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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark one) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended June 30,
    2002                                                     
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                                 

Commission File Number: 1-9641

Identix Incorporated

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                  
|------------------------------------------------------------------ |  | ---------------------------------
|Delaware                                                           |  | 94-2842496                       
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer Identification No.)
|                                                                  
|5600 Rowland Road, Minnetonka,
    Minnesota                       |  | 55343                            
|(Address of principal executive
    offices)                       |  | (Zip Code)                       

Registrants telephone number, including
area code:

(952) 932-0888


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:

Nasdaq National Market


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 þ          No o

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.     o

The aggregate market value of the voting stock
held by non-affiliates of the registrant on September 4,
2002, based upon the closing price of the common stock on the
Nasdaq National Market for such date, was approximately
$496,094,000. 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 4, 2002 was
84,882,633.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement filed
with the Securities and Exchange Commission in connection with
the Annual Meeting of Stockholders expected to be held
October 24, 2002 are incorporated by reference in
Part III of this Form 10-K.



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TABLE OF CONTENTS



|                                           |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                    
|                                           | Item 1. Business                                                                             
|                                           | Item 2. Properties                                                                           
|                                           | Item 3. Legal Proceedings                                                                    
|                                           | Item 4. Submission of Matters to a Vote of Security-Holders                                  
|PART II                                   
|                                           | Item 5. Market for the Companys Common Stock and Related Stockholder Matters                
|                                           | Item 6. Selected Financial Data                                                              
|                                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                           | Item 8. Financial Statements and Supplementary Data                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                  
|                                           | Item 10. Directors and Executive Officers of the Registrant                                  
|                                           | Item 11. Executive Compensation                                                              
|                                           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                           | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                   
|                                           | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                
|EXHIBIT 10.44                             
|EXHIBIT 21.1                              
|EXHIBIT 23.1                              
|EXHIBIT 99.1                              



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IDENTIX INCORPORATED

Year Ended June 30, 2002


TABLE OF CONTENTS

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                           |  | Page
|         |  |                                                                                           |  |     
|PART I  
|Item 1.  |  | BUSINESS                                                                                  |  |      | 2  | 
|Item 2.  |  | PROPERTIES                                                                                |  |      | 31 | 
|Item 3.  |  | LEGAL PROCEEDINGS                                                                         |  |      | 32 | 
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                   |  |      | 32 | 
|PART II 
|Item 5.  |  | MARKET FOR THE COMPANYS COMMON STOCK AND
    RELATED STOCKHOLDER MATTERS                 |  |      | 34 | 
|Item 6.  |  | SELECTED FINANCIAL DATA                                                                   |  |      | 35 | 
|Item 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 36 | 
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK                            |  |      | 48 | 
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               |  |      | 49 | 
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE  |  |      | 80 | 
|PART III
|Item 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                        |  |      | 80 | 
|Item 11. |  | EXECUTIVE COMPENSATION                                                                    |  |      | 80 | 
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT                        |  |      | 80 | 
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                            |  |      | 80 | 
|PART IV 
|Item 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K                      |  |      | 80 | 

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

Business
Case  Why Biometrics

Security is built around trust and around
providing authorized individuals with the appropriate access
rights based on those individuals authenticating or verifying
their trusted identity. Biometrics are a way to establish a
unique and trusted identity for each individual that cannot be
lost, stolen or misused like traditional methods of
authentication such as passwords, tokens, keys and proximity
cards. Biometrics is the measurement of an individuals
unique physical or behavioral characteristic(s) to recognize his
identity and/or verify his claimed identity. A number of traits
and behaviors can underlie biometrics including fingerprints,
face, iris, retina, and voice.

The tragic events of September 11, 2001
created a heightened awareness around security and around the
need to incorporate accurate and unique identity into security
via biometric applications. This heightened awareness has
manifested itself in numerous areas including federal, state and
local government, all aspects of the transportation industry,
including airlines and airports, trains and seaports, as well as
in major industries in corporate America including banking,
healthcare, and educational enterprises.

Legislation is being promulgated requiring
heightened security in numerous areas including general homeland
security. Much of this legislation is recommending the use of
biometrics as a method to help ensure that only authorized and
verified individuals are gaining access to protected
information, facilities, and international borders.

As one of the only biometric companies that
provides proprietary technology for both fingerprint and facial
recognition, Identix mission has long been to empower
identification by clearly and unequivocally linking action with
identity. By offering solutions that enhance privacy, provide
credentialed authorization, increase security and convenience,
and reduce the likelihood of a possible breach or fraud, Identix
is employing its biometric technology to address the new
identity requirements of security.

Current
Market Outlook  Target Industries/
Applications

Identix delivers solutions in at least three key
areas related to Identification. (1) Authentication
applications, such as those encountered in physical and logical
access where a biometric is used to confirm that an individual
is who he or she claims to be before granting access;
(2) Uniqueness of identity applications, where a biometric
is used to establish that an individual has not enrolled
multiple times under false identities or aliases; and
(3) Detection or surveillance applications, where a
biometric is used to be on the look-out for individuals on a
watch-list who may pose a threat to public safety or national
security.

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Within these three key areas there are many
applications. For example, the Companys biometric
identification technology, systems and information technology
services enable customers to identify and authenticate
individuals for physical access at doors and facilities or
logical access for computers and networks; help commercial
employers and government agencies to conduct background checks
on applicants for employment or permits; and help verify or
establish identity for the purposes of issuing identification
documents, conducting transactions, or conducting criminal
investigations. Our product and service offerings include
computer-based optical fingerprint capture, face and fingerprint
recognition technology, software and hardware platforms for
deploying these technologies, and photographic systems, software
tools and finished products, multi-media data storage and
communications servers, and the systems integration and software
development services required to deploy and use these systems.

Government:Government agencies  federal, state, and
local  have long been adopting biometric
technologies, and Identix has frequently been the biometric
company of choice. In some instances, governments call for
the use of biometrics has been driven by legislation. Currently,
there are several legislative Acts and Bills pending or passed
that call for the use of technology, including biometrics, to
provide enhanced security. Much of this legislation falls under
the broad category of Homeland Security and includes, but is not
limited to, the Aviation and Transportation Security Act of
2001, the Enhanced Border Security and Visa Entry Reform Act of
2001, the Public Health Security and Bioterrorism Preparedness
and Response Act of 2002, the USA PATRIOT Act of 2001 and the
Airport and Seaport Terrorism Prevention Act.

Law Enforcement:For
over 100 years, fingerprints have been the standard by
which law enforcement agencies identify criminals and suspects.
Fingerprint live scan is the computerized version of that
standard and frequently, Identix systems are the choice of law
enforcement and corrections agencies. Requirements for new
technologies and applications emerge daily: facial recognition
for mug shot systems and real time criminal identification,
facial surveillance for criminal detection, wireless systems
that allow fingerprints and photographs to be captured remotely.
Identix is one of the few companies that can provide this
comprehensive offering.

Healthcare:Health
Insurance Portability & Accountability Act
(HIPAA), recent government legislation surrounding
the integrity, confidentiality, and privacy of patient data is
requiring the healthcare industry to restructure current
information technology (IT) infrastructures and
methods. Identix offers products and solutions to assist
healthcare organizations work towards reducing errors,
increasing efficiencies, lowering costs and meeting legislative
demands, while enhancing the security and reducing the
inconvenience and risks associated with passwords, Personal
Identification Numbers (PIN) and keys.

Financial:Today,
banks and brokerage houses find themselves vulnerable to theft,
from both internal and external sources, an alarmingly
fast-growing, number of identity fraud cases and a whole host of
other security risks, as well as privacy issues posed by
providing services over the internet. Identix offers products
and solutions to address these concerns, from assisting in
employee background checks to helping to secure physical and
logical access through biometrics.

Consumer:Today, the
indirect costs to the consumer of general fraud and
impersonation are estimated to be in the billions of dollars
each year in the United States. 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. According to
Stamford, CT-based Gartner, Inc., the market for
business-to-business Internet commerce sales transactions is
expected to increase from $433 billion in 2000 to
$6 trillion by 2004; but this growth assumes that companies
can reliably and securely conduct business electronically.
Accordingly, the ability to verify the identity of a specific
individual is of critical importance in reducing acts of fraud
and increasing security. Each day individuals are required to
identify themselves numerous times with something they have in
their possession or with the knowledge of certain information,
such as; magnetic strip cards and PINs to transact business at
Automatic Teller Machines (ATM) or point-of-sale
(POS) 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.

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Identix offers biometric products and solutions
that can help prevent fraud and identity theft and help protect
proprietary information in consumer-related areas including
computer databases and network access and security, computer
software, intranet and Internet security, data sharing and
management, electronic commerce, communications devices, POS
terminals, bank transaction authorization, facility access and
security, ATMs, time-and-attendance, and residential security.

Product Offerings

Overview

Through the Companys merger with Visionics,
the combined product portfolio has expanded significantly. The
Company has developed leading-edge security and live scan
solutions that can help to: protect proprietary information,
prevent fraud and identity theft, identify criminals, control
physical access, protect confidential records, protect
information contained on corporate networks, as well as assist
in job applicant screening. Many of the Companys solutions
employ leading optical fingerprint capture technologies and
facial recognition technologies, proprietary algorithms and
customizable application software suites.

Identix offerings can be classified into
five categories: (i) technology; (ii) products;
(iii) platforms; (iv) project management services; and
(v) fingerprinting services.

1.Technology:

Fingerprint
Technology

Identix is the recognized leader in the
development of commercial grade fingerprint identification
technology. The Companys proprietary software engine,
BioEngine®, enables a broad range of products and
applications to be built by partners, original equipment
manufacturers (OEM), value added resellers
(VAR) and system integrators. These include
authentication systems for information security, access control,
e-commerce and time and attendance.

In addition to BioEngine, Identix has packaged
its fingerprint technology offerings into application-specific
Software Development Kits (SDK).

BioEngine SDK.The
BioEngine SDK allows system engineers to rapidly develop
biometrically-secure applications for fingerprint verification
and/or identification. Implementation options include
verification (one-to-one) and identification (one-to-many or
search) matching capabilities and support.

BioLogon® SDK.The BioLogon SDK allows system
engineers to rapidly integrate biometrically-secure applications
by interfacing with Identix award-winning BioLogon software. The
BioLogon SDK leverages Identix existing BioLogon software
technology for rapid application deployment.

FingerLanTMIV SDK.The Identix FingerLan IV
SDK contains all the tools needed to create a custom physical
access control application, or integrate fingerprint biometrics
into virtually any access control system using Microsoft
Visual C++ to control Identix Fingerscan V20
fingerprint access control units. The SDK also provides sample
and source code to write an application that exercises many of
the FingerLan IV Access Control Application functions,
which can greatly assist developers in rapidly integrating the
Fingerscan V20 physical access device into any application.

BioCard® SDK.
Identix BioCard SDK enables smart card manufacturers,
integrators, and end users to easily implement smart card-based
biometric authentication. The framework of the BioCard SDK
enables Windows-based applications and JavaTM Card
applets to leverage Identix biometric authentication
capabilities. The BioCard SDK extends the current security of
any applet/ application to support multiple factors of
authentication. Using minimal function calls at the UserLogon
and UserEnroll level, engineering organizations can integrate
most applications and java applets in a matter of hours.

A significant number of companies have purchased
Identix Fingerprint SDKs and a growing number are deploying
finished products and solutions. Through Identix partner
network, Identix BioEngine technology is deployed throughout
government agencies, hospitals, banks and corporate facilities
worldwide.

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Facial
Recognition.

Identix is a recognized leader in the development
of facial recognition technology. Its proprietary software
engine, FaceIt®, enables a broad range of products and
applications built by partners (OEMs, VARs and system
integrators). These include enhanced Closed Circuit Television
systems (CCTV), identity fraud applications and
authentication systems for information security, access control,
travel, banking and e-commerce. FaceIt technology is also the
underlying biometric technology for Identix Biometric
Network Platform.

In addition, FaceIt technology is provided
through software development toolkits, run-time licenses and
application software. The primary SDKs and toolkits are:

FaceIt Verification SDK.The FaceIt Verification SDK contains
face finding and face recognition technologies designed for use
in one-to-one verification scenarios, such as access control or
time and attendance.

FaceIt Identification SDK.The FaceIt Identification SDK contains
face finding and face recognition technology designed for use in
searching large photo databases and other data mining
applications.

FaceIt MultiFace SDK.The FaceIt MultiFace SDK is an add-on
for the FaceIt Identification SDK that allows fast face
segmentation (and multiple face finding) for near real-time
performance. In order to perform face recognition after finding
faces using this SDK, the Identification SDK is required. The
face finding functionality is similar to that found in the
Identification SDK, but the algorithms used in this SDK have
been optimized for speed and are designed for use with images
captured from live video or video playback.

Over 500 companies have purchased FaceIt SDKs and
a growing number are deploying finished products and solutions.
Among these are Electronic Data Systems Corporation
(EDS), Honeywell, Raytheon, ARINC, IBM, ImageWare,
Printpak International, Inc., a company owned by Motorola and
Digimarc (formerly Polaroid). Through Identix partner
network, FaceIt technology is deployed in casinos, law
enforcement mug shot booking systems, town center surveillance
systems, voter registration and civil ID programs, laptop
screensaver applications, and video data mining products.

2.Products:

Live
Scan

In the live scan 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 applications including law
enforcement, immigration and civilian employment, screening and
background checks. The Companys live scan offerings range
from stand-alone units to small, portable and wireless devices,
allowing Identix to serve the broad needs of the law enforcement
and civilian live scan market.

TouchPrintTM, TENPRINTER® and
FingerPrinterTM CMS systems were 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. Instead, these
live scan 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 can then be printed using a laser printer
or transmitted over telephone lines or a wide area network to
Automatic Fingerprint Identification Systems (AFIS)
for identification matching at local, state or federal agencies,
or other established databases. In addition to law enforcement
applications, other applications for live scan include
background checks of prospective employees by public and private
sector employers.

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 systems that it believes capture higher
resolution and more accurate images than other available
products. Identix live scan systems produce rolled finger
and slap (four fingers at once) images at a minimum
of 500 dots per inch.

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TouchPrint 2000; TENPRINTER 1133;
FingerPrinter CMS.The TouchPrint 2000
is the latest stand-alone live scan system launched by the
Company. The TouchPrint 2000, like all Identix live scan systems
have obtained FBI Appendix F Certification, the FBIs
highest level of Image Quality Specification (IQS).
The TouchPrint 2000 is also the first fingerprint scanner to
employ the Companys Moisture Discriminating
OpticsTM technology. The moisture-discrimination
patented imaging design technology eliminates a long-standing
limitation in live digital imaging of fingerprints that is
caused by the presence of moisture on the surface of the platen
or adhering to the convoluted surfaces of the subjects
fingerprints. Conventional live scan optics cannot discriminate
between moisture and skin surface. This optical limitation
results in the inability to consistently and accurately image
ridge and pore structure detail, reducing the utility of digital
fingerprints for forensic comparison with crime scene latent
lifts. Identix Moisture Discriminating Optics
effectively ignore residual moisture consistently
recording the structure of ridge edges and skin pore detail even
when the ridges are surrounded by moisture. All three live scan
systems utilize high-resolution scanners with digital signal and
video processing boards, multi-processing application software,
multi-tasking computers, computer monitors as well as laser
printers. The TouchPrint 2000 and TENPRINTER 1133 systems are
enclosed in a ruggedized cabinet.

TouchPrint 2600 Applicant Fingerprint System
(TP-2600 AFS).The TP-2600
AFS is designed to provide high-quality fingerprint scanning for
civil applications. The TP-2600 AFS is based on the
Companys, FBI Appendix F-Certified, TouchPrint 2000
fingerprint scanner technology. The TP-2600 AFS supports direct
connections to state and local AFIS systems and to the FBI IAFIS
to permit rapid screening of job applicants to help prevent the
hiring of personnel with past criminal records for industries
such as airports, school systems, banking/financial and
securities firms and segments of the healthcare field.

TENPRINTER FC-Desktop Modular and TENPRINTER
FC-Transportable.The TENPRINTER
FC-Desktop Modular and TENPRINTER FC-Transportable are FBI
Appendix F certified, low cost, modular fingerprint live
scan systems. The Transportable is designed to fit in a
hard-sided carrying case, and allows forensic quality live scan
fingerprint capture at remote locations. Fingerprint images can
be transmitted to AFIS systems from the remote location or
stored for processing at a central location.

TouchPrint PRO Full Hand Scanner.Identix TouchPrint PRO is the
first full hand live scan imager to receive Appendix F
Certification from the FBI. Employing Identix patented
Moisture Discriminating Optics, the TouchPrint PRO captures a
continuous scan from the carpal crease to the fingertips, in
compliance with International Association for Identification
(IAI) standards. The TouchPrint PRO Scanner
eliminates the tedious process of stitching together pieces of
prints and provides the ability to absolutely connect palm
images to a particular human subject through the simultaneous
capture of fingertip and palm ridge information.

DFR®90.The DFR 90 is a forensic quality single fingerprint reader
specifically designed to capture and display a high-resolution
video fingerprint image on a customer-supplied workstation. This
product is designed to be used primarily by system integrators
as an optical fingerprint capture device that supplies
fingerprint images to a frame grabber that digitizes the image
for computerized fingerprint database systems for identification
matching. The DFR 90 is incorporated by OEMs into turnkey
systems and is used for civilian applications in welfare fraud
prevention, immigration and border control, and motor vehicle
licensing.

TouchPrint Card Scan System.Identix Card Scan Systems
provide digitization of inked fingerprint images that were
originally recorded on 10-print card stock. The Card Scan
Systems are designed to be used primarily by lower volume
booking sites that want to participate in an electronic
fingerprint identification network. These systems employ
flat-bed scanners 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.

