designs, software code, test specifications and
processes and pre-prototype models. The fair value of the in-process products
was determined as a whole but the Company estimated approximately 80% of the
value was

                                       44
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

attributable to the software related products and 20% to hardware related
products. The in-process products are projected to be completed over the next
1-3 years. Material cash inflows from significant projects are projected to
commence in 2000.

   As of the date the merger agreement was signed, the individual hardware
projects were between 8% and 69% complete. These products are projected to be
introduced in the years 1999 through to 2001. The projected cost to complete
the in-process hardware projects is approximately $3,200,000. As of the same
date, the individual software projects were between 4% and 73% complete. These
projects are projected to be introduced in the years 1999 through 2000. The
projected cost to complete the in-process software projects is approximately
$1,700,000.

   In estimating the future cash flows, the Company used historical information
with regard to margins and expenses, and performed an assessment of the
products' acceptance in the emerging market for biometric security. The most
significant and uncertain assumption used in the valuation was the projected
revenue stream from the products under development.

   The developmental products acquired were evaluated in context of
Interpretation 4 of Statement of Financial Accounting Standards ("SFAS") No. 2
and SFAS No. 86 and the identified in-process research and development was
expensed in accordance with these provisions as technological feasibility had
not yet been reached.

   The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Identicator Technology as
if the acquisition had occurred at the beginning of fiscal 1998 and does not
include the adjustment for the non-recurring write-off of acquired in-process
research and development. The net loss per share is based on the average number
of shares of common stock of Identix outstanding during the period plus the
common shares issued by Identix to acquire Identicator Technology. These
proforma results have been prepared for comparative purposes only and do not
purport to be indicative of what operating results would have been had the
acquisition actually taken place on the assumed dates or of operating results
which may occur in the future.

<TABLE>
<CAPTION>
                                                       Fiscal year ended June
                                                                30,
                                                      -------------------------
                                                          1999         1998
                                                      ------------  -----------
                                                      (unaudited)   (unaudited)
   <S>                                                <C>           <C>
   Total revenues.................................... $ 85,921,000  $83,477,000
   Net loss.......................................... $(15,920,000) $(2,465,000)
   Net loss per share:
     Basic........................................... $      (0.56) $     (0.09)
     Diluted......................................... $      (0.56) $     (0.09)
</TABLE>

Biometric Applications and Technology, Inc.

   On July 23, 1997, pursuant to a share purchase agreement, the Company issued
450,000 shares of the Company's common stock to acquire BA&T, a privately held
company located in Kansas City, Missouri. In connection with the acquisition of
BA&T, the Company incurred costs of approximately $45,000, primarily for
transaction and professional fees. BA&T developed and marketed biometric and
"smart" card software applications and solutions and had been an Identix
software development partner. The acquisition was accounted for as a pooling of
interests. The Company's consolidated financial statements include the accounts
and operations of BA&T for all periods presented.

                                       45
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   On July 31, 1999, the Company closed the Kansas City office of BA&T and
terminated most of the staff. This was due to redundant infrastructure
following the Identicator Technology acquisition and development work in
process was transferred to other parts of the Company.

NOTE 3--REORGANIZATION AND OTHER NON-RECURRING COSTS

   Reorganization and other costs were $1,648,000 and $717,000 for fiscal 1999
and fiscal 1998, respectively. In fiscal 1999, these costs arose from the
rationalization of product lines and redundant infrastructure following the
acquisition of Identicator Technology. The following table sets forth the
Company's accrual in fiscal 1999 for reorganization and other expenses, the
charges taken against the accrual in fiscal 1999, and the remaining
reorganization accrual balance at June 30, 1999:

<TABLE>
<CAPTION>
                                            Fiscal 1999              Balance at
                                           Reorganization  Amount     June 30,
                                               Costs      Utilized      1999
                                           -------------- ---------  ----------
<S>                                        <C>            <C>        <C>
Inventory charges.........................   $1,175,000   $     --   $1,175,000
Capitalized software charges..............      214,000    (214,000)        --
Employee severance and other charges......      259,000    (199,000)     60,000
                                             ----------   ---------  ----------
Total ....................................   $1,648,000   $(413,000) $1,235,000
                                             ==========   =========  ==========
</TABLE>

   The remaining balances accrued are expected to be utilized during fiscal
2000.