Store & Forward Systems.Identix Store & Forward
Systems are used at central processing sites to manage the flow
of electronic fingerprint records from a network of TouchPrint,
TENPRINTER or FingerPrinter CMS Live Scan systems. The
high-performance, multi-function Store & Forward platform

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simultaneously supports record receiving,
interactive record editing, selective record transmitting and
record printing on locally attached printers.


Image Printers.Identix printers 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.

Live
Scan Installed Base

Law enforcement:Law
enforcement agencies in all 50 States, including police and
sheriffs departments, courts, prisons, jails, customs and
the Immigration and Naturalization Service (INS),
the District of Columbia and more than four foreign countries
have installed in excess of 5,000 of the Companys live
scan products. State-wide law enforcement network installations
include California, Illinois, Texas, Arizona, New Jersey, Ohio,
Wisconsin, Georgia, Virginia, Maryland, Minnesota, Pennsylvania,
Alabama, Oregon, Nevada and Wyoming. Many large cities and
counties have also installed networks of Identix TouchPrint and
TENPRINTER Live Scan systems for law enforcement agencies,
including Los Angeles County Sheriff, Cook County (Chicago)
Sheriffs Department, New York City Police Department,
Texas Department of Public Safety, Detroit Police Department,
Wayne and Oakland Counties, Michigan, King County, Washington,
Boston Police Department, San Francisco Police Department and
Police Constabularies in England and Wales.

Immigration:The INS
uses Identix live scan products to perform background
checks on persons who enter the United States and persons
seeking naturalization. Over 600 systems have been delivered to
INS installations at airports and other ports of entry, as well
as immigrant processing centers across the country.

Social services:Social service agencies in five states to date use Identix
live scan 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 to date use the
Companys live scan products to check whether drivers
license applicants have received and/or had revoked a license
under different names in that state.

Airports:In an
effort to increase aviation security, the U.S. Congress
passed legislation in October 2001 that would require criminal
background checks for all people who apply for a job as a
baggage and checkpoint security screener, or any job that will
give them access to the airfield. To date, over 100
U.S. airports have installed Identix TouchPrint,
TENPRINTER and FingerPrinter CMS Live Scan systems for applicant
fingerprinting to assist the airports in meeting the compliance
terms of this mandate. The airports include Los Angeles
International, Seattle Tacoma International, Tampa
International, Dane County Regional Airport in Madison,
Wisconsin, San Antonio International in Texas, Charlotte-Douglas
International in North Carolina, Manchester Airport in New
Hampshire, Baltimore/ Washington International, Washington
Dulles International, Ronald Reagan National, JFK International,
Boston Logan International, Chicago OHare and Orlando
International Airport.

Network
Security

Many government and commercial
organizations most valuable resources reside on computer
systems: business plans, customer lists, account records,
product information, medical records, personal data, financial
records for example. To protect information, it is critical to
control access whether accessed from a local area network or
through wireless communication devices. This is especially
critical in those areas such as healthcare and finance, where
legislation is mandating confidentiality of patient records and
financial transactions and information. Frequently, convenience
dictates that the keys to those systems are often found on
scraps of paper floating around the office or taped under
keyboards. Identix information security products and
solutions are designed to protect computers, networks and
portable devices from unauthorized users, both external and
internal.

The Companys product offerings are
convenient and suitable for the majority of information security
applications. Identix offers a variety of products, all with the
ability for customization to fit the various needs

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and environments of governmental and commercial
entities. For example, fingerprint identification at log on can
be layered with facial recognitions continuous monitoring
capabilities to secure the most sensitive applications. In
addition, our information security solutions can be combined
with smart cards, PINs and etc. for added security.


BioTouch®
USB 200.The BioTouch USB 200 fingerprint reader utilizes
the Companys DFR 200 scanner, a small optical
fingerprint reader about the size of two matchbooks. The
DFR 200 fingerprint reader is for desktop peripheral
devices primarily used for password replacement in PC products
shipped by partners including Compaq, Dell, Toshiba, Key Tronic,
and SCM Microsystems and works with Identix BioLogon
software to scan a persons finger image and match it
against a previously enrolled image for positive user
authentication.

BioTouch PC Card.The BioTouch PC Card provides a fully
functional optical fingerprint reader inside a single
type II PC card and is specially designed to enable
biometric security in laptop and pocket PCs. The BioTouch PC
Card works with BioLogon software to scan a persons finger
image and match it against a previously enrolled image for
positive user authentication. It utilizes Identix DFR 300
scanner, a small optical fingerprint reader about the size of a
standard U.S. postage stamp and is 4.5 mm thick.

BioLogon.BioLogon
is a family of software products designed for stand-alone and
networked PC security. BioLogon replaces hard-to-remember
passwords with a touch of a finger to gain access to PCs and
networks. BioLogon has been developed to work with
Microsofts Network Security Architecture, Novells
NMAS network products and the Wyse Thin Client 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.
Identix believes it is the only biometric security network
solution operating with Windows 2000, which has received
Microsoft certification, for both biometric hardware and
software solutions.

Network
Security Installed Base

Healthcare:Identix network security solutions are being employed to
secure access to confidential patient records by companies in
the healthcare industry. Family Health Centers of San Diego
(FHCSD) has integrated Identix BioLogon into
the FHCSD network applications for authentication of individual
patient data transactions. Identix biometric security
solutions will help ensure the Center complies with the rigorous
confidentiality requirements of HIPAA. FHCSD is replacing
password authentication across its Wide Area Network
(WAN) with Identix BioTouch USB biometric
fingerprint readers and Identix BioLogon software for
Windows 2000.

Scott & White Memorial Hospital has deployed
Identix fingerprint technology to its workforce as a customized
biometrically authenticated healthcare application. Scott &
White employees can biometrically access more than 70 network
applications with the simple touch of a finger via Identix
technology to assist the Hospital in complying with the
impending HIPAA regulations. Identix technology provides not
only a more secure system than when the Hospital used passwords,
it also assists Scott & White in complying with the strict
confidentiality requirements for accessing patient records
because biometric authentication provides irrefutable
information on which individual is accessing what patient record.

Financial Services:Major banking institutions are employing Identix
fingerprint biometric security and authentication solutions to
secure access by employees to bank IT networks. One of the
largest installations by a major Bank, consists of 5,000 Identix
fingerprint readers  a combination of BioTouch PC
Cards for mobile computers and parallel port devices 
and a 5,000-seat license for Identix BioLogon software.
The Bank is a leading financial services, investment banking and
investment management firm with more than 60,000 employees
throughout the world.

Additionally, three other large international
banks use the Companys network security solutions for
transaction authorization. Chile-based Banco Falabella has
adopted Identix security solutions to positively
authenticate its customers prior to conducting transactions at
its branch offices throughout the country. These

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solutions provide heightened security for its
customers, while eliminating the need to remember cumbersome
passwords. Banco Falabella has installed BioLogon software and
fingerprint readers at teller windows in many of its banks.
Customers are required to verify their identity via the
fingerprint readers prior to performing a transaction.
Additionally, the bank has integrated Identix fingerprint
technology into five Diebold ATM machines at select locations
throughout Chile to replace PINs for ATM transactions.


Identix fingerprint technology is also being
deployed by the Bank of Central Asia (BCA) to
provide heightened security for electronic fund transfers. BCA
believes it is the largest retail bank in Indonesia with assets
in excess of IDR 96.45 trillion, more than
790 branches and approximately 8 million customers
throughout the Country. Identix Fingerscan V20 units have
been deployed in select branches throughout Indonesia to assist
the Bank in secure processing of high-value electronic fund
transactions. Identix fingerprint biometric technology has
been directly integrated into the BCA electronic fund transfer
delivery system. This means that no electronic transfer in
excess of a certain value may be processed without proper
biometric verification. Bank tellers and managers are enrolled
in the system and assigned specific levels of security for
approval for electronic fund transfers. Teller stations
throughout BCAs banking network are equipped with Identix
systems and tellers must authenticate themselves via fingerprint
prior to processing an electronic fund transfer. At very high
values, a supervisor is also required to approve the transfer
and verify his identity prior to processing of the electronic
transfer.

The Brazilian Mercantile & Futures Exchange
(BM&F) has implemented Identix fingerprint
biometric security for authentication and access to its
electronic Global Trading System. BM&F moves
US$17.5 billion daily and believes that it is the eighth
largest futures and options exchange in the world. Following a
six-month evaluation program, BM&F has begun to deploy
Identix industry-leading fingerprint biometric hardware and
software to its traders. The solution deployed for BM&F by
Identix Brazilian distributor Global e-Secure requires traders
to access the electronic Global Trading System via fingerprint
biometric authentication. Each authorized trader has enrolled
with four fingers and may use any of the four to log-on to the
electronic trading system. Traders are required to verify their
identity via the fingerprint readers periodically at defined
time intervals throughout the period of time they are logged-on
to the system.

Local Government:The City of Oceanside, California has incorporated Identix
network security solutions in 1,500 seats across its desktop
Information Technology (IT) network that
accommodates a complexity of city bureaus and offices.
Identix security solutions provide the City the ability to
access multiple applications with a single function 
a fingerprint  instead of several passwords. Using
Identix BioLogon software, the City can also share
workstations and permit logons from anywhere on the network.
Since the City of Oceanside implemented Identix network
security solution, it has eliminated 85 percent of its
help-desk calls. Estimated savings produced from the reduction
in help desk calls has more than offset the investment.

Court Systems:The
Florida State Supreme Court has incorporated Identix
fingerprint security solutions to secure its 650 seat WAN
enterprise-wide, which encompasses five District Courts of
Appeal and the State Supreme Court. The State Supreme Court has
deployed 650 Compaq Fingerprint Information Technology
(FIT) readers, which incorporate the Identix DFR 200
optical fingerprint reader, along with BioLogon, to secure the
State Courts IT applications with fingerprint
authentication data. The solution also integrates Novell Modular
Authentication Services (NMAS), Network services
software from Novell Inc., (Novell), to deliver a
single point of administration for managing, accessing and
grading password and fingerprint biometric authentication
methods.

Education:The San
Diego Jewish Academy has selected Identix fingerprint
security solutions as a convenient, cost-saving alternative to
passwords to secure its 430 seat network. The security solution
chosen by the school to protect its network includes
Identix BioLogon software for Windows 2000 and the Compaq
FIT reader, which incorporates the Identix DFR 200 optical
fingerprint reader.

Internet access:Identix network solutions are being employed to secure
Internet access and usage. For example, CyberHouse Internet
Café in Bergen, Norway, installed the Companys
security solutions throughout its network to enroll cafe
visitors with their credit information for easy, secure Internet
access without

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passwords. CyberHouse anticipates that
Identix solutions will manage thousands of transactions
monthly for authentication and secure credit transactions for
customers.


Physical
Security

Identix Physical Access solutions provide a
secure means for any organization looking to control and audit
an individuals physical access privileges. Government and
commercial entities are increasingly in need of better solutions
to secure their facilities and frequently, securing physical
access to their buildings is not enough. Today there is a demand
to control, audit, and positively identify employees, residents
and even visitors as they enter facilities. Currently, entities
may be losing time and money to fraud as employees trade
smart/swipe cards and/or PINs to bypass current security and
time and attendance terminals. Identix physical access
solutions help control and monitor user entry.

Identix product offerings are convenient
and suitable for the majority of physical security applications.
Identix offers a variety of products, with the ability for
customization to fit a companys needs and environment. For
example, the Identix Fingerscan V20 fingerprint access control
device integrates easily into existing access systems and
provides a biometrically secure combination of verifying the
users identity while maintaining a positive transaction
log for automatic reporting. The system can be easily combined
with smart cards, PINs, etc. for added security.

FingerScanTMV20.The FingerScan V20 is the Companys latest
Physical Access Control (PAC) product. FingerScan
V20 combines Identix minutiae-based algorithm with
embedded PC technology to create a highly functional access
control device. By utilizing the same technology used in
BioLogon products, Identix plans to offer universal access
solutions for enterprises. Users can access a building, an
office door and a PC with the placement of one of their fingers.
FingerScan V20 provides additional functionality by
incorporating capability for ethernet and proximity cards and
allows for expanded capabilities through a software application
called Fingerlan IV.

Physical
Security/ Time & Attendance Installed Base

Building access:Numerous organizations have installed the Companys
biometric PAC solutions to secure building access, including the
Pentagon and various other United States government agencies,
banks and industrial plants. A major Las Vegas-based Casino has
installed Identix FingerScan V20 units to secure the
entrances to vital areas within its casinos. The casino is
securing access to many of its offices with
FingerScan V20s, including IT offices, the cold room where
computers are located, the PBX room and the cage and security
offices. Access to these areas is accomplished via the touch of
a finger. In addition to providing access, Identix
software applications have allowed the Casino to set up timers
to let security know if count teams emptying slot machines have
not logged back within the scheduled time and detect if a door
has been propped open.

ATM service:Armaguard, an Australian armored car and cash carrying company,
uses the Companys biometric PAC solutions to secure access
for service personnel to approximately several hundred ATMs
across Australia. Additionally, Banco Falabella has integrated
Identix fingerprint technology into five Diebold ATMs at
select locations throughout Chile to replace PINs for ATM
transactions.

Corrections:The
California Department of Corrections and the California Youth
Authority (CYA) have installed the Companys
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.

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

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Facial
Surveillance

Today, facial recognition technology is the only
biometric capable of identifying known people at a distance. As
the only commercial entity chosen by Defense Advanced Research
Agency (DARPA) to participate in the Human ID
at a Distance program, Identix is at the cutting edge, making
the Companys FaceIt technology the industry-leading
offering.

Facial surveillance can yield instant results,
verifying the identity of a suspect instantly and checking
through millions of records for possible matches quickly,
automatically and reliably. Identix automated systems are
used in airports, casinos, public buildings, town centers and
shopping malls around the world to enhance the effectiveness of
security provided by new and previously installed
CCTV systems.

These investigative tools help to single out
known terrorists or criminals, but they can also be applied to
quickly identify VIP guests, frequent customers or expected
visitors who have opted into a customer service-marketing
program.

FaceIt® ARGUS.FaceIt ARGUS is a state-of-the-art
automated full-time facial surveillance and identification
engine that allows each camera of a surveillance system, whether
new or old, to serve as a diligent observation point, even when
the video is not being actively observed. Based on Identix
Biometric Network Platform and incorporating all the
capabilities of the Companys leading FaceIt facial
recognition engine, FaceIt ARGUS makes it possible to turn any
passive CCTV system into an active, real-time
identification and observation point. The system can handle an
unlimited number of camera inputs and through the internet, the
system can be linked to databases of any size and/or location.

Mobile
Identification

Identix believes that security and identity
should never be limited to the requirements of a particular
established location, situation or environment. Police officers
in the field, agents securing borders and ports, and roaming
security officers all have a critical need to be able to
identify people in real-time at any location. Identix offers a
patented mobile identification system, called Identification
Based Information System (IBIS), that can capture
fingerprints and photographs on location and transmit them
wirelessly back to a central databank.

IBIS is a patented wireless, real-time mobile
identification system that combines expertise in biometric
capture and connectivity. The system is capable of capturing
photographs and forensic quality fingerprints for transmission
to law enforcement and other legacy databases. IBIS is comprised
of software tools, multi-media data storage and communications
servers. A complete management reporting database and audit
trail is included. The Company provides the systems integration
and software development services that are required to implement
identification management systems.

IBIS has been undergoing testing in Hennepin
County, Minnesota, the West Valley Police Department in Utah,
and the California cities of Redlands and Ontario.

3.     Platforms:

Biometric
Network Platform

Biometric Network Platform is a technology
framework for building scalable biometric solutions. It consists
of network ready elements  hardware components,
called biometric network appliances (BNA),
programming logic for connecting the BNAs to each other or to a
standard security and information system, and an enabling
biometric technology whose functionalities are encapsulated in
the BNA components. By combining the different BNAs with
application-specific programming logic, a wide range of scalable
solutions  such as large database searching,
surveillance and enterprise security  can easily be
built. The individual BNAs are dedicated to performing one
specific task surrounding identification and the programming
logic tells what action should be taken based on whether or not
a match is made. For example, in some applications, a positive
match may allow someone to gain access to an area, while in
another application access of the identified person may be
restricted.

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The Biometric Network Platform is specifically
aimed at data mining, surveillance and enterprise security
applications. Currently, the core biometric technology for the
Biometric Network Platform is Identix proprietary FaceIt
engine, however, the platform is designed to support other
biometric technologies, including fingerprint.

Identix provides the Biometric Network Platform
components to large systems integrators who in turn create
customer-specific offerings. Entities like Honeywell and
Raytheon are among the strategic partners the company has
aligned itself with to deliver the Biometric Network Platform to
the market.

In addition, in order to meet market demands and
promote the Biometric Network Platform overall, the Company
provides several off-the-shelf products based on the Biometric
Network Platform to end user markets. Among these is FaceIt
ARGUS, a real-time facial surveillance product, which has been
installed at several airports, town centers and undisclosed
border crossings.

itrustTM

itrust is a multi-authentication platform
launched by Identix in July 2000 that combines access rights and
administration functions for secure and trusted data sharing and
transaction management services for enterprise security and
internet applications. itrust integrates three of the most
important aspects of security, authentication access rights and
administration as a managed network security service.
Identix itrust solutions are designed to safeguard the
integrity of this data by providing an organization the tools to
control and confirm who is on the other end of a transaction,
grant that user access rights to particular resources on the
network and keep a record of transactions as they occur. The
Company believes itrust has applications for financial services
companies, to help protect financial and legal transactions;
healthcare organizations, to help safeguard medical records and
patient confidentiality; government agencies to assist in
providing internal network security and to help protect citizen
privacy and help ensure the integrity of voting results;
enterprises, to help safeguard wired and wireless web
transactions. Motorola and VeriSign have invested in Identix
specifically to fund the development and marketing of the itrust
solution.

4.     Project
Management Services  Identix Public Sector, Inc.
(IPS):

Identix Public Sector, Inc., formerly ANADAC,
Inc., is a wholly owned subsidiary of Identix headquartered in
Fairfax, Virginia. IPS provides information technology,
engineering services and facilities engineering consulting
services to private and public sector clients.
IPS services also support the development,
installation, integration and operation of hardware and software
technology solutions, including Identix products, for a variety
of client operating environments. IPS provides these
services through business units organized around the following
areas:

Information
Technology Security Services

IPS Information Technology Group
(IT Security) provides an assortment of
services to help companies protect information by controlling
external and internal access. Services include: risk assessment,
intrusion detection, and security policy development and
management.

IT Security provides design, development and
integration services for biometric security and imaging systems
for a variety of applications ranging from law enforcement to
office and business applications. For example, IT Security
served as the systems integrator for the Maryland Department of
Public Safety and Cook County Sheriffs Department
integrating the Companys TouchPrint Live Scan system and
the customers criminal justice information systems.

IT Security was awarded a Federal Supply Schedule
(FSS) through the General Services Administration
(GSA), which provides computerized catalogs for
federal and state agencies to easily procure equipment and
services. Through the GSA FSS program, IPS streamlines the
acquisition process and allows federal and state agencies to
procure Identix equipment in an expedient manner. Originally the
IT Security organization implemented the GSA FSS program
for internal use; now however, the IT Security organization

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allows third parties to sell through the
Companys GSA contract for a fee. The current contract has
a five-year base period of performance and a five-year follow-on
option.


Complex Program
Management and Engineering Services

This group supplies government and major
commercial organizations with a staff of experts in management
and technical disciplines to address a variety of needs
including: program management, acquisition and financial
management, logistics and engineering/ technical services. For
more than 20 years, IPS has served the Department of
Defense (DoD), primarily the U.S. Navy,
managing programs that play a critical role in our nations
defense, such as the Program Executive Office for Expeditionary
Warfare, Naval Special Warfare Program and the Office of Naval
Research.

Facilities
Engineering

IPS Facilities Engineering Division assists
large property owners with many complex technical issues in the
areas of facilities design, engineering, cost estimating,
project management, tenant coordination and move services. Their
staff of facilities professionals includes 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 projects are completed successfully, on time and
within budget. For example, IPS functions as the construction
manager for GSAs 10-year renovation of the White House and
Executive Office buildings, which began in 1998.

Legislative
Demographic Services, Inc. (LDS)

IPS wholly owned subsidiary, LDS, 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 politicians views, and then
mobilize employees, suppliers and/or members in an attempt to
influence political positions. Most recently, LDS has been
contracted to analyze potential political impacts on mergers,
acquisitions and industrial plant closings.

A portion of IPS business comes from
government agencies, subjecting the business to certain
additional risks.

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

5.     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
must repeat the fingerprinting and submission process.

The need for reliable and convenient fingerprint
capture for diverse applications has given rise to the
fingerprinting services 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 (SIFC), currently has over
100 fingerprinting locations around the country and
processes more than 300,000 applicants each year. Its
customers include state agencies and school districts in
Illinois and California, four major airlines, Sears Roebuck, 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 so

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the applicant can begin work more quickly;
re-submissions can be done automatically; rejection of cards
because of poor print quality is virtually eliminated; and the
risk is reduced to employers by discovering that an employee,
who has begun work, may have a criminal record.


Strategy

Overview

The Companys goal is to continue to provide
an accurate and reliable means to associate actions with
identity by continuing to develop high-level network and
physical security, live scan and facial recognition technology,
products and solutions. Identix plans to capitalize on the need
for uniqueness of identity in security applications to increase
its market penetration of federal, state and local governments,
healthcare, finance and other enterprise markets in the U.S. and
internationally. The Company believes the government markets,
federal, state and local provide the best near-term opportunity
for significant adoption of biometrics. The Company also
believes governmental legislation and regulation of industries
such as transportation, healthcare and finance will provide the
catalyst for increased adoption of biometric products and
solutions in these and other industries. It is the
Companys goal to establish a leadership position in these
markets and leverage its position of leadership into each
subsequent adopting market with the eventual goal of becoming
the leading security provider.

The key elements of the Companys strategy
include:

Deliver comprehensive
solutions.In all target markets, the
Company strives to provide comprehensive product and service
solutions for its customers. Identix is able to deliver
comprehensive biometric security solutions for a range of
different uses by integrating fingerprint image capture devices,
fingerprint analysis algorithms, facial recognition
capabilities, and authentication network management platforms.
The Company considers its multi-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 focus solely on
either the development of fingerprint image capture devices or
on a single biometric technology. 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 and
existing computer systems to improve the quality and efficiency
of records collection. The Company seeks to continue to provide
superior technical services and responsiveness by providing
complete customer solutions to its target markets.

Deliver scalable multi-biometric technology
and authentication platforms.With its
Biometric Network Platform, the Company seeks to overcome some
of the hurdles faced in the adoption of biometrics by providing
scalability for large enterprises. The Company will continue to
develop the capabilities of the Biometric Network Platform and
provide targeted product offerings based on this framework.
Through itrust, the Company strives to enable secure and trusted
data sharing and transaction management services for open
networks by integrating the three most important aspects of
security, authentication, access rights and administration, as a
managed network security service.

Penetrate new markets through strategic
relationships.The Company has
established strategic relationships with a select group of
market leaders to provide Security solutions, including FaceIt,
BioEngine and itrust, for a variety of applications. An
extensive infrastructure already exists for many of the markets
in which the Company currently participates or intends to
participate. In such cases, the Company has and will continue to
pursue relationships with companies that have strong positions
in these markets as well as with OEMs, system integrators,
defense contractors, and resellers who serve as prime
contractors for large integrated systems in the domestic and
international markets. For example, the Company has developed
Security products in cooperation with Compaq and Toshiba for low
cost PC network security and Microsoft Inc.
(Microsoft) and Novell for network support. The
Company has also developed relationships with the leading AFIS
suppliers, NEC Technologies, Inc. (NEC), Sagem
Morpho, Inc. (Sagem Morpho) and Cogent Systems to
provide forensic quality live scan capabilities to government
agencies. Finally, the Company intends to continue to pursue VAR
and OEM relationships for its FaceIt technology offerings.

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Continue to develop strategic partnerships and
relationships.In forming itrust, the
Company has entered into an alliance with Motorola whereby
Motorola has made an equity investment of $3.75 million in
Identix. The Company entered into a similar alliance with
VeriSign whereby VeriSign has made an equity investment of
$2 million in Identix. The funds have been used to support
itrust during its initial development. Identix may expand on
this strategic foundation by developing strategic partnerships
and relationships with additional itrust partners, as well as
additional deployers of itrust services. Additionally, the
Company may continue to develop new strategic partnerships and
relationships in other areas that pertain to the Companys
business.

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, or
appropriate, consider acquiring 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 enhanced algorithms, applications
software, integration tools and software, integrated hardware
designs, and mechanical and electronic components designed for
high volume production.

Maintain a global
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 and the
confidentiality of information is of concern, biometric
solutions have the potential of providing significant savings.
The Company has established regional sales or distribution
capabilities and local support presence throughout North
America, South America, Europe, Middle East and Far East to
address opportunities in these regions.

Product Development

The Company continues to invest in research,
development and engineering to enhance the performance and
functionality, and in certain cases to reduce the costs, of its
existing technology, products and solutions, as well as to
increase the breadth of the its product and services offerings.
The Companys expenditures for research, development and
engineering totaled $10,620,000, $9,649,000 and $8,022,000 in
the fiscal years ended June 30, 2002, 2001 and 2000,
respectively.

The Companys development programs have
recently focused on the next generation fingerprint and facial
recognition technology. This development will further enhance
the speed and accuracy of searching and matching algorithms
within very large databases. It will be more reliable and cost
effective than current commercialized technology, as well as
provide additional functionality, including the storage of
fingerprint and/or facial templates on smartcards and similar
storage devices. It will have the technology to match
fingerprint and/or facial recognition templates with live
presentation of such features on smartcards or similar storage
devices. Other security end user software applications will
include the next generation imaging products including a full
hand scanner and enhancements of the Companys current Live
Scan and IBIS products.

Sales, Marketing and Support

Instead of being focused around product lines as
in the past, Identix has recently established four strategic
business groups (SBG), each focused on specific
markets and customers; federal, state and local governments,
commercial and international. Each SBG has focused sales and
business development teams that sell Identix full range of
biometric products and solutions. Each SBG has a geographically
based internal sales force and is supported by shared
fulfillment and functional groups that deliver the engineering
and operational requirements for the company. Identix believes
this organizational structure is more customer driven and cost
efficient.

Direct Sales.Within
the U.S., the Companys network and physical security, live
scan, FaceIt ARGUS and IBIS product offerings are sold directly
to end users through the SBGs. Direct sales activity is
concentrated in the public sector market, law enforcement,
transportation, state and local governments, financial services
and other commercial enterprises.

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Channel Sales and Business
Development.In addition, the
Companys network and physical security fingerprint
products and facial recognition offerings are sold through a
worldwide network of channel sales personnel along the SBG
structure who establish and maintain relationships with
corresponding distributors, systems integrators, VARs and OEMs.
The Company also works closely with skilled system integrators
for civil and commercial applications of its live scan systems.

Channel sales activity is concentrated in the
markets of secure ID systems, law enforcement, transportation,
network security, healthcare, financial services, commercial
enterprise and government.

Marketing Strategy

Network Security Solutions:The Companys Network Security
products and solutions are marketed and sold through a worldwide
network of direct sales personnel, distributors, systems
integrators, VARs and OEMs including Toshiba, Dell, Compaq, Key
Tronic, Cherry and SCM Microsystems. The Companys Network
Security products and solutions sales activity is concentrated
in the markets of federal, state and local government,
enterprise network security, healthcare (protecting and
recording access to patient records), education, and banking
(financial transactions). The Company has sales, service and
product marketing in most regional sales offices to provide
customers with complete sales and support services.

Sales activity varies widely from single
authentication devices sold by internet fulfillment houses to
complex, networked recognition solutions such as facial
surveillance and recognition at a distance, PC network security,
financial transaction authorization, time-and-attendance and
building access sold by system integrators. The success of these
sales depends upon the Companys ability to provide
comprehensive integrated solutions.

Facial Recognition.FaceIt is sold primarily to government
agencies and law enforcement customers in conjunction with ID
systems, mug-shot database systems and CCTV systems through the
Companys strategic partners and value added resellers.
Partners pay a license fee for use of the technology based on,
for example, the number of software seats sold or the size of
the database being used. License fees can range from a low of a
few dollars per unit for a screen saver application on laptops
to nearly $1 million, as in the case where the Company
granted an unlimited use license for a voter registration system
in Mexico. The FaceIt ARGUS surveillance system is also sold
primarily to federal, state and local government customers.
Since this product was introduced on October 1, 2001, it is
difficult to determine its potential within this market. The
Company is currently participating in DARPAs Human
I.D. at a Distance program, which is advancing the state
of the art in facial recognition systems.

Live Scan products and solutions.The Companys Live Scan solutions
are marketed domestically and internationally primarily through
a direct sales force and sales representatives. Identix also
teams with NEC to provide live scan capability to law
enforcement agencies. In addition, the Company works closely
with skilled system integrators for civil and commercial
applications of its Live Scan 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 and TENPRINTER Live
Scan systems are 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.

IBIS:The Company
expects the majority of IBIS sales to be derived from federal,
state and local agency customers and, to follow a similar
adoption pattern to current live scan products, where larger
agencies will more than likely deploy it first before smaller
agencies consider adoption. The Company expects the majority of
early adopters of IBIS will require federal or state funding. An
initial installation of IBIS may cost between $200,000 and
$800,000 for a limited number of handheld units depending on
existing wireless communication infrastructure and the type of
AFIS an agency may have. The Company anticipates that once an
IBIS system is established within an area, additional handheld
units may be added without significant

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infrastructure investment. The initial handheld
units are expensive to produce and may require additional
engineering to reduce production costs and to assess the
features and functionality. The Company will undertake this
effort after assessing results and feedback from early adopters.


Identix Public Sector services.IPS markets its services directly to
United States government agencies, including the DOD and Navy,
as well as commercial entities.

Product and Customer Support

Service and support for all Company products
including web-based, telephone and onsite support plus training
is based out of the Companys headquarters in Minnetonka,
MN. 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 traveling to the customer site to explain the technical
operation of the system, clarifying the configurations,
detailing any necessary software customization and defining any
integration issues. Once installed, the systems are supported by
the TouchCare support center, regional staffs and the Identix
trained system integrators, VARs or partners.

The Companys Live Scan products generally
carry a 90-day warranty and an extended service is offered
through a choice of maintenance contracts. Certain of the
Companys physical access and network security products
generally carry a 90-day to 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 generally passes on to its customers the standard
warranties provided by those manufacturers. The Company has
field engineering and service personnel supporting its products
throughout the United States.

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 $6,172,000 on
June 30, 2002, all of which is scheduled to be shipped and
recognized as revenue in fiscal 2003. Identix had product
backlog of $1,336,000 on June 30, 2001 and $1,234,000 on
June 30, 2000.

IPS had services backlog of $101,354,000 on
June 30, 2002. IPS had services backlog of $131,510,000 on
June 30, 2001 and $132,514,000 on June 30, 2000.

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, trademark,
copyright, trade secret and contract law to establish and
protect its proprietary rights. The success of the
Companys 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 2005 on a system for
    capturing both slap and individual rolled fingerprint images;                  
|
| |  | one U.S. patent expiring in 2007 for a method for
    generating data characteristics of a rolled fingerprint image;                
|
| |  | one U.S. patent expiring in 2008 and seven
    foreign patents on a fingerprint analysis algorithm;                                 

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| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one U.S. patent expiring in 2010 and four foreign
    patents on a portable apparatus for identification verification;                            
|
| |  | one U.S. patent expiring in 2010 on a system for
    removing moisture from a finger or a finger-imaging surface;                                 
|
| |  | one U.S. patent expiring in 2013 covering an
    enhanced method of recording a fingerprint;                                                      
|
| |  | one U.S. patent expiring in 2014 and six foreign
    patents on the Companys curved platen design palm scanner;                                  
|
| |  | one U.S. patent expiring in 2014 covering a
    system for electronically acquiring fingerprint images;                                           
|
| |  | 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 2015 for obtaining a
    plain image of multiple fingerprints;                                                        
|
| |  | one U.S. patent expiring in 2015 and one foreign
    patent on a gambling chip recognition system;                                                
|
| |  | 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
    memory card having a biometric template;                                                          
|
| |  | one U.S. patent expiring in 2016 for a face
    recognition technique;                                                                            
|
| |  | one U.S. patent expiring in 2017 and one foreign
    patent on a palm scanner; and                                                                
|
| |  | one U.S. patent expiring in 2018 covering an
    optical fingerprint reading device including a rotatable drum.                                   

Identix has an ongoing policy of filing patent
and trademark applications to seek protection for novel features
of its products and currently has 17 patent applications
pending in the United States and 20 in foreign countries.
Identix currently has seven U.S. trademark applications pending
and 27 U.S. trademark registrations. Identix currently has
six foreign trademark applications pending and nine foreign
trademark registrations.

There is a risk that claims allowed on any
patents held by the Company, or that trademarks held by the
Company, may not be broad enough to protect the Companys
technology or proprietary interests. In 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 business,
operating results, financial condition and stock price and on
the Companys ability to compete successfully. See
Risk Factors.

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. Moreover, 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 develop non-infringing technology or
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. See Risk Factors.

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

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adverse outcome in any litigation may have a
severe negative impact on the Companys business, operating
results, financial condition and stock price and on the
Companys ability to compete successfully. 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 could result in limitations on the scope or validity of our
patents or trademarks. See Risk Factors.


The Company also relies on trade secrets and
proprietary know-how, which it seeks to protect by
confidentiality agreements with its employees, 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. A failure by the Company to
protect its trade secrets, proprietary know-how and other
intellectual property in a meaningful manner could have a
material adverse effect on the Companys business,
operating results, financial condition and stock price and on
the Companys ability to compete successfully. See
Risk Factors.

Competition

The markets for the Companys products and
solutions are extremely competitive and are characterized by
rapid technological change 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
significant research and development activities. There is a risk
that the Company may not be able to make the technological
advances necessary to compete successfully. Existing and new
competitors may enter or expand their efforts in the
Companys markets, or develop new products to compete
against the Companys. 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 or other biometric security applications that could
compete directly with the Companys 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, signature recognition, 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 Security
products also compete with non-biometric technologies such as
traditional key, card and surveillance systems, tokens, PINs,
and passwords.

The Company believes that the most important
competitive factors for Security products are the degree of
security provided, ease of use, functionality, price, size and
reliability. In applications such as controlled access to
computers, ATMs and Electronic Funds Transfer (EFT),
the Company faces competition from technologies relying on PINs,
smart cards, tokens 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 Security 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 Security products. For
example, card key or token systems can be integrated with
Security systems to supply different levels of security within a
facility. A significant number of established and startup
companies have developed or are developing and marketing
security and/or authentication solutions that

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currently compete or will compete directly with
the Companys itrust and Biometric Network Platform
solutions. Some of these companies have significantly more cash
and resources than the Company, and may currently offer a
broader or more robust range of solutions than those currently
available through the Companys offerings. Identix
physical access and network security and facial surveillance and
recognition products and solutions face competition from a
number of competitors who are actively engaged in developing and
marketing biometrics of other security products, including RSA
Security, Incorporated, Precise Biometrics AB, Secugen
Corporation, SafLink Corporation, Netegrity, Inc., Secure
Computing Corporation, and Viisage Technology, Incorporated.