                                       46
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4--BALANCE SHEET DETAIL

<TABLE>
<CAPTION>
                                                             June 30,
                                                     -------------------------
                                                         1999         1998
                                                     ------------  -----------
<S>                                                  <C>           <C>
Accounts receivable:
  Commercial and other.............................. $ 13,044,000  $16,655,000
  United States Government:
  Billed............................................    6,213,000   10,350,000
  Unbilled..........................................    6,723,000    2,062,000
  Other receivables.................................      822,000      375,000
Less: allowance for doubtful accounts...............     (809,000)    (866,000)
                                                     ------------  -----------
                                                     $ 25,993,000  $28,576,000
                                                     ------------  -----------
Inventories:
  Purchased parts and materials..................... $  1,713,000  $ 3,518,000
  Work-in-process...................................      706,000      906,000
  Finished goods, including spares..................    2,856,000    2,739,000
                                                     ------------  -----------
                                                     $  5,275,000  $ 7,163,000
                                                     ------------  -----------
Property and equipment:
  Manufacturing, test and office equipment.......... $  6,320,000  $ 5,356,000
  Furniture and fixtures............................    1,546,000    1,205,000
  Leasehold improvements............................      175,000      149,000
                                                     ------------  -----------
                                                        8,041,000    6,710,000
Less: accumulated depreciation and amortization.....   (5,900,000)  (4,605,000)
                                                     ------------  -----------
                                                     $  2,141,000  $ 2,105,000
                                                     ------------  -----------
Intangibles and other assets:
  Goodwill.......................................... $ 28,482,000  $   659,000
  Deferred acquisition costs .......................      283,000      639,000
  Purchased technology..............................    5,338,000    1,334,000
  Assembled workforce...............................      202,000          --
  Capitalized software costs........................    1,749,000    3,099,000
  Less: accumulated amortization....................   (2,262,000)  (3,302,000)
                                                     ------------  -----------
                                                       33,792,000    2,429,000
  Other assets......................................      189,000      339,000
                                                     ------------  -----------
                                                     $ 33,981,000  $ 2,768,000
                                                     ============  ===========
</TABLE>

NOTE 5--LINES OF CREDIT

   The Company has a $10,000,000 bank line of credit (the "Identix Line of
Credit") secured by substantially all of the personal property of the Company.
Under the Identix Line of Credit, the Company may borrow up to 80% of eligible
accounts receivable. Amounts drawn bear interest at the bank's prime rate of
interest plus 0.50% (8.25% at June 30, 1999). The line of credit expires on
December 24, 1999. At June 30, 1999, $2,000,000 was outstanding, $1,500,000 was
committed under letter of credit and $2,760,000 was available for future
borrowings. 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.

                                       47
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During fiscal 1999, the Company defaulted on two of its bank line of credit
covenants. The Company has obtained waivers of default from the bank for
breaches of the covenants.

   ANADAC has a $6,000,000 bank line of credit and outstanding balances bear
interest at the bank's prime lending rate (7.75% at June 30, 1999) and are
payable upon demand. Available borrowings under the line are based upon
qualifying accounts receivable balances. The line of credit expires March 31,
2000. At June 30, 1999, $1,089,000 was outstanding and $4,760,000 was
available, under the ANADAC Line of Credit. The line of credit agreement
includes, among other things, certain financial covenants and maintenance of
certain financial ratios. At June 30, 1999, ANADAC was in compliance with such
covenants.

NOTE 6--CAPITAL STOCK

Employee Stock Options

   In October 1992, the Company adopted the 1992 Incentive Stock Option Plan
("1992 Plan"). The 1992 Plan will expire in 2002. A total of 1,000,000 shares
of the Company's common stock has been reserved for issuance under the 1992
Plan. In July 1995, the Company adopted the Identix Incorporated Equity
Incentive Plan ("1995 Plan"). The 1995 Plan will expire in 2005. In October
1997 and October 1998, the Company amended the 1995 Plan so that a total of
3,000,000 shares of the Company's common stock are reserved for issuance under
the 1995 Plan. The 1995 Plan provides for the discretionary award of options,
restricted stock, stock purchase rights, performance shares or any combination
of these awards to eligible employees, including executive officers and
consultants. In August 1995, the Company adopted the Non-employee Directors
Stock Option Plan ("Directors Plan"), under which nonqualified stock options
are granted to non-employee directors on a formula basis. In October 1998, the
Company amended the Director's Plan so that a total of 410,000 shares of the
Company's common stock is reserved for issuance under the Directors Plan.

   Under the 1992 and 1995 Plans, options are granted for a period of 10 years.
All grants of incentive stock options must be made at a price at least equal to
the then fair market value of the Company's common stock at the date of grant.
All grants of nonqualified stock options must be made at a price of at least
85% of the then fair market value of the Company's common stock at the date of
grant. Options generally vest on a monthly basis over a period of two to five
years.

   Under the Directors Plan, options are granted for a period of 10 years at an
exercise price equal to the fair market value of the Company's common stock on
the date of the grant. Upon election or appointment, each director of the
Company who is not, and has not been an officer or employee of the Company,
receives an option to purchase 20,000 shares of the Company's common stock;
provided, however, that if a director was appointed to the Board of Directors
after six months of the date of the annual meeting of shareholders at which
directors are elected, that director receives an option to purchase 10,000
shares of the Company's common stock. Thereafter, each director receives an
option to purchase 20,000 shares of the Company's common stock on the date of
the first meeting of the Board of Directors of the Company following the annual
meeting of the shareholders at which directors are elected. Options vest
quarterly over a one year period from the date of grant.

                                       48
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes the Company's stock option activity and
related information for the past three years:

<TABLE>
<CAPTION>
                                          Shares     Optioned
                                        Available     Shares       Weighted
                                        for Grant   Outstanding  Average Price
                                        ----------  -----------  -------------
   <S>                                  <C>         <C>          <C>
   Balance as of June 30, 1996.........    596,297   1,467,889      $ 5.85
   Shares reserved upon adoption of
    amendment to 1995 Plan.............    250,000         --
   Options granted.....................   (933,350)    933,350      $ 9.31
   Options exercised...................        --      (66,739)     $ 2.73
   Options canceled....................    260,534    (260,534)     $10.55
   Options canceled and expired........        --         (150)     $ 4.00
                                        ----------  ----------
   Balance as of June 30, 1997.........    173,481   2,073,816      $ 6.90
   Shares reserved upon adoption of
    amendment to 1995 Plan.............    500,000         --
   Options granted..................... (1,672,633)  1,672,633      $ 8.26
   Options exercised...................        --     (287,799)     $ 4.14
   Options canceled....................  1,167,256  (1,167,256)     $ 9.74
   Options canceled and expired........        --         (133)     $ 2.50
                                        ----------  ----------
   Balance as of June 30, 1998.........    168,104   2,291,261      $ 6.59
   Shares reserved upon adoption of
    amendment to 1995 Plan.............  1,250,000         --
   Shares reserved upon adoption of
    amendment to Director's Plan.......    160,000         --
   Shares reserved and granted under
    the Identicator Technology
    acquisition........................        --    2,074,979      $ 0.26
   Options granted..................... (1,217,000)  1,217,000      $ 7.86
   Options exercised...................        --     (320,708)     $ 5.48
   Options canceled....................    255,068    (255,068)     $ 7.97
                                        ----------  ----------
   Balance as of June 30, 1999.........    616,172   5,007,464      $ 4.28
                                        ==========  ==========
</TABLE>

   In April 1998, 903,833 outstanding options with exercise prices in excess of
the then fair market value of the common stock were repriced to $7.625 per
share. Such options have been included in the above table as both canceled and
granted in fiscal 1998. No other terms of the options were amended.

                                       49
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes options outstanding at June 30, 1999 and
related weighted average exercise prices and lives as follows:

<TABLE>
<CAPTION>
                          Options Outstanding                Options Exercisable
              ------------------------------------------- --------------------------
   Range of             Weighted Average
   Exercise              Remaining Life  Weighted Average           Weighted Average
    Prices     Number      (in years)     Exercise Price   Number    Exercise Price
   --------   --------- ---------------- ---------------- --------- ----------------
   <S>        <C>       <C>              <C>              <C>       <C>
        $
    0.26-
    $3.00     2,324,590       6.64            $0.52       2,113,101      $0.54
        $
    3.19-
    $5.44       178,541       6.36             3.97         138,207       3.57
        $
    6.00-
    $7.81     1,941,833       8.57             7.37       1,115,018       7.42
        $
    8.38-
    $10.06      562,500       9.75             9.23          49,053       9.63
              ---------                                   ---------
              5,007,464       7.73            $4.28       3,415,379      $3.04
              =========                                   =========
</TABLE>

Pro Forma Disclosures

   All options were granted at an exercise price equal to the fair market value
of the Company's common stock at the date of grant. The weighted average fair
value at date of grant for options granted during fiscal 1999, 1998 and 1997
were $ 4.33, $3.67 and $4.85 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following assumptions:

<TABLE>
<CAPTION>
                                                   Fiscal year ended June 30,
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
   <S>                                             <C>       <C>       <C>
   Expected life (years)..........................        4         4         4
   Risk free interest rate........................     4.80%     5.53%     6.32%
   Volatility.....................................       68%       53%       60%
   Dividend yield.................................      --        --        --
</TABLE>

   Had compensation expense for the Company's stock-based compensation plans
been determined based on the method prescribed by SFAS No. 123, the Company's
net income (loss) and net income (loss) per share would have been as follows:

<TABLE>
<CAPTION>
                                              Fiscal year ended June 30,
                                          ------------------------------------
                                              1999         1998        1997
                                          ------------  -----------  ---------
   <S>                                    <C>           <C>          <C>
   Net income (loss):
     As reported......................... $(13,419,000) $   768,000  $ 518,000
     Pro forma........................... $(16,393,000) $(1,701,000) $(893,000)
   Net income (loss) per share:
     As reported
       Basic and diluted................. $      (0.52) $      0.03  $    0.02
     Pro forma
       Basic and diluted................. $      (0.63) $     (0.07) $   (0.04)
</TABLE>