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

The market for the Companys IBIS device is
in its infancy and, therefore, the competitive environment is
not well defined. The Company believes that some of the live
scan competitors have smaller devices capturing fingerprints,
but not the combination of face and finger. Facial recognition
is an emerging market. As such, there are currently no companies
with significant sales in this market. The Companys
primary competitor today is Viisage Technologies (Trading on the
NASDAQ: VISG) with a primary customer base of government
agencies with particular penetration in Departments of Motor
Vehicles. The Company believes its competitive advantage is the
Biometric Network Platform that allows large database searches
from multiple cameras linked together through existing networks
or the Internet. While the Company does not see any other
significant competitors today, many companies appear to be
working on similar technology. The Company believes the advanced
stage of our development along with our relative size gives us a
competitive advantage over any additional company that may
emerge.

In its Government Services business, the Company
faces substantial competition from professional service
providers and systems integrators of all sizes in the government
marketplace. IPS is increasingly being required to bid on firm
fixed price and similar contracts that result in greater
performance risks to IPS. If IPS 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 are fabricated by highly automated, 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
Companys physical access and network security products are
fully outsourced to contract partners.

The Company currently uses certain components and
sub-assemblies which come from sole source suppliers, the most
important of which are the charge coupled and CMOS imaging
devices, ASICs for the Security products and proprietary optical
assemblies and coatings for the 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

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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, 2002, Identix had
381 employees working in its products business, of whom
102 were engaged in research, development and engineering,
81 in production and production support, 129 in sales,
marketing and field service and 69 in general
administration, finance and legal. As of September 1, 2002,
IPS had 171 employees working in its services business, of
whom 136 were service providers, 5 were engaged in
sales and marketing and 30 were engaged in general
administration and finance. None of Identix 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 reportable segments, see Note 11 to the
Consolidated Financial Statements.

RISK FACTORS

This annual report on Form 10-K contains
forward-looking statements that involve risks and uncertainties.
The Companys business, operating results, financial
performance, and share price may be materially adversely
affected by a number of factors, including but not limited to
the following risk factors, any one of which could cause actual
results to vary materially from anticipated results or from
those expressed in any forward-looking statements made by the
Company in this annual report on Form 10-K or in other
reports, press releases or other statements issued from time to
time. Additional factors that may cause such a difference are
set forth elsewhere in this annual report on
Form 10-K.

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

Our product revenues and a portion of our service
revenues are derived from the sale of biometric products and
services. Biometric solutions have not gained widespread
commercial acceptance. We cannot accurately predict the future
growth rate, if any, or the ultimate size of the biometric
technology market. The expansion of the market for our products
and services depends on a number of factors including without
limitation:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cost, performance and reliability of our
    products and services and the products and services of
    competitors;                         
|
| |  | customers perception of the perceived
    benefit of biometric solutions;                                                                       
|
| |  | public perceptions of the intrusiveness of these
    solutions and the manner in which firms are using the
    fingerprint information collected;
|
| |  | public perceptions regarding the confidentiality
    of private information;                                                                     
|
| |  | customers satisfaction with our products
    and services; and                                                                                  
|
| |  | marketing efforts and publicity regarding these
    products and services.                                                                       

Certain groups have publicly objected to the use
of biometric products for some applications on civil liberties
grounds and legislation has been proposed to regulate the use of
biometric security products. From time to time, biometrics
technologies have been the focus of organizations and
individuals seeking to curtail or eliminate such technologies on
the grounds that they may be used to diminish personal privacy
rights. In the event that such initiatives result in restrictive
legislation, the market for biometric solutions may be adversely

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affected. Even if biometric solutions gain wide
market acceptance, our products and services may not adequately
address the market requirements and may not gain wide market
acceptance.


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

A significant number of established and startup
companies have developed or are developing and marketing
software and hardware for fingerprint biometric security
applications that currently compete or will compete directly
with those products designed, developed and sold under our line
of products known as our Security products. Some of
these companies have developed or are developing and marketing
semiconductor or optically based direct contact fingerprint
image capture devices. Other companies have developed or 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 technologies or approaches were widely adopted, it would
significantly reduce the potential market for our products. Our
Security products also compete with non-biometric technologies
such as certificate authorities, and traditional key, card,
surveillance systems and passwords. Many competitors offering
products that are competitive with our Security products and
services have significantly more cash and resources than we do.
The biometric security market is a rapidly evolving and
intensely competitive market, and we believe that additional
competitors may yet enter the market and become significant
long-term competitors.

The products designed, developed and sold under
our line of products known as our Imaging products
also face intense competition from a number of competitors who
are actively engaged in developing and marketing live scan
products, including Heinemann Biometric Systems GmbH, Sagem
Morpho, Inc., Printrak International, Inc., a company owned by
Motorola and CrossMatch Technologies, Inc.

We expect competition to increase and intensify
in the near term in the biometrics markets. Companies competing
with us may introduce products that are competitively priced,
that have increased performance or functionality or that
incorporate technological advances not yet developed or
implemented by us. Some present and potential competitors have
financial, marketing, research, and manufacturing resources
substantially greater than ours.

In order to compete effectively in this
environment, we must continually develop and market new and
enhanced products at competitive prices and must have the
resources available to invest in significant research and
development activities. The failure to do so could have a
material adverse effect on our business operations, financial
results and stock price.

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

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

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



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | potential conflicts between business cultures;                                      
|
| |  | adverse changes in business focus perceived by
    third-party constituencies;      
|
| |  | potential conflicts in distribution, marketing or
    other important relationships;
|
| |  | inability to implement uniform standards,
    controls, procedures and policies;    
|
| |  | integration of the research and development and
    product development efforts; and

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| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | loss of key employees and/or the diversion of
    managements attention from other ongoing business concerns.

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

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

Approximately $25 million of costs are
expected to be incurred by Visionics and us in connection with
the merger. Such amount includes costs associated with combining
the businesses of the two companies, including integration and
restructuring costs, costs associated with the consolidation of
operations and the fees of financial advisors, attorneys and
accountants. A significant portion of these costs will be
charged to expense in the period incurred, reducing our earnings
or increasing our loss for such period. The remaining costs,
consisting primarily of fees and expenses paid to financial
advisors, attorneys and accountants, will be a component of the
purchase price and capitalized as an element of goodwill.
Goodwill is required to be tested for impairment at least
annually and we will be required to record a charge to earnings
in the period any impairment of goodwill is determined. There is
a risk that the management of the combined company will not be
able to effectively control the costs associated with the
integration of the two companies or that such costs may be
higher than anticipated. The failure to manage such integration
costs effectively could have a material adverse effect on the
business operations, financial results and stock price of the
combined company.

The market price of our common stock could
decline.

The market price of our common stock could
decline if:



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

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

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

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

While we believe that future cash flows from
operations, together with existing working capital and available
lines of credit, may be adequate to fund our current cash
requirements, we may need to raise additional debt or equity
financing in the future. We may not be able to obtain additional
debt or equity financing. If successful in raising additional
financing, we may not be able to do so on terms that are not
excessively dilutive to existing stockholders or less costly
than existing sources of financing. Failure to secure additional
financing in a timely manner and on favorable terms in the
future could have a material adverse impact on our financial
performance and stock price and require us to implement certain
cost reduction initiatives and curtail certain of our operations.

Future growth depends in part on the success
of itrust, a relatively new business activity with little
operating history.

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



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to form additional collaborative
    partnerships that will contribute technical and commercial value
    to itrust;                                               
|
| |  | the demand for our Security products and itrust
    products and services;                                                                                                     
|
| |  | our ability to successfully and rapidly
    manufacture, disseminate and deploy biometric enabled products
    and services;                                                   
|
| |  | the ability and willingness of our collaborative
    partners to successfully and rapidly promote, manufacture,
    disseminate and deploy biometric enabled products services;
|
| |  | the levels of competition in the space for
    Internet and wireless web security services;                                                                                    
|
| |  | the perceived need for secure communications and
    commerce in such markets;                                                                                                 
|
| |  | our ability to successfully introduce new
    products and services; and                                                                                                       
|
| |  | our ability to expand its operations and attract,
    integrate, retain and motivate qualified sales, marketing, and
    research and development personnel.                   

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

We have experienced net losses in the last two
fiscal years and expect additional losses in the future. itrust
is not expected to contribute significant revenues or positive
cash flows in the foreseeable future. At the same time, however,
we will incur significant costs in the design, development,
manufacture, sale and deployment of itrust products and services
and in the execution of itrusts business plan. In part
because of the significant investment we will make in itrust, we
expect to incur substantial additional losses and negative cash
flows from it in the foreseeable future.

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

Our wholly-owned subsidiary, Identix Public
Sector, Inc. (IPS) is increasingly being required to
bid on firm fixed price and similar contracts that result in
greater performance risk to IPS. If IPS is not able to maintain
a competitive cost structure, support specialized market niches,
retain highly qualified personnel or align with technology
leaders, we may lose our ability to compete successfully in the
services business.

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

Our future success will depend upon our ability
to develop and introduce a variety of new products and services
and enhancements to these new product and services in order to
address the changing and sophisticated needs of the marketplace.
Frequently, technical development programs in the biometric
industry require assessments to be made of the future directions
of technology and technology markets generally, which are
inherently risky and difficult to predict. Delays in introducing
new products, services and enhancements, the failure to choose
correctly among technical alternatives or the failure to offer
innovative products and services at competitive prices may cause
customers to forego purchases of our products and services and
purchase those of our competitors.

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

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

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



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

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

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

Certain of our Imaging products often have a
lengthy sales cycle while the customer evaluates and receives
approvals for purchase. If, after expending significant funds
and effort, we fail to receive an order, a negative impact on
our financial results and stock price could result.

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It is difficult to predict accurately the sales
cycle of any large order for any of our products. If we do not
ship one or more large orders as forecast for a fiscal quarter,
our total revenues and operating results for that quarter could
be materially and adversely affected.

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

The lead-time for ordering parts and materials
and building our Security or Imaging 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 services revenue
from government contracts, which are often non-standard, involve
competitive bidding, may be subject to cancellation without
penalty and may produce volatility in earnings and
revenue.

Our performance in any one reporting period is
not necessarily indicative of sale trends or future operating or
earnings performance because of our reliance on a small number
of large customers, the majority of which are government
agencies. Government contracts frequently include provisions
that are not standard in private commercial transactions. For
example, government contracts may include bonding requirements
and provisions permitting the purchasing agency to cancel the
contract without penalty in certain circumstances. As public
agencies, our prospective customers are also subject to public
agency contract requirements that vary from jurisdiction to
jurisdiction. Some of these requirements may be onerous or
impossible to satisfy.

In addition, public agency contracts are
frequently awarded only after formal competitive bidding
processes, which have been and may continue to be protracted,
and typically impose provisions that permit cancellation in the
event that funds are unavailable to the public agency. There is
a risk that we may not be awarded any of the competitive bidding
processes, which have been and may continue to be protracted,
and typically impose provisions that permit cancellation in the
event that funds are unavailable to the public agency.
Furthermore, unsuccessful bidders for public agency contracts
are provided the opportunity to formally protest certain
contract awards through various agency, administrative and
judicial channels. The protest process may delay a successful
bidders contract performance for a number of weeks, months
or more, or cancel the contract award entirely. Although we have
not previously experienced a substantial number of contract
delays or cancellations due to protest initiated by losing
bidders, there is a risk that we may not be awarded contracts
for which we bid or, if awarded, that substantial delays or
cancellation of purchases may follow as a result of such
protests. In addition, local government agency contracts may be
contingent upon availability of matching funds from federal or
state entities. Also, law enforcement and other government
agencies are subject to political, budgetary, purchasing and
delivery constraints which may continue to result in quarterly
and annual revenues and operating results that may be irregular
and difficult to predict. Such revenue volatility makes
management of inventory levels, cash flow and profitability
inherently difficult. In addition, in the event we are
successful in winning such procurements, there may be unevenness
in shipping schedules, as well as potential delays and schedule
changes in the timing of deliveries and recognition of revenue,
or cancellation of such procurements.

For the years ended June 2002 and 2001, we
derived approximately 83% and 89%, respectively, of our services
revenue directly from contracts relating to the Department of
Defense and other U.S. Government agencies. The loss of a
material government contract due to budget cuts or otherwise
could have a severe negative impact on our financial results and
stock price.

For the years ended June 2002 and 2001, we
derived approximately 91% and 94%, respectively, of our services
revenue from time-and-materials (T&M) contracts
and firm-fixed-price (FFP) contracts. We assume
certain performance risk on these contracts. If we fail to
estimate accurately ultimate costs or to control costs during
performance of the work, our profit margins may be reduced and
we may suffer losses. In addition, revenues generated from
government contracts are subject to audit and subsequent
adjustment by negotiation with representatives of the government
agencies. The Defense Contract Audit Agency is currently

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auditing IPS for the periods from July 1,
1997 to June 30, 2000. While we believe that the results of
such audit will have no material effect on our profits, if made,
such adjustments may have a material adverse effect on our
business, financial condition and results of operations.


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

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

Furthermore, in many instances, customer
procurements are dependent on the availability or continued
availability of state or federal government grants and general
tax funding. Such funding may be subject to termination at any
time at the sole discretion of the government body providing or
receiving such funds.

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

We rely in part upon original equipment
manufacturers (OEM) and distribution partners to
distribute our products, and we may be adversely affected if
those parties do not actively promote our products or pursue
installations that use our equipment.

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

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

We rely heavily on products and services
provided by International Technology Concepts, Inc.
(IT Concepts).

Both our Imaging and Security divisions purchase
certain complete biometric security and imaging products,
components of products and research, development and engineering
services related to the development of products from
IT Concepts. IT Concepts is also contributing to the
development of certain of itrusts solutions. In turn,
IT Concepts subcontracts portions of its development work
to an affiliate in Russia and brings in a portion of its
engineering and personnel resources from Russia under applicable
immigration laws. In recent years competition for a limited
number of available visas for foreign high-technology workers
and/or consultants has intensified as more U.S. companies
have chosen to look abroad for supplemental research,
development and engineering resources.

If we were to lose IT Concepts as a supplier
of products and engineering services, or if IT Concepts
were prohibited or restricted from bringing in a portion of its
engineering requirements or resources, because of lack of
availability of applicable immigration visas or otherwise, we
would be required to find alternative suppliers of products and
services or hire additional engineering personnel to provide the
services. This could require us to incur significant additional
research and development costs and 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

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personnel or suppliers at a reasonable cost, or
at all. Any delay in product development or shipment could have
a material adverse effect on our business, operations, financial
results and stock price. Identix is a party to a series of
agreements with IT Concepts governing
IT Concepts supply of research, development and
engineering services to Identix. Identix relies in part on these
agreements to protect its ownership, and the confidentiality of
Identix proprietary technology, trade secrets and other
intellectual property rights developed under the agreements.
There is a risk that these agreements may be inadequate to
protect Identix, or that such agreements may be breached, and
that the remedies available to Identix may not be adequate.


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

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

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

The success of our strategic plan to pursue
sales in international markets may be limited by risks related
to conditions in such markets.

For the years ended June 2002, 2001 and 2000, we
derived approximately 13%, 11% and 14%, respectively, of our
product revenues from international sales. We currently have a
local presence in the United Kingdom.

There is a risk that we may not be able to
successfully market, sell and deliver our products in foreign
countries, or successfully rely on supplemental offshore
research and development resources.

Risks inherent in marketing, selling and
delivering products in foreign and international markets,
include those associated with:



| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;         
|
| |  | loss of, or delays in importing products,
    services and intellectual property developed abroad, resulting
    from unstable or fluctuating social, political or governmental
    conditions;             
|
| |  | fluctuations in foreign currencies and the
    U.S. dollar;                                                                                                                                                 
|
| |  | loss of revenue, property (including intellectual
    property) and equipment from expropriation, nationalization,
    war, insurrection, terrorism, criminal acts and other political
    and social risks;
|
| |  | the overlap of different tax structures;                                                                                                                                                                    
|
| |  | seasonal reductions in business activity;                                                                                                                                                                   
|
| |  | risks of increases in taxes and other government
    fees; and                                                                                                                                              
|
| |  | involuntary renegotiations of contracts with
    foreign governments.                                                                                                                                       

In addition, foreign laws treat the protection of
proprietary rights differently from laws in the United States
and may not protect our proprietary rights to the same extent as
U.S. laws. The failure of foreign laws or judicial systems
to adequately protect our proprietary rights or intellectual
property, including intellectual

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


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 June 30, 2002, State of Wisconsin
Investment Board owned approximately 9% of the Companys
outstanding common stock. The concentration of large percentages
of ownership in any single stockholder may delay or prevent
change in control of the Company. Additionally, the sale of a
significant number of our shares in the open market by a single
stockholder or otherwise could adversely affect our stock price.

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

Performance failure in our products or certain of
our services may cause loss of market share, delay in or loss of
market acceptance, additional warranty expense or product
recall, or other contractual liabilities. The complexity of
certain of our fingerprint readers makes the manufacturing and
assembly process of such products, especially in volume,
complex. This may in turn lead to delays or shortages in the
availability of certain products, or, in some cases, the
unavailability of certain products. The negative effects of any
delay or failure could be exacerbated if the delay or failure
occurs in products or services (such as itrust services) that
provide personal security, secure sensitive computer data,
authorize significant financial transactions or perform other
functions where a security breach could have significant
consequences.