Employee Stock Ownership Plan

   The ANADAC, Inc. Employee Stock Ownership Plan ("ESOP") enables eligible
employees of ANADAC to share in the growth of the Company through the
acquisition of the Company's common stock. The ESOP provides for the Company,
at its discretion, to make contributions of up to 10% of each participant's
base salary. The amount of compensation expense related to the ESOP is based
upon the cash contributions to the

                                       50
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ESOP made by the Company. The Company's expense for ESOP was $145,000 in fiscal
1999, $188,000 in fiscal 1998 and $158,000 in fiscal 1997. A total of 330,092
and 303,909 allocated shares of the Company's common stock were held by the
ESOP at June 30, 1999 and 1998, respectively.

Employee Stock Purchase Plan

   On October 30, 1998, the Company adopted an employee stock purchase plan
(the "ESPP"), through which qualified employees of the Company may participate
in stock ownership of the Company. Shares of common stock reserved for the ESPP
total 500,000. The cost of each share purchased is 85% of the lower of the
closing prices for common stock on: (i) the first trading day in the enrollment
period in which the purchase is made, and (ii) the six-monthly purchase date.
Pursuant to the ESPP, 35,610 shares were issued at a weighted average price of
$7.12 per share during fiscal 1999.

Warrants

   Under certain private transactions authorized by the Board of Directors of
the Company from 1992 through 1994, warrants to purchase 395,160 shares of the
Company's common stock were issued at exercise prices ranging from $2.125 to
$3.75 per share. At June 30, 1998, warrants from these transactions to purchase
40,000 shares of the Company's common stock were outstanding, all of which were
exercised during fiscal 1999. As of June 30, 1999, there were no warrants to
buy common stock of the Company outstanding.

   In a transaction subsequent to June 30, 1999, new warrants have been issued.
See Note 12 of Notes to Consolidated Financial Statements.

NOTE 7--RELATED PARTY TRANSACTIONS

   As of June 30, 1999, Ascom USA Inc. ("Ascom") beneficially owned 4,715,024
or approximately 16% of the Company's outstanding common stock ("the Voting
Stock"). The Company is a party to a Voting Trust Agreement with Ascom (the
"Agreement") whereby Ascom deposited all of its shares of the Company's common
stock held by Ascom, into a voting trust. The trustee of the voting trust is on
the Company's Board of Directors and has voting control of the Voting Stock.
The term of the Voting Trust Agreement expires in 2004. In consideration for
Ascom entering into the Agreement, the Company granted Ascom certain additional
registration rights with respect to the Voting Stock, modified certain
contractual transfer restrictions with respect to the Voting Stock, and granted
Ascom price protections regarding certain sales of Voting Stock. In May 1999,
the Company filed a registration statement covering the resale of 1,700,000
shares of common stock by Ascom.

   A member of the Company's Board of Directors presently owns 38% of
Integrated Manufacturing Solutions, Inc., ("IMS"), a manufacturer of integrated
circuit boards, that provides manufacturing services to the Company. IMS billed
the Company approximately $2,798,000, $2,437,000 and $427,000 in fiscal 1999,
1998 and 1997, respectively. Amounts outstanding to IMS at June 30, 1999 were
approximately $249,000.

   The Company purchases certain complete biometric security I.T. products,
engineering and administrative services from International Technology Concepts,
Inc ("IT Concepts"). Two officers and shareholders of the Company are officers,
directors and principal shareholders of IT Concepts. IT Concepts billed the
Company approximately $360,000 for such products and services in fiscal 1999.
The Company did not purchase goods or services from IT Concepts prior to fiscal
1999. Amounts outstanding to IT Concepts at June 30, 1999 were approximately
$86,000.


                                       51
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 8--INCOME TAXES

   The following is a reconciliation between the statutory federal income taxe
rate and the provision for income taxes:

<TABLE>
<CAPTION>
                                              Fiscal year ended June 30,
                                           ----------------------------------
                                               1999        1998       1997
                                           ------------  ---------  ---------
   <S>                                     <C>           <C>        <C>
   Tax expense (benefit) at statutory
    rate.................................. $ (4,562,000) $ 261,000  $ 438,000
   State taxes, net of federal benefit....     (782,000)    33,000     80,000
   Release of valuation allowance.........    1,880,000   (360,000)  (578,000)
   Losses for which no benefit was
    available.............................    3,415,000        --         --
   Other..................................       70,000    111,000    117,000
                                           ------------  ---------  ---------
                                           $     21,000  $  45,000  $  57,000
                                           ============  =========  =========
</TABLE>

Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
                                                            June 30,
                                                    -------------------------
                                                        1999         1998
                                                    ------------  -----------
   <S>                                              <C>           <C>
   Net operating loss and tax credit
    carryforwards.................................. $ 11,111,000  $ 8,440,000
   Depreciation and amortization...................      392,000       80,000
   Inventory reserves and basis differences........      767,000      360,000
   Compensation accruals...........................      284,000      340,000
   Accounts receivable and sales reserves..........      322,000      336,000
   Reorganization reserves.........................      118,000          --
   Other...........................................      132,000      384,000
                                                    ------------  -----------
     Gross deferred tax assets.....................   13,126,000    9,940,000
                                                    ------------  -----------
   Unbilled accounts receivable....................   (2,678,000)    (908,000)
   Capitalized software and other..................     (312,000)    (776,000)
                                                    ------------  -----------
     Gross deferred tax liabilities................   (2,990,000)  (1,684,000)
                                                    ------------  -----------
   Net deferred tax asset before valuation
    allowance......................................   10,136,000    8,256,000
   Valuation allowance.............................  (10,136,000)  (8,256,000)
                                                    ------------  -----------
       Total net deferred tax asset................ $        --   $       --
                                                    ============  ===========
</TABLE>

   The deferred tax asset valuation allowance is attributed to U.S. Federal,
State and foreign deferred tax assets. Management believes sufficient
uncertainty exists regarding the realizability of these assets, such that a
full valuation allowance is required. As of June 30, 1999, the Company has
federal and state net operating loss carry forwards of approximately
$28,700,000 and $11,900,000, respectively, for financial reporting and income
tax purposes, which are available to offset future taxable income. The
carryforwards expire on various dates through fiscal 2019. Under the Tax Reform
Act of 1986, the amounts of and the benefit from net operating losses that can
be carried forward may be impaired or limited in certain circumstances,
including a cumulative stock ownership change of more than 50% over a three-
year period. As a result of the public offering in January 1993, a change of
ownership occurred, causing an annual limitation on the utilization of the net
operating loss carryforwards, incurred prior to the ownership change, of
approximately $2,500,000.

                                       52
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 9--OPERATING SEGMENTS DATA

   The Company has adopted the Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). Pursuant to SFAS 131, the Company's revenues are attributed to
the operating segment of the sales or service organizations, and costs directly
and indirectly incurred in generating revenues are similarly assigned. The
factors used to identify the operating segments are: the nature of the product
and service; the type of customer for the product or service; the distribution
method and the way in which management has organized the Company for making
operating decisions and assessing performance. Management has organized the
Company on product lines rather than geographical or regulatory lines.

<TABLE>
<CAPTION>
                                            Fiscal year ended June 30,
                                      -----------------------------------------
                                          1999           1998          1997
                                      -------------  ------------  ------------
<S>                                   <C>            <C>           <C>
Total revenues:
  Biometric Imaging.................. $  27,170,000  $ 27,729,000  $ 17,216,000
  Biometric Security.................     7,058,000     6,991,000     9,436,000
  Government Services................    47,534,000    43,576,000    25,891,000
  Fingerprinting Services............           --      1,078,000           --
                                      -------------  ------------  ------------
                                      $  81,762,000  $ 79,374,000  $ 52,543,000
                                      -------------  ------------  ------------
Net income (loss):
  Biometric Imaging.................. $     917,000  $  1,722,000  $    888,000
  Biometric Security.................   (16,036,000)   (2,747,000)   (1,504,000)
  Government Services................     1,999,000     1,964,000     1,134,000
  Fingerprinting Services............      (299,000)     (171,000)          --
                                      -------------  ------------  ------------
                                      $ (13,419,000) $    768,000  $    518,000
                                      -------------  ------------  ------------
Identifiable assets:
  Biometric Imaging.................. $  14,591,000  $ 18,991,000  $ 11,231,000
  Biometric Security.................    37,556,000     4,685,000     6,857,000
  Government Services................    19,299,000    18,215,000    14,352,000
  Fingerprinting Services............           --        121,000           --
                                      -------------  ------------  ------------
                                      $  71,446,000  $ 42,012,000  $ 32,440,000
                                      =============  ============  ============
</TABLE>

                                       53
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 10--FOREIGN OPERATIONS DATA

   In geographical reporting, revenues are attributed to the geographical
location of the sales and service organizations, and costs directly and
indirectly incurred in generating revenues are similarly assigned.