If a product or service launch is delayed or is
the subject of an availability shortage because of problems with
our ability to manufacture or assemble the product or service
successfully on a timely basis, or if a product or service
otherwise fails to meet performance criteria, we may lose
revenue opportunities entirely and/or experience delays in
revenue recognition associated with a product or service in
addition to incurring higher operating expenses during the
period required to correct the defects. There is a risk that for
unforeseen reasons we may be required to repair or replace a
substantial number of products in use or to reimburse customers
for products that fail to work or meet strict performance
criteria. We carry product liability insurance, but existing
coverage may not be adequate to cover potential claims.

We may be subject to repair, replacement,
reimbursement and liability claims as a result of products that
fail to work or to meet applicable performance
criteria.

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

Failure by us to maintain the proprietary
nature of our technology, intellectual property and
manufacturing processes could have a material adverse effect on
our business, operating results, financial condition and stock
price and on our ability to compete effectively.

We principally rely upon patent, trademark,
copyright, trade secret and contract law to establish and
protect our proprietary rights. There is a risk that claims
allowed on any patents or trademarks we hold may not be broad
enough to protect our technology. In addition, our patents or
trademarks may be challenged, invalidated or circumvented and we
cannot be certain that the rights granted thereunder will provide

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competitive advantages to us. Moreover, any
current or future issued or licensed patents, or trademarks, or
currently existing or future developed trade secrets or know-how
may not afford sufficient protection against competitors with
similar technologies or processes, and the possibility exists
that certain of our already issued patents or trademarks may
infringe upon third party patents or trademarks or be designed
around by others. In addition, there is a risk that others may
independently develop proprietary technologies and processes,
which are the same as, substantially equivalent or superior to
ours, or become available in the market at a lower price.


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

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

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

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

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

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

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



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | exposure to unknown liabilities of acquired
    companies;                                                                         
|
| |  | higher than anticipated acquisition costs and
    expenses;                                                                        
|
| |  | effects of costs and expenses of acquiring and
    integrating new businesses on our operating results and
    financial condition;
|
| |  | the difficulty and expense of assimilating the
    operations and personnel of the companies;                                      
|
| |  | disruption of our ongoing business;                                                                                                
|
| |  | diversion of management time and attention;                                                                                        
|
| |  | failure to maximize our financial and strategic
    position by the successful incorporation of acquired technology;               

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| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | 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; and                                 
|
| |  | 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.

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

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

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

If we lose the services of key personnel, or fail
to replace the services of key personnel who depart, we could
experience a severe negative impact on our financial results and
stock price. In addition, there is intense competition for
highly qualified engineering and marketing personnel in the
locations where we principally operate. The loss of the services
of any key engineering, marketing or other personnel or our
failure to attract, integrate, motivate and retain additional
key employees could have a material adverse effect on our
business, operating and financial results and stock price.




Item 2.     Properties

The Company does not own any real estate. The
Company is headquartered in Minnesota with office and
manufacturing facilities of approximately 63,000 square
feet in an industrial park at 5600 Rowland Road in Minnetonka.
The monthly lease payment for the Minnetonka facility is $57,000
a month plus taxes, insurance and maintenance costs. The space
is occupied under a lease expiring on March 31, 2008 and is
believed to be adequate for the Companys current business
needs.

The Company leases approximately 10,000 square
feet of space at One Exchange Place, Jersey City, New Jersey.
The monthly lease payment for the Jersey City facility is
$20,000 per month plus taxes, insurance and maintenance costs.
The space is occupied under a lease expiring in May 2006.

The Company has a customer service and sales
office in Ontario, California, in approximately
9,600 square feet. The monthly lease payment for the
Ontario facility is $13,000 a month plus taxes, insurance and
maintenance costs. The space is occupied under a lease expiring
in November 2007.

The Company leases approximately 8,000 square
feet of space in a facility in Maple Grove, Minnesota. The
monthly lease payment for the Maple Grove facility is $6,000 a
month plus taxes, insurance and maintenance costs. The space is
occupied under a lease expiring in June 2003. The Company
subleases this facility to a third party.

The Company leases approximately 2,000 square
feet of space in a facility in Washington D.C. The monthly
lease payment for this Washington D.C. facility is $6,000 a
month. The space is occupied under a lease expiring in February
2008. The Company subleases this facility to a third party.

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The Company leases space in a facility located at
Cirencester Business Park, Love Lane, Cirencester,
Gloucestershire in the United Kingdom. The Company has a
sixty-month lease agreement for this facility that expires in
December 2006. The Company subleases this facility to a third
party.

IPS leases approximately 93,000 square feet in
two locations in Virginia and one location in
Washington D.C. with aggregate monthly lease payments of
$243,000, which expire at various dates through 2011. The leases
contain escalation provisions requiring rental increases for
increases in operating expense and real estate taxes. IPS also
services customers from an office leased in Mississippi.

The Company also leases approximately 26,000
square feet of space in Los Gatos, California for its former
administrative headquarters and manufacturing facility and
approximately 31,000 square feet of space in Dublin,
California for its former engineering, research and customer
support facilities. The monthly lease payment for the Los Gatos
facility is $124,000 a month plus taxes, insurance and
maintenance costs and the lease expires December 31, 2007.
The monthly lease payment for the Dublin facility is $46,000 a
month plus taxes, insurance, and maintenance and the lease
expires March 15, 2006. Sales and service offices were
leased in Zurich, Rio de Janeiro and Singapore with an aggregate
net monthly lease payment of approximately $10,000. The Zurich,
Rio de Janeiro and Singapore leases were terminated in September
2001. The Company also serviced customers from a sales office in
Michigan. The Michigan sales office lease expired in May 2002
and was not renewed.

In addition the Company leases certain equipment
and furniture under operating leases that expire at various
dates through July 2006.




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


At the special meeting of stockholders of Identix
on June 25, 2002, the stockholders voted on the following
proposals:



| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     To issue Identix
    common stock in the merger pursuant to the Agreement and Plan of
    Merger among Identix, Viper acquisition Corp. and Visionics
    Corporation dated as of February 22, 2002. The results of
    the vote were:

|    |           |         |  |         |           |                 |  |  |         |  |  |  |            | 
|--- | --------- | ------- |  | ------- | --------- | --------------- |  |  | ------- |  |  |  | ---------- | 
|For |           | Against |  | Abstain |           | Broker Non Vote
|    |           |         |  |         |           |                
|    | 25,310,01 |         |  |         | 4 265,727 |                 |  |  | 193,091 |  |  |  | 16,430,078 | 



| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.     To approve an
    amendment to Identix certificate of incorporation to
    increase the number of authorized shares of Identix common stock
    by 100,000,000 shares to 200,000,000. The results of the vote
    were:

|    |            |         |  |         |           |                 |  |  |         |  |  |  |     | 
|--- | ---------- | ------- |  | ------- | --------- | --------------- |  |  | ------- |  |  |  | --- | 
|For |            | Against |  | Abstain |           | Broker Non Vote
|    |            |         |  |         |           |                
|    | 40,299,823 |         |  |         | 1,700,212 |                 |  |  | 198,875 |  |  |  | -0- | 



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | 3.     To adopt the
    Identix 2002 Equity Incentive Plan. The results of the vote were:

|    |            |         |  |         |           |                 |  |  |         |  |  |  |            | 
|--- | ---------- | ------- |  | ------- | --------- | --------------- |  |  | ------- |  |  |  | ---------- | 
|For |            | Against |  | Abstain |           | Broker Non Vote
|    |            |         |  |         |           |                
|    | 21,015,111 |         |  |         | 4,406,199 |                 |  |  | 347,521 |  |  |  | 16,430,079 | 

32



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##### Table of Contents



Supplemental
Item.Executive
Officers of the Company

The executive officers of the Company, and their
ages as of August 1, 2002, are as follows:

|                |  |     |    |          |  |                                                                                                                            
|--------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Name            |  | Age |    | Position
|                |  |     |    |         
|Joseph J. Atick |  |     | 38 |          |  | President, Chief Executive Officer and Director                                                                            
|Paul Griffin    |  |     | 41 |          |  | Chief Technology Officer                                                                                                   
|Michel Halbouty |  |     | 61 |          |  | Senior Vice President, Manufacturing and Customer
    Service                                                              
|Linda Howard    |  |     | 42 |          |  | Senior Vice President and General Manager,
    Federal Strategic Business Group; President, Identix Public
    Sector, Inc.
|Daniel Maase    |  |     | 58 |          |  | Senior Vice President, Hardware Engineering                                                                                
|Mark S. Molina  |  |     | 43 |          |  | General Counsel and Secretary                                                                                              
|Erik E. Prusch  |  |     | 35 |          |  | Chief Financial Officer                                                                                                    

Joseph J. Atickwas
named President and Chief Executive Officer of the Company and
was appointed a Director effective with the Companys
merger with Visionics Corporation in June 2002. From February
2001 to June 2002, Dr. Atick held the position of Chief
Executive Officer and Director of Visionics, and from April 2001
to June 2002, Dr. Atick also held the position of President
of Visionics. Dr. Atick served as Chief Executive Officer
of Visionics Technology Corporation from 1994 until its merger
with Digital Biometrics, Inc. in February 2001, resulting in the
formation of Visionics.

Paul Griffinwas
named Chief Technology Officer of the Company in July 2002. From
February 2001 until the merger of the Company with Visionics in
June 2002, Mr. Griffin served as Chief Technology Officer
of Visionics. Mr. Griffin was Vice President of Technology
of Visionics Technology Corporation from 1994 until its merger
with Digital Biometrics in February 2001. Prior to such time,
Mr. Griffin held various research, fellowship and
post-doctorate positions at the Rockefeller University,
Superconducting Supercollider Laboratory, the University of
Florida and the Fermi National Accelerator Laboratory.

Michel Halboutywas
named Senior Vice President, Manufacturing and Customer Service
in July 2002. From February 2001 to June 2002, Mr. Halbouty
served as Vice President, Manufacturing of Visionics.
Mr. Halbouty was Vice President, Manufacturing of Digitial
Biometrics from May 1997 until its merger with Visionics
Technology Corporation in February 2001. From 1992 to 1997,
Mr. Halbouty was Vice President, Manufacturing of Nestar
Incorporated, a division of Ascend Communications. Prior to such
time, from 1987 to 1992, he was the General Manager, Corporate
Quality of Apertus Technologies (formerly Lee Data Corporation).

Linda Howardwas
named Senior Vice President and General Manager, Federal
Strategic Business Group and President, IPS in July 2002. From
May 2001 to June 2002, she served as Executive Vice President,
Chief Operating Officer of IPS. From August 1999 to April 2001,
Ms. Howard served as Chief Operating Officer of DynCorp
Management Resource, a $50 million division of DynCorp.
Previously, from 1986 to 1998, Ms. Howard performed
multiple assignments with Electronic Data Systems Corporation
(EDS). Most recently, she was Vice President of
Operations for EDS Military Systems.

Daniel Maasewas
named Senior Vice President, Hardware Engineering in July 2002.
From November 1988 to April 2000, Mr. Maase held various
other positions with the Company, including Vice President and
Chief Technical Officer from April 2000 to June 2002 and Vice
President, Engineering, from November 1998 to April 2000. Prior
to joining the Company in November 1998, Mr. Maase served
as Commercial Equipment Operations Manager of Varian Associates.

Mark S. Molinahas
served as General Counsel of the Company since October 1999. He
was appointed Secretary in December 1999. From February 1996 to
October 1999, Mr. Molina was with Harris Corporation, most
recently as Senior Counsel, Microwave Communications Division.
Prior to joining Harris, he practiced corporate, business and
securities law with firms in San Francisco, Sydney, Australia
and New York City, where he began his career with Shearman &
Sterling in 1985.

33



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##### Table of Contents



Erik E. Pruschhas
served as Chief Financial Officer of the Company since April
2001. Prior to joining the Company, he was Chief Financial
Officer for the $3.5 billion Gateway Business, a division
of Gateway Computers, Inc. In 1998, Mr. Prusch was Vice
President of Mergers and Acquisitions for Koch Industries. From
1993 to 1997, Mr. Prusch held various positions for
PepsiCo, Inc. Prior to such time, Mr. Prusch served as a
Senior Consultant for Deloitte & Touche.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for the Companys Common Stock
    and Related Stockholder Matters

The Companys common stock is listed on the
Nasdaq National Market, Inc. under the symbol IDNX.

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

|                                |  |      |       |     |  |   |       | 
|------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                |  | High |       | Low
|                                |  |      |       |    
|Fiscal year ended June 30, 2002 |  |      |       |     |  |   |       | 
|Fourth Quarter                  |  | $    | 9.37  |     |  | $ | 5.57  | 
|Third Quarter                   |  |      | 15.50 |     |  |   | 6.51  | 
|Second Quarter                  |  |      | 15.74 |     |  |   | 5.25  | 
|First Quarter                   |  |      | 10.96 |     |  |   | 3.75  | 
|Fiscal year ended June 30, 2001 |  |      |       |     |  |   |       | 
|Fourth Quarter                  |  |      | 8.60  |     |  |   | 6.15  | 
|Third Quarter                   |  |      | 12.60 |     |  |   | 7.00  | 
|Second Quarter                  |  |      | 15.75 |     |  |   | 6.26  | 
|First Quarter                   |  |      | 19.75 |     |  |   | 11.50 | 

The last reported sale price of the common stock,
as reported by Nasdaq on August 30, 2002 was $6.30. As of
August 30, 2002, there were 1,463 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.

In July 2000, the Company entered into a
Securities Purchase Agreement with Motorola, whereby the Company
sold 234,558 shares of its Series A Preferred Stock at
$15.99 per share. The sale resulted in net cash proceeds to the
Company of $3,702,000. In addition, the Company issued to
Motorola a warrant to purchase 187,647 shares of the
Companys common stock at $17.11 per share. The warrant is
exercisable until July 7, 2005. The sale of the shares of
Series A Preferred Stock and the warrant was exempt from
registration under applicable securities laws because such
shares and warrant were sold in a private placement to a
purchaser who is an accredited investor as that term
is defined in Rule 501(a) of Regulation D of the
Securities Act of 1933, as amended. The shares of Series A
Preferred Stock are convertible into, and the warrant is
exercisable for, shares of the Companys common stock at
the option of the holder of such shares and warrant.

In December 2000, the Company entered into a
Common Stock Purchase Agreement with VeriSign pursuant to which
the Company sold, in January 2001, 264,901 shares of its
common stock at $7.55 per share. The sale resulted in net cash
proceeds to the Company of $1,983,000. The Company has
registered the shares for resale. The proceeds from the sale of
the common stock have been used solely for the research, design,
development, marketing and manufacturing of product and service
solutions related to the Companys itrust activities.

In June 2001, the Company sold 2,225,000 shares
of its common stock at $6.75 per share in a private placement to
State of Wisconsin Investment Board (SWIB). The sale
resulted in net cash proceeds to the Company of $14,979,000. The
Company has registered the shares for resale.

34



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##### Table of Contents



In December 2001, the Company sold 7,390,000
shares of its Common Stock in a private placement to new and
existing institutional investors, pursuant to a stock agreement.
The shares were sold at $7.00 per share and resulted in net cash
proceeds to the Company of $48,347,000. The purchase price was
based on the closing price of the Companys common stock in
the period prior to the execution of the agreement, and
represent a discount of 11.8% to the prior day closing price,
8.7% to the 20-day straight average or 10.8% to the 20-day
volume weighted average price, each of which were considered by
the Company to be competitively priced for the size of the
transaction.

In June 2002, in connection with the
Companys merger with Visionics (see Note 2 of the
Consolidated Financial Statements), the Company issued an
aggregate of 39,422,000 shares of Identix common stock for
all outstanding shares of Visionics common stock.






|        |                        
|------- | -----------------------
|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, 2002, 2001 and
2000 and with respect to the balance sheets at June 30,
2002 and 2001 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, 1999 and 1998
and consolidated balance sheet data at June 30, 2000, 1999
and 1998 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.

|                                                                               |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |      |    
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ------------------------------------- | ------- | ----- | - | ---- | ------- | ------ | - | ---- | ------- | ----- | ---- | - | ------- | ----- | ---- | - | ------ | ---- | ---
|                                                                               |                                                                                |                                      
|                                                                               |                                                                                | Fiscal Year Ended June 30,           
|                                                                               |                                                                                |                                      
|                                                                               |                                                                                | 2002(1)                               |         | 2001  |   | 2000 |         | 1999   |   | 1998
|                                                                               |                                                                                |                                       |         |       |   |      |         |        |   |     
|                                                                               |                                                                                |                                      
|                                                                               |                                                                                | (In thousands, except per share data)
|Statement of Operations Data:                                                  |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |     
|Revenues                                                                       |                                                                                | $                                     | 73,190  |       |   | $    | 81,828  | (3)    |   | $    | 72,695  |       |      | $ | 81,762  |       |      | $ | 79,374 |     
|Income (loss) before cumulative effect of a
    change in accounting principle |                                                                                |                                       | (55,438 | )(2)  |   |      | (27,600 | )(5,6) |   |      | (13,386 | )     |      |   | (13,419 | )(7)  |      |   | 768    |     
|Cumulative effect of a change in accounting
    principle                      |                                                                                |                                       |        |       |   |      | (1,998  | )(3)   |   |      |        |       |      |   |        |       |      |   |       |     
|                                                                               |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |     
|Net income (loss)                                                              |                                                                                | $                                     | (55,438 | )     |   | $    | (29,598 | )      |   | $    | (13,386 | )     |      | $ | (13,419 | )     |      | $ | 768    |     
|                                                                               |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |     
|Basic and diluted net income (loss) per
    share:                             |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |     
|                                                                               | Income (loss) before cumulative effect of a
    change in accounting principle |                                       |         | (1.33 | ) |      |         | (0.82  | ) |      |         | (0.43 | )    |   |         | (0.52 | )    |   |        | 0.03 |    
|                                                                               | Cumulative effect of a change in accounting
    principle                      |                                       |         |      |   |      |         | (0.06  | ) |      |         |      |      |   |         |      |      |   |        |     |    
|                                                                               | Basic and diluted net income (loss) per share                                  |                                       | $       | (1.33 | ) |      | $       | (0.88  | ) |      | $       | (0.43 | )(4) |   | $       | (0.52 | )(4) |   | $      | 0.03 | (4)
|Balance Sheet Data:                                                            |                                                                                |                                       |         |       |   |      |         |        |   |      |         |       |      |   |         |       |      |   |        |     
|Cash and cash equivalents                                                      |                                                                                | $                                     | 58,489  |       |   | $    | 20,777  |        |   | $    | 15,620  |       |      | $ | 3,013   |       |      | $ | 753    |     
|Working capital                                                                |                                                                                |                                       | 63,239  |       |   |      | 32,440  |        |   |      | 34,546  |       |      |   | 15,671  |       |      |   | 18,153 |     
|Total assets                                                                   |                                                                                |                                       | 431,255 |       |   |      | 83,486  |        |   |      | 83,518  |       |      |   | 71,466  |       |      |   | 42,012 |     
|Stockholders equity                                                           |                                                                                |                                       | 393,323 |       |   |      | 64,082  |        |   |      | 67,634  |       |      |   | 51,729  |       |      |   | 22,910 |     

35



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##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Identix merger with Visionics Corporation
    was completed on June 25, 2002. Thus, Identix
    consolidated results of operation for the year ended
    June 30, 2002 reflects Visionics Corporations results
    of operations for only the three final business days of June
    2002.                                                                                                                       
|   
|(2) | Includes $18,798,000 of restructuring, write-offs
    and other merger related charges and a charge of $6,400,000 for
    the write-off of acquired in-process research and development.                                                                                                                                                                                                                           
|   
|(3) | Identix changed its method of accounting for
    revenue recognition effective July 1, 2000 to comply with
    the Securities and Exchange Commission Staff Accounting Bulletin
    No. 101, Revenue Recognition in Financial
    Statements (SAB 101).                                                                                                                                                        
|   
|(4) | Assuming Identix accounting change to
    comply with SAB 101 was made retroactive to periods prior
    to July 1, 1999, the pro forma basic and diluted net loss
    per share for fiscal 2000 is $0.41. Pro forma net income (loss)
    per share amounts for the periods prior to fiscal 2000 are not
    presented as the effect of the change in accounting principle
    could not be reasonable determined.
|   
|(5) | Includes preferred stock and warrant expense of
    $1,259,000.                                                                                                                                                                                                                                                                                                                                                    
|   
|(6) | Includes charges for inventory write-offs and
    reserves of $1,843,000 and write-off of intangibles and other
    special charges of $2,674,000.                                                                                                                                                                                                                                                                 
|   
|(7) | Includes a $10,044,000 charge for the write-off
    of acquired in-process research and development and a
    reorganization charge of $1,648,000 related to the acquisition
    of Identicator Technology.                                                                                                                                                                                                        






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 Incorporated (Identix or the
Company) provides a broad range of fingerprint and
facial recognition technology offerings that empower the
identification of individuals who wish to gain access to
information or facilities, conduct transactions and obtain
identifications. Additionally, the companys products and
solution offerings can help identify those who perpetrate fraud
and otherwise pose a threat to public safety. Identix
products serve a broad range of industries and market
segments  most notably, government and law
enforcement, aviation, financial, healthcare and corporate
enterprise. A world leader in multi-biometric technology,
Identix believes it has more fingerprint and facial biometric
installations worldwide than any other company. The Company
provides public sector services through IPS, a wholly owned
subsidiary of the Company. Identix also formed a joint venture,
Sylvan Identix Fingerprinting Centers (SIFC), in
September 1997 with Sylvan for the purpose of providing
fingerprinting services for a variety of civilian applications.
In June 2001, Identix launched its first itrust Security
solution offering, supported in part by investments in Identix
by Motorola and VeriSign.

On June 25, 2002, Identix completed its
merger with Visionics Corporation (Visionics), a
leading provider of biometric technologies and identification
information systems. As Identix merger with Visionics was
consummated on June 25, 2002, Identix consolidated
statements of operations for the fourth quarter and year ended
June 30, 2002, reflect Visionics results of
operations for the final three business days of June 2002. In
connection with this stock-for-stock merger transaction, each
outstanding share of Visionics common stock was exchanged for
1.3436 shares of Identix, resulting in the issuance of an
aggregate of 39,422,000 shares of Identix common stock for
all outstanding shares of Visionics common stock. In addition,
all options and warrants to purchase shares of Visionics common
stock outstanding immediately prior to the consummation of

36



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##### Table of Contents



the merger were converted into options and
warrants to purchase 3,860,000 shares of Identix common stock.
The total purchase price was $334,818,000. (See Note 2 of
Notes to Consolidated Financial Statements).


In December 1999, the Securities and Exchange
Commission Staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements
(SAB 101). The Company implemented the
provisions of SAB 101 in the fourth quarter of fiscal 2001,
retroactive to July 1, 2000. As a result of this change in
accounting principle, the Company recorded a charge of
$1,998,000 to reflect the cumulative effect of the change on
prior years as of July 1, 2000. The Companys results
for the first three quarters of fiscal 2001 have been restated
to reflect the adoption of SAB 101 as of July 1, 2000.
For fiscal 2001, the Company recognized $3,563,000 in product
revenues that are included in the cumulative effect adjustment.

The portions of the Companys revenues
impacted by SAB 101 are product revenues derived from the
sale of equipment that requires installation. Certain of the
Companys equipment sales require installation subsequent
to shipment and transfer of title. Previously, the Company had
generally recognized revenue upon shipment of equipment to
customers, regardless of installation requirements, provided
final customer acceptance and collection of the related
receivable were probable. The Companys interpretation of
the requirements of SAB 101 results in changes to the
Companys accounting method for revenue recognition related
to equipment sales that require installation, since the
installation is not considered perfunctory. Under the
Companys new accounting method, product revenue related to
equipment sales that require installation is deferred until
installation is complete and customer acceptance has been
obtained. Revenue related to product sales that require no
installation continue to be recognized in accordance with the
terms of the sale, generally upon shipment by the Company,
provided no significant vendor obligations remain and collection
of the receivable is deemed probable.

In connection with the formation of itrust, in
July 2000, the Company entered into a Securities Purchase
Agreement with Motorola, whereby the Company sold
234,558 shares of its Series A Redeemable Convertible
Preferred Stock (the Series A Preferred Stock)
at $15.99 per share, resulting in cash proceeds to the Company
of $3,702,000, net of issuance costs. In connection with the
issuance of Series A Preferred Stock, the Company also
issued Motorola a warrant to purchase 187,647 shares of the
Companys common stock at $17.11 per share. The proceeds
from the sale of the Series A Preferred Stock have been
used solely for the research, design, development, marketing and
manufacturing of product and service solutions related to the
Companys itrust activities. (See Note 9 of Notes to
Consolidated Financial Statements).

In December 2000, the Company entered into a
Common Stock Purchase Agreement with VeriSign pursuant to which,
the Company sold, in January 2001, 264,901 shares of its
common stock at $7.55 per share. The sale resulted in net cash
proceeds to the Company of $1,983,000. The Company has
registered the shares for resale. The proceeds from the sale of
the common stock have been used solely for the research, design,
development, marketing and manufacturing of product and service
solutions related to the Companys itrust activities.

In June 2001, the Company sold 2,225,000 shares
of its common stock at $6.75 per share in a private placement to
State of Wisconsin Investment Board (SWIB). The sale
resulted in net cash proceeds of $14,979,000. The Company has
registered the shares for resale.

In December 2001, the Company sold
7,390,000 shares of its Common Stock in a private placement
to new and existing institutional investors, pursuant to a stock
agreement. The shares were sold at $7.00 per share and resulted
in net cash proceeds to the Company of $48,347,000. The purchase
price was based on the closing price of the Companys
common stock in the period prior to the execution of the
agreement, and represent a discount of 11.8% to the prior day
closing price, 8.7% to the 20-day straight average or 10.8% to
the 20-day volume weighted average price, each of which were
considered by the Company to be competitively priced for the
size of the transaction.

Critical Accounting Policies

The preparation of financial statements and
related disclosures in conformity with accounting principles
generally accepted in the United States requires management to
make judgments, assumptions and estimates

37



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##### Table of Contents



that affect the amounts reported in the
Consolidated Financial Statements and accompanying notes.
Note 1 to the Consolidated Financial Statements in the
Annual Report on Form 10-K for the fiscal year ended
June 30, 2001 describes the significant accounting policies
and methods used in the preparation of the Consolidated
Financial Statements. Estimates are used for, but not limited
to, the accounting for the allowance for doubtful accounts and
sales returns, goodwill impairments, inventory allowances,
warranty costs, revenue recognition as well as loss
contingencies and restructurings. Actual results could differ
from these estimates. The following critical accounting policies
are impacted significantly by judgments, assumptions and
estimates used in the preparation of the Consolidated Financial
Statements.


Allowance for
Doubtful Accounts and Sales Returns:

The allowance for doubtful accounts is based on
our assessment of the collectibility of specific customer
accounts and the aging of the accounts receivable. If there is a
deterioration of a customers credit worthiness or actual
defaults are higher than our historical experience, our
estimates of the recoverability of amounts due us could be
adversely affected. A reserve for sales returns is established
based on historical trends in returns and information obtained
directly from the customers regarding possible returns. If the
actual future returns do not reflect the historical data, our
revenue could be affected.

Goodwill
Impairments:

We perform a goodwill impairment test on an
annual basis and between annual tests in certain circumstances.
The impairment test entails comparing the carrying value of
goodwill to the estimated fair value of the reporting unit that
the goodwill is assigned. There are a number of significant
management assumptions and estimates inherent in estimating the
fair value of the reporting unit including those used to
estimate future cash flows and the appropriate rate that
incorporates our cost of capital and the risk profile of the
cash flows. Actual cash flows may be less than those estimated
by management. A change in industry or market conditions could
result in the impairment of goodwill.

Inventory
Allowances:

Inventories are recorded at the lower of standard
cost, which approximates actual cost on a first-in-first-out
basis, or market value. We write down inventories to net
realizable value based on forecasted demand and market
conditions as well as the anticipated timing and impact of new
product introductions. Actual demand, market conditions and
timing of new product introductions may be different from those
projected by our management. This could have a material effect
on our gross margins and operating results.

Warranty
Costs:

We accrue for warranty costs based on the
expected material and labor usage costs to provide warranty
services. If we experience an increase in warranty claims, which
are higher than our historical experience, our gross margin
could be adversely affected.

Revenue
Recognition:

Significant management judgments and estimates
are made in connection with the revenues recognized in any
accounting period. The Company must assess whether the fee
associated with a revenue transaction is fixed or determinable
and whether or not collection is probable. Material differences
could result in the amount and timing of revenues for any period
if management were to make different judgments or utilize
different estimates.

Certain of the Companys Imaging segment
equipment sales such as its TouchPrint Live Scan Systems
generally require installation subsequent to shipment and
transfer of title. The Company recognizes revenue on such sales
in accordance with Staff Accounting Bulletin
(SAB) 101, Revenue Recognition,
Product revenue related to equipment sales that require
installation is deferred until installation is complete and
customer acceptance has been obtained. Revenue related to
product sales that require no installation such as printers and
other peripheral devices as well as the Companys Security
segment products including DFR-300,

38



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##### Table of Contents



DFR-200 and FingerScan V20 are recognized in
accordance with the terms of the sale, generally upon shipment
by the Company, provided no significant obligations remain and
collection of the receivable is deemed reasonably assured.
Revenues from sales of products via authorized representatives,
dealers, distributors or other third party sales channels are
recognized at the time the risks and rewards have transferred
or, in the case of TouchPrint Live Scan Systems that generally
require installation, upon the final installation and acceptance
from the end user.


The Company also sells several stand-alone
software products including BioLogon and software developer
kits. Revenue is recognized on software products in accordance
with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended. The
Company recognizes revenue on software products when persuasive
evidence of an arrangement exists, delivery has occurred, the
vendors fee is fixed or determinable and vendor-specific
objective evidence (VSOE) exists to allocate the
total fee to all undelivered elements of the arrangement and
collection is determined to be probable. VSOE is established
based upon either sales of the element (e.g. maintenance,
training or consulting) in individual transactions, or, in
certain cases for maintenance, based upon substantive renewal
rates. In cases where the Company does not have VSOE for all
delivered elements in the transaction (e.g., for licenses), the
fees from these multiple-element agreements are allocated using
the residual value method. Maintenance revenue is deferred and
recognized rateably over the life of the service period of the
related agreement.

The majority of the Companys services are
performed for the U.S. Government under various firm fixed-price
(FFP), time-and-material (T&M) and
cost reimbursement contracts. Revenues on FFP contracts are
generally recognized on the percentage-of-completion method
based on costs incurred in relation to total estimated costs.
Revenues on T&M contracts are recognized to the extent of
billable rates multiplied by hours worked plus materials expense
incurred. Revenues for cost plus fixed fee (CPFF)
contracts are recognized as costs are incurred, including a
proportionate amount of the fee earned. Unbilled accounts
receivable represent revenue accrued which becomes billable per
the terms of contract. Provisions for estimated contract losses
are recorded in the period such losses are determined.

Services revenues directly from contracts with
the U.S. Government, principally with the Department of
Defense (DOD), and from subcontracts with other
U.S. Government contractors, were approximately 83% and 89%
of total services revenue for fiscal 2002 and 2001,
respectively. 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. IPS is currently being audited by the Defense
Contract Audit Agency for the period from July 1, 1997 to
June 30, 2000. While the Company believes that the results
of such audit will have no material effect on the Companys
financial position or results of operations, there can be no
assurance that no adjustment will be made and that, if made,
such adjustments will not have a material effect on the
Companys financial position, results of operations or cash
flows.

Loss
Contingencies and Restructurings:

We are subject to the possibility of various loss
contingencies arising in the ordinary course of business. We
consider the likelihood of the loss or impairment of an asset or
the incurrence of a liability as well as our ability to
reasonably estimate the amount of loss in determining loss
contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred or an asset has
been impaired and the amount of loss can be reasonably
estimated. We regularly evaluate current information available
to us to determine whether such reserves should be adjusted.

We recorded reserves for the estimated cost to
terminate or sublease excess facilities. We will continue to
evaluate the commercial real estate market conditions quarterly
to determine if our estimates of the amount and timing of future
sublease income are reasonable based on current and expected
commercial real estate market conditions. If we determine that
our estimates for sublease activities has significantly changed,
an adjustment to the restructuring liability would be charged to
income in the period in which such determination was made.

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Results of Operations

Fiscal Years Ended June 30, 2002 and
2001

Revenues.Total
revenues for fiscal 2002 were $73,190,000 compared to
$81,828,000 for fiscal 2001. For fiscal 2002 the decrease in
total revenues of 11% is due to decreases in both the
Companys product and service revenue.

The Companys product revenues were
$28,399,000 for fiscal 2002, compared to $35,061,000 in fiscal
2001. For fiscal 2002, the decrease in product revenues of 19%
was due to a decrease in sales of Imaging solutions products and
services, primarily due to the saturation and decline of the
state and local law enforcement marketplace. Security revenue
for fiscal 2002 was $8,171,000 compared to $8,051,000 for fiscal
2001. The increase of 2% was due to an increase in our Physical
Access product line.

International sales accounted for $3,603,000 or
13% of the Companys product revenues for fiscal 2002,
compared to $3,705,000 or 11% for fiscal 2001. 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 2002 or fiscal 2001.

The Companys Government Services revenues
were $44,791,000 for fiscal 2002 compared to $46,767,000 for
fiscal 2001, net of intersegment revenues. The decrease in
Government Services revenues of 4% for fiscal 2002 was primarily
related to a reduction in new contract starts as well as
reductions in government funding on certain contracts due to
reprioritization of defense spending. The majority of the
Companys services revenues are generated directly from
contracts with the U.S. government, principally the DOD.
For fiscal 2002 and for fiscal 2001, revenues directly from the
DOD and from other U.S. government agencies accounted for
83% and 89% of the Companys total Government Services
revenues, respectively.

During fiscal 2002, the Company derived
approximately 91% of its Government Services revenues from
T&M contracts and from FFP contracts compared to 94% in
fiscal 2001. The decrease in the percentage of services revenues
generated by T&M and FFP contracts is primarily due to a
decrease in sales 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. The Company assumes greater
performance risk on 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. Revenues generated from contracts with
government agencies are subject to audit and subsequent
adjustment by negotiation between the Company and
representatives of such government agencies.

The Companys Government Services business
also generates a portion of its revenues from cost plus fixed
fee (CPFF) contracts, which accounted for
approximately 9% of its services revenues for fiscal 2002,
compared to 6% for fiscal 2001. The increase in the percentage
of services revenues generated by CPFF contracts is primarily
due to the award of a significant new CPFF contract during
fiscal 2002. CPFF contracts provide for the reimbursement of
allowable costs, including indirect costs plus a fee or profit.