<TABLE>
<CAPTION>
                                             Fiscal year ended June 30,
                                        --------------------------------------
                                            1999         1998         1997
                                        ------------  -----------  -----------
<S>                                     <C>           <C>          <C>
Total revenues:
  North America........................ $ 77,679,000  $73,024,000  $43,305,000
  Asia-Pacific.........................    2,425,000    3,344,000    9,238,000
  Europe, Middle East, Africa, South
   America.............................    1,658,000    3,006,000          --
                                        ------------  -----------  -----------
                                        $ 81,762,000  $79,374,000  $52,543,000
                                        ============  ===========  ===========
Net income (loss):
  North America........................ $   (230,000) $ 3,765,000  $ 2,262,000
  Asia-Pacific.........................      472,000   (1,046,000)      30,000
  Europe, Middle East, Africa, South
   America.............................     (410,000)     229,000          --
  General corporate expenses...........   (1,559,000)  (1,463,000)  (1,774,000)
  Reorganization and other non-
   recurring costs.....................   (1,648,000)    (717,000)         --
  Write-off of acquired in-process
   research and development............  (10,044,000)         --           --
                                        ------------  -----------  -----------
                                        $(13,419,000) $   768,000  $   518,000
                                        ============  ===========  ===========
Identifiable assets:
  North America........................ $ 70,489,000  $40,025,000  $27,079,000
  Asia-Pacific.........................      597,000    1,312,000    5,361,000
  Europe, Middle East, Africa, South
   America.............................      360,000      675,000          --
                                        ------------  -----------  -----------
                                        $ 71,446,000  $42,012,000  $32,440,000
                                        ============  ===========  ===========
</TABLE>

   Intercompany transfers are at prices sufficient to recover a reasonable
profit and are eliminated in the consolidated financial statements.
Intercompany transfers from North America to the Company's Australian
subsidiary ceased when the Australian operation was substantially liquidated in
February 1998, and hence were zero in fiscal 1999, $1,991,000 in fiscal 1998
and $3,814,000 in fiscal 1997.

   As a result of the substantial liquidation of the Company's Australian
subsidiary in the quarter ended March 31, 1998, assets of the foreign
operations were transferred to the United States.


                                       54
<PAGE>

                              IDENTIX INCORPORATED

                            Year Ended June 30, 1999

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 11--COMMITMENTS

Leases

   The Company currently occupies its headquarters and products business
facility under a lease, which expires in April 2001 and is required to pay
taxes, insurance, and maintenance as well as monthly rental payments. Further,
the Company leases office space for its products sales force under operating
leases which expire at various dates through 2003. The Company leases office
space for its services business under operating leases expiring at various
dates through 2001. The leases contain escalation provisions requiring rental
increases for increases in operating expense and real estate taxes.

   Future minimum lease payments for operating leases are as follows:

<TABLE>
<CAPTION>
     <S>                                                             <C>
     Fiscal year ending June 30,
     2000........................................................... $1,745,000
     2001...........................................................  1,222,000
     2002...........................................................  1,302,000
     2003...........................................................  1,151,000
     Thereafter.....................................................  4,429,000
                                                                     ----------
       Total........................................................ $9,849,000
                                                                     ==========
</TABLE>

   Total rental expense under operating leases was $1,966,000 $1,882,000, and
$1,788,000 for the years ended June 30, 1999, 1998 and 1997, respectively.

NOTE 12--SUBSEQUENT EVENTS

   In July 1999, the Company raised cash of $15,000,000 through a private
placement of its common stock. The Company sold 1,811,594 shares of common
stock at a 5.0 percent discount from the average closing bid price for the
previous 10 trading days. In addition, the Company issued to the investors
warrants to purchase 905,798 shares of common stock for $11.33 per share until
January 1, 2001 and an additional 362,319 shares at $11.18 per share until July
1, 2004. Under the terms of the agreement, Identix agreed to register for
resale the shares and warrants.

   On July 2, 1999, the Identix Line of Credit was repaid in full and certain
other debts have been repaid since that date.

   On July 31, 1999, the Company closed its Kansas City office of BA&T and
terminated most of the staff. This was due to redundant infrastructure
following the Identicator Technology acquisition and development work in
process was transferred to other parts of the Company.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   Not applicable.


                                       55
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

   The information required by this Item with respect to executive officers is
set forth in Part I of this Annual Report on Form 10-K and the information with
respect to the directors is incorporated by reference to the information set
forth under the caption "Election of Directors" in the proxy statement to be
used in connection with the 1999 Annual Meeting of the Stockholders (the "Proxy
Statement").

Item 11. Executive Compensation

   The information required by this Item is incorporated by reference to the
information set forth under the caption "Executive Compensation" in the Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required by this Item is incorporated by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

   The information required by this Item is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the Proxy
Statement.

                                       56
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)1 Financial Statements.

   The information required by this Item appears in Item 8 of this Annual
Report on Form 10-K.

(a)2 Financial Statement Schedules.