Gross Margin.Gross
margin on product revenues was 31% for fiscal 2002, as compared
to 35% in fiscal 2001. The decrease in product gross margin
reflects continued market price pressures in the Companys
Imaging segment and lower unit volumes that has resulted in
underabsorbed overhead costs. 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 Government Services revenues was
6% for fiscal 2002 and 11% for fiscal 2001. The decrease in
gross margin was primarily due to lower utilization of the
direct labor workforce, increased utilization of subcontractors
and contract overruns during the current fiscal year.

Research, Development and Engineering.Research, development and engineering
expenses were $10,620,000 or 37% of product revenues for fiscal
2002, compared to $9,649,000 or 28% for fiscal 2001. The

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increase in research, development and engineering
expenses is primarily due to increased consultant costs incurred
to further develop and enhance the Companys Security and
Imaging products. The Company believes that investment in
research and development is critical to maintaining a strong
technological position in the industry.


Marketing and Selling.Marketing and selling expenses were
$14,604,000 for fiscal 2002, compared to $16,389,000 for fiscal
2001. The percentage of marketing and selling expenses of total
revenue was 20% for both fiscal periods. Due to cost cutting
measures implemented during the year, the Company had decreases
in marketing and selling expenses for travel, consulting,
outside services and sales commissions of approximately
$1,600,000.

General and Administrative.General and administrative expenses
were $17,030,000 or 23% of total revenues for fiscal 2002,
compared to $13,946,000 or 17% of total revenues for fiscal
2000. The increase in general and administrative expenses was
primarily due to increased staffing and related administrative
expenses to support future growth and development of supporting
infrastructure. The increase in general and administrative
expenses is also due to charges for accounts receivable
write-offs and provisions totaling $1,439,000 during fiscal 2002
compared to $1,168,000 during fiscal 2001.

Restructuring, Write-offs and Other Merger
Related Charges.

Fiscal 2002

The Company recorded the following restructuring
and other related charges during the fiscal year ended
June 30, 2002:

|                                |       |               |            |                  |  |                       |           |                         |  |   |           |           |  |   |            |            | 
|------------------------------- | ----- | ------------- | ---------- | ---------------- |  | --------------------- | --------- | ----------------------- |  | - | --------- | --------- |  | - | ---------- | ---------- | 
|                                |       |               |            |                  |  | Cash Payments         |           | Restructuring Liability
|                                |       | Total Charges |            | Non-cash Charges |  | through June 30, 2002 |           | as of June 30, 2002    
|                                |       |               |            |                  |  |                       |           |                        
|Severance and benefits          |       | $             | 6,093,000  |                  |  | $                     | 900,000   |                         |  | $ | 2,700,000 |           |  | $ | 2,493,000  |           
|Disposal of fixed assets        |       |               | 1,294,000  |                  |  |                       | 1,294,000 |                         |  |   |          |           |  |   |           |           
|Lease exit costs                |       |               | 10,340,000 |                  |  |                       |          |                         |  |   |          |           |  |   | 10,340,000 |           
|Internal merger costs and other |       |               | 1,071,000  |                  |  |                       |          |                         |  |   | 257,000   |           |  |   | 814,000    |           
|                                |       |               |            |                  |  |                       |           |                         |  |   |           |           |  |   |            |           
|                                | Total |               | $          | 18,798,000       |  |                       | $         | 2,194,000               |  |   | $         | 2,957,000 |  |   | $          | 13,647,000 | 
|                                |       |               |            |                  |  |                       |           |                         |  |   |           |           |  |   |            |           

Severance and Benefits

In July 2001, the Company initiated a workforce
reduction of approximately 42 employees, or 10% of its
workforce to streamline its worldwide functions, operations and
resources primarily in marketing, selling and administration.
The workforce reduction resulted in a $1,712,000 charge during
the quarter ended September 30, 2001 relating primarily to
severance and fringe benefits. Related cash payments of
$1,597,000 were made during the fiscal year ended June 30,
2002. The remaining liability at June 30, 2002 of $115,000
is included in accrued compensation in the consolidated balance
sheet. The Company expects that this amount will be paid by the
first quarter of fiscal year 2003.

In June 2002, in connection with the
Companys merger with Visionics, approximately
110 employees were terminated from the Companys Los
Gatos, California, Dublin, California and IPS locations. The
terminated employees were from all functional areas of the
Company. The workforce reduction resulted in a charge of
$3,481,000 relating primarily to severance and fringe benefits.
Related cash payments of $1,103,000 were made during the fiscal
year ended June 30, 2002. The remaining liability at
June 30, 2002 of $2,378,000 is included in accrued
compensation in the consolidated balance sheet. The Company
expects that this amount will be substantially paid by
June 30, 2003. In connection with the June 2002
terminations, certain stock options were subject to
remeasurement and acceleration resulting in a non-cash charge of
$900,000.

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Disposal of Fixed Assets

A non-cash charge of $1,294,000 was recorded for
the write-off of property and equipment due to the
discontinuance of certain product lines as well as the closure
of the Companys Los Gatos, California and Dublin,
California facilities.

Lease Exit Costs

A charge of $10,340,000 was recorded for the
estimated cost to terminate or sublease two excess leased
facilities. Of this amount, $1,706,000 is included in other
accrued liabilities and $8,634,000 is included in other
liabilities in the consolidated balance sheet. The estimate is
based on current comparable rates for leases in respective
markets. Should facilities rental rates continue to decrease in
these markets or should it take longer than expected to sublease
these facilities, the actual loss could exceed this estimate.
The costs are expected to be paid through fiscal 2008, based on
the underlying lease agreements.

Internal Merger Costs and Other

The Company incurred internal merger related
costs of $587,000 during the period from the announcement of the
merger through its completion. Of this amount, $257,000 was paid
in the year ended June 30, 2002. The remaining balance is
included in accounts payable in the consolidated balance sheet.
The Company expects that this amount will be fully paid during
fiscal year 2003.

A charge of $484,000, mostly related to
additional costs required to shut down the Companys
Virginia Beach-based Law Enforcement Solutions Division
(LESD) group, was recorded. As described below,
management made the decision to exit LESD in June 2001. The
reserve is included in other accrued liabilities in the
consolidated balance sheet. The Company expects this amount will
be paid by June 30, 2003.

Fiscal 2001

In light of continued deteriorating general
economic conditions, during the third quarter ended
March 31, 2001, the Company initiated a review of its asset
carrying values, forecasted sales and the timing of
introductions and end of lives of its products.

As a continuation of this review, in June 2001,
the Company initiated a restructuring of its worldwide
operations to reduce costs and increase operational
efficiencies. The Company consolidated and centralized all
functional areas, including sales, customer service, finance and
marketing. Also, in June 2001, the Company closed the operations
of its Virginia Beach-based LESD group, a business that is not
profitable and not central to the Companys revised
business strategy.

The Company recorded charges during fiscal 2001
totaling $4,517,000 consisting of $1,843,000 for the write-down
of inventory related primarily to the introduction and
end-of-life of certain Imaging and Security products including
the introduction of TouchPrint 2000 and the end-of-life of
TouchPrint 600 and BioLogon version 2.0; $1691,000 for the
write-off of certain IPS intangible assets related to
software and other capitalized costs that the Company no longer
plans to market/use and a $643,000 provision to write-off
certain accounts receivables for customers whose financial
condition deteriorated subsequent to the revenue being
recognized.

Charges recorded during fiscal 2001 in connection
with its review activities, substantially all of which were
non-cash in nature, are summarized as follows:

|                                          |       |   |           |           | 
|----------------------------------------- | ----- | - | --------- | --------- | 
|Inventory write-offs and reserves         |       | $ | 1,843,000 |          
|Write-off of intangibles and other assets |       |   | 1,691,000 |          
|Allowance for doubtful accounts           |       |   | 643,000   |          
|Contract accruals                         |       |   | 185,000   |          
|Employee separation                       |       |   | 155,000   |          
|                                          |       |   |           |          
|                                          | Total |   | $         | 4,517,000 | 
|                                          |       |   |           |          

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These charges were included in the Companys
consolidated statement of operations as follows:

|                                                   |       |   |           |           | 
|-------------------------------------------------- | ----- | - | --------- | --------- | 
|Cost of product revenues                           |       | $ | 1,843,000 |          
|Cost of services revenues                          |       |   | 141,000   |          
|General and administrative                         |       |   | 643,000   |          
|Write-off of intangibles and other special charges |       |   | 1,890,000 |          
|                                                   |       |   |           |          
|                                                   | Total |   | $         | 4,517,000 | 
|                                                   |       |   |           |          

Acquired In-Process Research and Development.In connection with the Companys
merger with Visionics, the Company recorded a charge of
$6,400,000 for the write-off of acquired in-process research and
development (see Note 2 of the Consolidated Financial
Statements).

Preferred Stock and Warrant Expense.In connection with the private sale of
shares of Series A Preferred Stock and warrants in July
2000 to Motorola, (see Overview section above and Note 9 of
Notes to Consolidated Financial Statements), the Company
recognized a one-time preferred stock and warrant expense of
$1,259,000 relating to the embedded beneficial conversion
feature within the Series A Preferred Stock.

Interest and Other Income (Expense), net.For fiscal 2002, interest and other
income was $949,000 compared to $1,436,000 for fiscal 2001. The
decrease in interest and other income was primarily due to a
lower level of cash and cash equivalents and lower interest
rates. Interest and other income for fiscal 2002 were primarily
composed of interest income of $654,000 and license fees from
SIFC of $388,000.

Interest Expense.Interest expense was nil for fiscal
2002, compared to $113,000 for fiscal 2001. The decrease in
interest expense was due to lack of borrowings under the
Companys lines of credit.

Provision for Income Taxes.The Company had income tax expense,
consisting of certain State franchise taxes, in fiscal 2002 of
$46,000 and had no expense in fiscal 2001. In fiscal 2002, the
Companys effective tax rate was below the statutory rate
due to the net loss incurred. As of June 30, 2002, the
Company had federal net operating loss carryforwards of
approximately $156,674,000 and $71,412,000, respectively, which
are available to offset future taxable income. The carryforwards
expire on various dates through fiscal 2022.

Equity Interest in Income (Loss) of Joint
Venture.The equity interest in joint
venture was income of $329,000 for fiscal 2002 compared to
income of $281,000 in fiscal 2001 and represents the
Companys 50% share of the results of SIFC.

Cumulative Effect of a Change in Accounting
Principle.As discussed in the
Overview section above, the Company implemented the provisions
of SAB 101 in the fourth quarter of fiscal 2001,
retroactive to July 1, 2000. As a result of this change in
accounting principle, the Company recorded a charge of
$1,998,000 in fiscal 2001 to reflect the cumulative effect of
the change on prior years as of the beginning of the fiscal year.

Fiscal Years Ended June 30, 2001 and
2000

Revenues.Total
revenues for fiscal 2001 were $81,828,000 compared to
$72,695,000 for fiscal 2000. For fiscal 2001 the increase in
total revenues of 13% is due to increases in both the
Companys product and service revenue.

The Companys product revenues were
$35,061,000 for fiscal 2001, compared to $30,925,000 in fiscal
2000. For fiscal 2001, the increase in product revenues of 13%
was due to increased shipments of the Companys Imaging
product group, mainly the TouchPrint product line. Security
revenue for fiscal 2001 was $8,051,000 compared to $8,612,000
for fiscal 2000. The decrease of 7% was due to a decrease in IT
spending by enterprises primarily driven by the economic
slowdown, which began in the fall of fiscal 2001. International
sales accounted for $3,705,000 or 11% of the Companys
product revenues for fiscal 2001, compared to $4,178,000 or 14%
for fiscal 2000. 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

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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 2001
or fiscal 2000.


The Companys Government Services revenues
were $46,767,000 for fiscal 2001 compared to $41,770,000 for
fiscal 2000, net of intersegment revenues. The increase in
Government Services revenues of 12% for fiscal 2001 was due
primarily to increased third party sales through the
Companys GSA contract, which is operated and maintained by
IPS. 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 GSA negotiate the prices and rates periodically or
as new products or services are added. The majority of the
Companys services revenues are generated directly from
contracts with the U.S. government, principally the DOD.
For fiscal 2001 and for fiscal 2000, revenues directly from the
DOD and from other U.S. government agencies accounted for
89% and 86% of the Companys total Government Services
revenues, respectively.

During fiscal 2001, the Company derived
approximately 94% of its Government Services revenues from
T&M contracts and from FFP contracts compared to 82% in
fiscal 2000. The increase in the percentage of services revenues
generated by T&M and FFP contracts is primarily due to the
increase in sales 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 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. IPS is presently being audited by the
Defense Contract Audit Agency for the period from July 1,
1997 to June 30, 2000.

The Companys Government Services business
also generates a portion of its revenues from cost plus fixed
fee (CPFF) contracts, which accounted for
approximately 6% of its services revenues for fiscal 2001,
compared to 18% for fiscal 2000. The decrease in the percentage
of services revenues generated by CPFF contracts is primarily
due to the increase in third party services purchased through
the Companys GSA contract, which are normally T&M or
FFP. CPFF contracts provide for the reimbursement of allowable
costs, including indirect costs plus a fee or profit.

Gross Margin.Gross
margin on product revenues was 35% for fiscal 2001, as compared
to 41% in fiscal 2000. The decrease in gross margin was
primarily due to competitive pricing in the imaging market and
the higher cost of sales related to the introduction of the
TouchPrint 2000 product line. Also, in connection with the
Companys review and restructuring activities discussed in
the Overview section above, the Companys gross margin for
fiscal 2001 was negatively impacted by charges for inventory
write-off and reserves totaling $1,843,000.

Gross margin on Government Services revenues was
11% for fiscal 2001 and 12% for fiscal 2000. The decrease in
gross margin for the year was minimal and met expectations of
the current revenue mix.

Research, Development and Engineering.Research, development and engineering
expenses were $9,649,000 or 28% of product revenues for fiscal
2001, compared to $8,022,000 or 26% for fiscal 2000. 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
Security and Imaging products. The Company believes that
investment in research and development is critical to
maintaining a strong technological position in the industry.

Marketing and Selling.Marketing and selling expenses were
$16,389,000 or 20% of total revenues for fiscal 2001, compared
to $10,762,000 or 15% of total revenues for fiscal 2000. The
increase in marketing and

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selling expenses is due to increased staffing and
advertising to promote the Companys products and services
globally.


General and Administrative.General and administrative expenses
were $13,946,000 or 17% of total revenues for fiscal 2001,
compared to $9,608,000 or 13% of total revenues for fiscal 2000.
The increase in general and administrative expenses was
primarily due to increased staffing and related administrative
expenses to support future growth and development of supporting
infrastructure. The increase in general and administrative
expenses is also due to charges for accounts receivable
write-offs and provisions totaling $1,168,000 during fiscal
2001, compared to $469,000 for fiscal 2000.

Restructuring, Write-offs and Other Merger
Related Charges.As discussed above,
in light of the deteriorating general economic conditions, the
Company recorded charges during fiscal 2001 totaling $4,517,000
for the write-down of inventory related primarily to the
introduction and end-of-life of certain products, the write-off
of certain IPS intangible assets related to software and
other capitalized costs that the Company no longer plans to
market/use, a provision to write-off certain accounts
receivables for customers whose financial condition deteriorated
subsequent to the revenue being recognized and a charge for
reduction in force.

Preferred Stock and Warrant Expense.In connection with the private sale of
shares of Series A Preferred Stock and warrant in July 2000
to Motorola, (see Overview section above and Note 9 of
Notes to Consolidated Financial Statements), the Company
recognized a one-time preferred stock and warrant expense of
$1,259,000 relating to the embedded beneficial conversion
feature within the Series A Preferred Stock.

Interest and Other Income (Expense), net.For fiscal 2001, interest and other
income was $1,436,000 compared to $915,000 for fiscal 2000. The
increase in interest and other income was primarily due to a
significantly higher level of cash and cash equivalents
resulting from the proceeds of the sale of common stock in
fiscal 2001. Interest and other income for fiscal 2001 was
primarily composed of interest income of $969,000 and license
fees from SIFC of $308,000.

Interest Expense.Interest expense was $113,000 for
fiscal 2001, compared to $141,000 for fiscal 2000. The decrease
in interest expense was due to lower levels of borrowings under
the Companys lines of credit and lower weighted average
interest rates.

Provision for Income Taxes.The Company had no income tax expense
in fiscal 2001 and $55,000 for fiscal 2000 consisting of certain
State franchise taxes. In fiscal 2001, the Companys
effective tax rate is below the statutory rate due to the net
loss incurred. As of June 30, 2001, the Company had federal
and state net operating loss carryforwards of approximately
$71,412,000 and $27,137,000, respectively, which are available
to offset future taxable income. The carryforwards expire on
various dates through fiscal 2021.

Equity Interest in Income (Loss) of Joint
Venture.The equity interest in joint
venture was income of $281,000 for fiscal 2001 compared to a
loss of $84,000 in fiscal 2000 and represents the Companys
50% share of the results of SIFC.

Cumulative Effect of a Change in Accounting
Principle.As discussed in the
Overview section above, the Company implemented the provisions
of SAB 101 in the fourth quarter of fiscal 2001, retroactive to
July 1, 2000. As a result of this change in accounting
principle, the Company recorded a charge of $1,998,000 in fiscal
2001 to reflect the cumulative effect of the change on prior
years as of the beginning of the fiscal year.

Liquidity and Capital Resources

The Company financed its operations during fiscal
2002 primarily from its existing working capital at
June 30, 2001, the net proceeds of stock sales to SWIB and
a $52 million private placement to a consortium. As of
June 30, 2002, the Companys principal sources of
liquidity consisted of $63,239,000 of working capital, including
$58,489,000 in cash and cash equivalents, and amounts available
for future borrowings under the Companys bank lines of
credit.