   Schedule II -- Valuation and Qualifying Accounts and Reserves

(a)3 Exhibits.

<TABLE>
<CAPTION>
 Exhibit
 Number                                  Description
 -------                                 -----------
 <C>         <S>
   3.1(15)   Certificate of Incorporation
   3.2(15)   Bylaws
   4.1(18)   Registration Rights Agreement dated June 30, 1999
   4.2(18)   Form of Series 1 Warrant
   4.3(18)   Form of Series 2 Warrant
             Lease Agreement dated June 15, 1988, between Identix and Santa
   10.1(3)   Clara Property Associates
   10.2(1)   Identix's 1983 Incentive Stock Option Plan and forms of Incentive
             Stock Option Agreement and Non-Statutory Stock Option Agreement
   10.3(2)   Stock Option Agreement dated March 13, 1989 between Identix and
             Ascom Hasler AG, as amended by Amendment Number 1 thereto dated
             April 20, 1989 and Amendment Number 2 thereto dated August 8, 1989
   10.4(4)   Stock Purchase Agreement dated July 24, 1990 between Identix and
             Ascom Hasler AG
   10.5(5)   Stock Purchase Agreement and Amendment Number 3 to Stock Option
             Agreement dated December 14, 1990 between Identix and Ascom Hasler
             AG
   10.6(6)   Loan Agreement and Amendment Number 4 to Stock Option Agreement
             dated December 12, 1991 between Identix and Ascom Hasler AG
   10.7(2)   Registrant's 1992 Employee Stock Option Plan and forms of
             Incentive Stock Option Agreement and Nonqualified Stock Option
             Agreement
   10.8(2)   Loan Agreement dated October 30, 1992 between Identix and Ascom
             Hasler AG
   10.9(2)   Loan and Security Agreement dated January 9, 1991 between ANADAC
             and Crestar Bank, as amended August 5, 1992 and October 23, 1992
   10.10(2)  ANADAC 1984 Incentive Stock Option Plan and forms of Incentive
             Stock Option Agreement and Nonstatutory Stock Option Agreement
   10.11(7)  Voting Trust Agreement with Respect to Capital Stock of Identix
             among Identix, the Voting Trustee, and Ascom Holding Inc. dated
             September 2, 1994
   10.12(7)  Amendment No. 5 to Stock Option Agreement among Identix, Ascom
             Hasler, AG, and Ascom Holding Inc. dated September 2, 1994
   10.13(7)  Amendment to Registration Rights Agreement among Identix, Ascom
             Hasler, AG, and Ascom Holding Inc. dated September 2, 1994
   10.14(8)  Office Building Lease dated May 18, 1995, between ANADAC and
             Charles Smith Management, Inc.
   10.15(9)  Office Building Lease dated April 1, 1995 between ANADAC and U.S.
             AIR, Inc.
   10.16(9)  Office Building Lease dated July 27, 1995 between ANADAC and Third
             Gould Limited Liability Company
   10.17(16) Identix's 1995 Equity Incentive Plan
   10.18(16) Identix's 1995 Nonemployee Directors Stock Option Plan
   10.19(9)  Letter Agreement dated July 28, 1995 between Identix and Ascom
             Holding Inc.
   10.20(10) AEGIS Combat Ship Building Contract Program
   10.21(11) The Fourth Amendment dated February 9, 1996 to Lease Agreement
             dated June 15, 1988 for the Company's corporate offices and
             manufacturing facility
</TABLE>

                                       57
<PAGE>

<TABLE>
 <C>       <S>
 10.22(12) December 1996 Amendment to Loan and Security Agreement between
           ANADAC and Crestar Bank dated December 2, 1996
 10.23(13) Amended and Restated Revolving Note Agreement between ANADAC and
           Crestar Bank dated December 2, 1996
 10.24(14) February 1999 Amendment to Security and Loan Agreement between
           ANADAC and Crestar Bank dated February 4, 1999
 10.25     Second Amendment to Amended and Restated Loan Agreement Between
           Identix and Imperial Bank dated May 13, 1999
 10.26(16) Employee Stock Purchase Plan
 10.27(16) Foreign Subsidiary Employee Stock Purchase Plan
 10.28(17) IDT Holdings, Inc. 1998 Stock Option/Stock Issuance Plan
 10.29(17) Identicator Corporation 1995 Stock Option Plan
 21.1      Subsidiaries of Identix
 23.1      Consent of Independent Accountants
 24.1      Power of Attorney (see page 60)
 27.1      Financial Data Schedule
</TABLE>
--------
(1) Incorporated by reference to Identix's registration statement no. 29-95551.
(2) Incorporated by reference to Identix's registration statement no. 33-55074.
(3) Incorporated by reference to the June 30, 1989 Form 10-K.
(4) Incorporated by reference to the July 24, 1990 Form 8-K.
(5) Incorporated by reference to the December 14, 1990 Form 8-K.
(6) Incorporated by reference to the June 30, 1992 Form 10-K.
(7) Incorporated by reference to the September 30, 1994 Form 10-Q.
(8) Incorporated by reference to the March 31, 1995 Form 10-Q.
(9) Incorporated by reference to the June 30, 1995 Form 10-K.
(10) Incorporated by reference to the September 30, 1995 Form 10-Q.
(11) Incorporated by reference to the September 30, 1996 Form 10-Q.
(12) Incorporated by reference to the December 31, 1996 Form 10-Q.
(13) Incorporated by reference to the December 31, 1996 restated Form 10-Q.
(14) Incorporated by reference to the December 31, 1998 Form 10-Q.
(15) Incorporated by reference to the December 16, 1998 Form 8-K.
(16) Incorporated by reference to the registration statement on Form S-8, (no.
     333-69141), filed December 17, 1998.
(17) Incorporated by reference to the registration statement on Form S-8, (no.
     333-77803), filed May 5, 1999.
(18) Incorporated by reference to the registration statement on Form S-3, (no.
     333-82239), filed July 2, 1999.

(b) Reports on Form 8-K:

   During the three months ended June 30, 1999, the Company filed on May 4,
1999 one report on Form 8-K, to report the acquisition of Identicator
Technology, Inc.

                                       58
<PAGE>

                                  SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                          Balance
                            at     Charged to   Charged             Balance at
                         Beginning  Costs and  to Other               End of
Description              of Period  Expenses   Accounts  Deductions   Period
-----------              --------- ----------- --------- ---------- -----------
<S>                      <C>       <C>         <C>       <C>        <C>
Inventory Reserve:
Year ended June 30,
 1997................... $ 344,000 $   284,000       --  $  65,000  $   563,000
Year ended June 30,
 1998................... $ 563,000 $   338,000       --  $  35,000  $   866,000
Year ended June 30,
 1999................... $ 866,000 $ 1,251,000 $ 530,000 $ 731,000  $ 1,916,000
Allowance for Doubtful
 Accounts:
Year ended June 30,
 1997................... $ 488,000 $   500,000       --  $ 363,000  $   625,000
Year ended June 30,
 1998................... $ 625,000 $   862,000       --  $ 621,000  $   866,000
Year ended June 30,
 1999................... $ 866,000 $   584,000 $ 125,000 $ 766,000  $   809,000
</TABLE>

   The Company provides for obsolete, slow moving or excess inventories in the
period when obsolescence or inventory in excess of expected demand is first
identified. The large increase in the expense to the reserve in fiscal 1999 as
compared to the previous year was due to the rationization of product lines
following the acquisition of Identicator Technology.

   During fiscal 1999, the Company physically disposed of $702,000 of inventory
as a result of the decision to discontinue support for certain products and
manufacturing space utilization concerns. The inventory had been previously
identified as being potentially obsolete and had been reserved for in earlier
periods. The inventory principally related to certain products that were either
non-Y2K compliant and therefore discontinued, such as the TouchLock I and
TouchPrint 900, or were parts made obsolete by design changes in the TouchPrint
600 and other products.

   On April 26, 1999, the Company acquired Identicator Technology. Its
inventory reserve and allowance for doubtful debts balances as of that date are
shown above as "Charged to Other Accounts".

                                       59
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Identix Incorporated, a corporation
organized and existing under the laws of the State of California, has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Sunnyvale, State of California, on the 15th day of
September 1999.

                                          Identix Incorporated

                                          By:     /s/ Randall C. Fowler
                                             __________________________________
                                                    Randall C. Fowler
                                          Chief Executive Officer and Director

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Randall C. Fowler and James P. Scullion, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                           Title                    Date
              ---------                           -----                    ----

<S>                                   <C>                           <C>
      /s/ Randall C. Fowler           Chief Executive Officer and   September 15, 1999
____________________________________   Director (Principal
         Randall C. Fowler             Executive Officer)

      /s/ James P. Scullion           President, Chief Financial    September 15, 1999
____________________________________   Officer, Director and
         James P. Scullion             Secretary, (Principal
                                       Financial and Accounting
                                       Officer)

     /s/ Randall Hawks, Jr.           Director                      September 15, 1999
____________________________________
         Randall Hawks, Jr.

                                      Director
____________________________________
         Patrick H. Morton

      /s/ Charles W. Richion          Director                      September 15, 1999
 ____________________________________
          Charles W. Richion

        /s/ Fred U. Sutter            Director                      September 15, 1999
 ____________________________________
            Fred U. Sutter

        /s/ Larry J. Wells            Director                      September 15, 1999
 ____________________________________
            Larry J. Wells
</TABLE>

                                       60