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At June 30, 2002, the Company had two lines
of credit. The Companys first line of credit (the
Identix Line of Credit) was entered into in
September 2001 and was amended on March 28, 2002. This line
of credit provides for up to the lesser of $15,000,000 or 80% of
the Companys eligible accounts receivable including
IPS accounts receivable. Borrowings under the Identix Line
of Credit are secured by substantially all of the assets of the
Company and bear interest at the banks prime rate of
interest plus 50 basis points (5.25% at June, 2002). The Identix
Line of Credit expires on March 28, 2003. At June 30,
2002, there were no amounts outstanding under this line of
credit and $9,688,000 was available to borrow.

The Companys second line of credit (the
Visionics Line of Credit) is an inventory and
receivables based line of credit for the lesser of eligible
inventory and accounts receivables or $2,000,000. Borrowings
under this Line of Credit are secured by substantially all the
assets of the Company. The Visionics Line of Credit bears
interest at the banks prime rate of interest plus 50 basis
points (5.25% at June, 2002). The line of credit will expire on
March 30, 2003. At June 30, 2002 there were no amounts
outstanding under this line of credit and $2,000,000 was
available to borrow.

The Identix Line of Credit and the Visionics Line
of Credit agreements contain financial and operating covenants,
including restrictions on the Companys ability to pay
dividends on its common stock. At June 30, 2002, the
Company was in compliance with such covenants.

Cash used for operating activities was
$25,343,000 during fiscal 2002. Cash used for operating
activities primarily reflects a net loss of $55,438,000,
decreased accounts payable of $2,924,000 and decreased deferred
revenue of $906,000. This was partially reduced by increased
other accrued liabilities of $9,511,000, decreased accounts
receivable of $6,643,000 and increased accrued compensation of
$2,862,000. In addition, cash used for operating activities in
fiscal 2002 was reduced by non-cash charges for acquired
in-process research and development of $6,400,000, amortization
of intangibles and depreciation of $3,487,000, stock-based
compensation expenses of $1,447,000, allowance for doubtful
accounts of $1,439,000 and restructuring, write-offs and other
merger related charges of $1,294,000.

The Company generated cash of $4,518,000 in
investing activities during fiscal 2002, consisting primarily of
cash acquired from the merger with Visionics of $24,330,000
offset by purchases of marketable securities of $15,607,000,
purchases of property and equipment of $3,292,000 and additions
to intangible assets of $933,000.

The Companys financing activities provided
cash of $53,394,000 during fiscal 2002. This was primarily due
to proceeds from the sale of common stock.

The Company did not have any material capital
expenditure commitments as of June 30, 2002.

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

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Future minimum lease payments for operating
leases are as follows:

|                            |       |   |            |            | 
|--------------------------- | ----- | - | ---------- | ---------- | 
|Fiscal year ending June 30: |       |   |            |           
|2003                        |       | $ | 7,015,000  |           
|2004                        |       |   | 7,302,000  |           
|2005                        |       |   | 7,541,000  |           
|2006                        |       |   | 6,869,000  |           
|2007                        |       |   | 6,412,000  |           
|Thereafter                  |       |   | 10,557,000 |           
|                            |       |   |            |           
|                            | Total |   | $          | 45,696,000 | 
|                            |       |   |            |           

Included in the above future minimum payments is
$12,838,000 related to two leased facilities that were vacated
in connection the Companys merger with Visionics. The
Company has recorded a charge of $10,340,000 representing a
portion of the future lease costs related to these excess leased
facilities. (See Note 3 of Notes to Consolidated Financial
Statements).

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

Recent Accounting Pronouncements

The Company evaluates the recoverability of
property and equipment and other long-lived assets, excluding
goodwill, in accordance with Statement of Financial Accounting
Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the carrying value
of such assets exceeds the future undiscounted cash flows
attributable to such assets. In October 2001, the Financial
Accounting Standards Board (the FASB) issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company is currently
evaluating the impact of SFAS No. 144, but does not expect
its adoption on July 1, 2002 will have a material impact on
its financial position and results of operations.

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

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##### Table of Contents






Item 7A.     Quantitative
and Qualitative Disclosures about Market Risk

Interest Rate Risk.Certain of the Companys
short-term and long-term marketable securities are classified as
available-for-sale securities and the cost of securities sold is
based on the specific identification method. At June 30,
2002, short-term marketable securities consisted of government
securities of $5,143,000 and long-term marketable securities
consisted of government securities of $10,269,000. The market
value of these investments on any given day during the
investment term may vary as a result of market interest rate
fluctuations. A hypothetical 10% movement in interest rates
during the investment term would not likely have a material
impact on investment income. The actual impact on investment
income in the future may differ materially from this analysis,
depending on actual balances and changes in the timing and the
amount of the interest rate movements.

Foreign Currency Exchange Rate Risk.Certain of the Companys foreign
revenues, cost of revenues and marketing expenses are transacted
in local currencies. As a result, the Companys results of
operations and certain receivables and payables are subject to
foreign exchange rate fluctuations. The Company does not
currently hedge against foreign currency rate fluctuations.
Gains and losses from such fluctuations are not material to our
consolidated results of operations or balance sheet.

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##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE


|                              |                                                                                                                       |      |  |    | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                              |                                                                                                                       | Page
|                              |                                                                                                                       |     
|Financial Statements:         |                                                                                                                       |      |  |   
|                              | Report of Independent Accountants                                                                                     |      |  | 50 | 
|                              | Consolidated Balance Sheets as of June 30,
    2002 and 2001                                                          |      |  | 51 | 
|                              | Consolidated Statements of Operations for the
    years ended June 30, 2002, 2001 and 2000                            |      |  | 52 | 
|                              | Consolidated Statements of Stockholders
    Equity for the years ended June 30, 2002, 2001 and 2000                  |      |  | 53 | 
|                              | Consolidated Statements of Cash Flows for the
    years ended June 30, 2002, 2001 and 2000                            |      |  | 54 | 
|                              | Notes to Consolidated Financial Statements                                                                            |      |  | 55 | 
|Financial Statement Schedule: |                                                                                                                       |      |  |   
|                              | Schedule II  Valuation and
    Qualifying Accounts and Reserves for the years ended
    June 30, 2002, 2001 and 2000 |      |  | 84 | 

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##### Table of Contents



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, 2002 and
2001, and the results of their operations and their cash flows
for each of the three years in the period ended June 30,
2002 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit 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 our opinion.



| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP

San Jose, California

August 6, 2002


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IDENTIX INCORPORATED

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |             |            | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ------------ | ----------- |  | ---------- | ----------- | ---------- | 
|                                         |                                                                                                                                                                     | June 30,                                   |             | June 30,    
|                                         |                                                                                                                                                                     | 2002                                       |             | 2001        
|                                         |                                                                                                                                                                     |                                            |             |             
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         | Cash and cash equivalents                                                                                                                                           |                                            | $           | 53,346,000   |             |  | $          | 20,777,000  |           
|                                         | Marketable securities  short-term                                                                                                                                  |                                            |             | 5,143,000    |             |  |            |            |           
|                                         | Accounts receivable, net                                                                                                                                            |                                            |             | 19,880,000   |             |  |            | 23,154,000  |           
|                                         | Inventories                                                                                                                                                         |                                            |             | 11,095,000   |             |  |            | 6,089,000   |           
|                                         | Prepaid expenses and other assets                                                                                                                                   |                                            |             | 1,412,000    |             |  |            | 1,768,000   |           
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total current assets                       |             |              | 90,876,000  |  |            |             | 51,788,000 | 
|Property and equipment, net              |                                                                                                                                                                     |                                            | 6,243,000   |              |             |  | 4,587,000  |            
|Marketable securities  long-term        |                                                                                                                                                                     |                                            | 10,269,000  |              |             |  |           |            
|Goodwill                                 |                                                                                                                                                                     |                                            | 295,744,000 |              |             |  | 22,645,000 |            
|Acquired intangible assets, net          |                                                                                                                                                                     |                                            | 25,037,000  |              |             |  | 2,774,000  |            
|Other assets                             |                                                                                                                                                                     |                                            | 3,086,000   |              |             |  | 1,692,000  |            
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total assets                               |             | $            | 431,255,000 |  |            | $           | 83,486,000 | 
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         | Accounts payable                                                                                                                                                    |                                            | $           | 10,727,000   |             |  | $          | 10,595,000  |           
|                                         | Accrued compensation                                                                                                                                                |                                            |             | 6,082,000    |             |  |            | 3,228,000   |           
|                                         | Other accrued liabilities                                                                                                                                           |                                            |             | 4,032,000    |             |  |            | 1,307,000   |           
|                                         | Deferred revenue                                                                                                                                                    |                                            |             | 6,796,000    |             |  |            | 4,218,000   |           
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total current liabilities                  |             |              | 27,637,000  |  |            |             | 19,348,000 | 
|Deferred revenue                         |                                                                                                                                                                     |                                            | 741,000     |              |             |  |           |            
|Other liabilities                        |                                                                                                                                                                     |                                            | 9,554,000   |              |             |  | 56,000     |            
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total liabilities                          |             |              | 37,932,000  |  |            |             | 19,404,000 | 
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|Stockholders equity:                    |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         | Convertible preferred stock, $0.01 par value;
    2,000,000 shares authorized; 234,558 shares issued and
    outstanding at June 30, 2002 and June 30, 2001         |                                            |             | 3,702,000    |             |  |            | 3,702,000   |           
|                                         | Common stock, $0.01 par value;
    200,000,000 shares authorized 84,651,058 and
    36,601,242 shares issued and outstanding at June 30,
    2002 and June 30, 2001 |                                            |             | 846,000      |             |  |            | 366,000     |           
|                                         | Additional paid-in capital                                                                                                                                          |                                            |             | 532,738,000  |             |  |            | 147,100,000 |           
|                                         | Accumulated deficit                                                                                                                                                 |                                            |             | (141,277,000 | )           |  |            | (85,839,000 | )         
|                                         | Deferred stock-based compensation                                                                                                                                   |                                            |             | (2,540,000   | )           |  |            | (1,066,000  | )         
|                                         | Accumulated other comprehensive loss                                                                                                                                |                                            |             | (146,000     | )           |  |            | (181,000    | )         
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total stockholders equity                 |             |              | 393,323,000 |  |            |             | 64,082,000 | 
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            
|                                         |                                                                                                                                                                     | Total liabilities and stockholders equity |             | $            | 431,255,000 |  |            | $           | 83,486,000 | 
|                                         |                                                                                                                                                                     |                                            |             |              |             |  |            |            

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

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IDENTIX INCORPORATED

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |       |            |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ----- | ---------- | ----------- | ----------- | ----- | ---------- | ----------- | ----------- | ----- | ---------- | ---------- | 
|                                                                                                                                              |                                                                       |                                                               
|                                                                                                                                              |                                                                       | Fiscal Year Ended June 30,                                    
|                                                                                                                                              |                                                                       |                                                               
|                                                                                                                                              |                                                                       | 2002                                                           |                          | 2001  |            | 2000       
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |            
|Revenues:                                                                                                                                     |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              |                                                                       | Product revenues                                               |                          | $     | 28,399,000 |             |             | $     | 35,061,000 |             |             | $     | 30,925,000 |           
|                                                                                                                                              |                                                                       | Services revenues                                              |                          |       | 44,791,000 |             |             |       | 46,767,000 |             |             |       | 41,770,000 |           
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              |                                                                       |                                                                | Total revenues           |       |            | 73,190,000  |             |       |            | 81,828,000  |             |       |            | 72,695,000 | 
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Cost and expenses:                                                                                                                            |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              |                                                                       | Cost of product revenues                                       |                          |       | 19,475,000 |             |             |       | 22,787,000 |             |             |       | 18,261,000 |           
|                                                                                                                                              |                                                                       | Cost of services revenues                                      |                          |       | 41,928,000 |             |             |       | 41,783,000 |             |             |       | 36,634,000 |           
|                                                                                                                                              |                                                                       | Research, development and engineering                          |                          |       | 10,620,000 |             |             |       | 9,649,000  |             |             |       | 8,022,000  |           
|                                                                                                                                              |                                                                       | Marketing and selling                                          |                          |       | 14,604,000 |             |             |       | 16,389,000 |             |             |       | 10,762,000 |           
|                                                                                                                                              |                                                                       | General and administrative                                     |                          |       | 17,030,000 |             |             |       | 13,946,000 |             |             |       | 9,608,000  |           
|                                                                                                                                              |                                                                       | Amortization of acquired intangible assets                     |                          |       | 1,005,000  |             |             |       | 3,329,000  |             |             |       | 3,429,000  |           
|                                                                                                                                              |                                                                       | Restructuring, write-offs and other merger
    related charges |                          |       | 18,798,000 |             |             |       | 1,890,000  |             |             |       |           |           
|                                                                                                                                              |                                                                       | Acquired in-process research and development                   |                          |       | 6,400,000  |             |             |       |           |             |             |       |           |           
|                                                                                                                                              |                                                                       | Preferred stock and warrant expense                            |                          |       |           |             |             |       | 1,259,000  |             |             |       |           |           
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              |                                                                       |                                                                | Total costs and expenses |       |            | 129,860,000 |             |       |            | 111,032,000 |             |       |            | 86,716,000 | 
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Loss from operations                                                                                                                          |                                                                       |                                                                | (56,670,000              | )     |            |             | (29,204,000 | )     |            |             | (14,021,000 | )    
|Interest and other income (expense), net                                                                                                      |                                                                       |                                                                | 949,000                  |       |            |             | 1,436,000   |       |            |             | 915,000     |      
|Interest expense                                                                                                                              |                                                                       |                                                                |                         |       |            |             | (113,000    | )     |            |             | (141,000    | )    
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Loss before income taxes, equity interest in
    income (loss) of joint venture and cumulative effect of a change
    in accounting principle |                                                                       |                                                                | (55,721,000              | )     |            |             | (27,881,000 | )     |            |             | (13,247,000 | )    
|Provision for income taxes                                                                                                                    |                                                                       |                                                                | (46,000                  | )     |            |             |            |       |            |             | (55,000     | )    
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Loss before equity interest in income (loss) of
    joint venture and cumulative effect of a change in accounting
    principle               |                                                                       |                                                                | (55,767,000              | )     |            |             | (27,881,000 | )     |            |             | (13,302,000 | )    
|Equity interest in income (loss) of joint
    venture                                                                                         |                                                                       |                                                                | 329,000                  |       |            |             | 281,000     |       |            |             | (84,000     | )    
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Loss before cumulative effect of a change in
    accounting principle                                                                         |                                                                       |                                                                | (55,438,000              | )     |            |             | (27,600,000 | )     |            |             | (13,386,000 | )    
|Cumulative effect of a change in accounting
    principle                                                                                     |                                                                       |                                                                |                         |       |            |             | (1,998,000  | )     |            |             |            |      
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Net loss                                                                                                                                      |                                                                       | $                                                              | (55,438,000              | )     |            | $           | (29,598,000 | )     |            | $           | (13,386,000 | )    
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Basic and diluted net loss per
    share:                                                                                                     |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              | Loss before cumulative effect of a change in
    accounting principle |                                                                | $                        | (1.33 | )          |             | $           | (0.82 | )          |             | $           | (0.43 | )         
|                                                                                                                                              | Cumulative effect of a change in accounting
    principle             |                                                                |                          |      |            |             |             | (0.06 | )          |             |             |      |           
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|                                                                                                                                              | Net loss per share                                                    |                                                                | $                        | (1.33 | )          |             | $           | (0.88 | )          |             | $           | (0.43 | )         
|                                                                                                                                              |                                                                       |                                                                |                          |       |            |             |             |       |            |             |             |      
|Weighted average common shares used in basic
    and diluted loss per share computation                                                       |                                                                       |                                                                | 41,609,000               |       |            |             | 33,807,000  |       |            |             | 31,441,000  |      

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

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IDENTIX

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |             |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------------- | ------- | ------------ |  | ---------- | --------- | ----------- |  | --------------- | ---------- | ------------- |  | ------------ | ------- | ---- |  | ----- | ----------- | - |  | - | ------------ | ----------- | - | - | ---------- | - |  | - | -------- | ------ |  | - | ----------- | ----------- | -
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |     
|                                                                                      |                                                                 | Convertible     |         |              |  |            |           |             |  |                 |            | Accumulated   |  |             
|                                                                                      |                                                                 | Preferred Stock |         | Common Stock |  |            |           |             |  | Deferred        |            | Other         |  |             
|                                                                                      |                                                                 |                 |         |              |  | Additional |           | Accumulated |  | Stock-based     |            | Comprehensive |  |             
|                                                                                      |                                                                 | Shares          |         | Amount       |  | Shares     |           | Amount      |  | Paid in Capital |            | Deficit       |  | Compensation |         | Loss |  | Total
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |      
|Balance June 30, 1999                                                                 |                                                                 |                 |        |              |  | $          |          |             |  |                 | 28,625,958 |               |  | $            | 286,000 |      |  | $     | 94,619,000  |   |  | $ | (42,855,000  | )           |   | $ | (140,000   | ) |  | $ | (181,000 | )      |  | $ | 51,729,000  |            
|Net loss                                                                              |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   | (13,386,000  | )           |   |   |           |   |  |   |         |        |  |   | (13,386,000 | )          
|Sale of common stock under stock option plans                                         |                                                                 |                 |        |              |  |            |          |             |  |                 | 1,650,893  |               |  |              | 17,000  |      |  |       | 4,558,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 4,575,000   |            
|Sale of common stock under employee stock
    purchase plan                           |                                                                 |                 |        |              |  |            |          |             |  |                 | 32,721     |               |  |              |        |      |  |       | 236,000     |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 236,000     |            
|Sale of common stock under warrant exercise                                           |                                                                 |                 |        |              |  |            |          |             |  |                 | 905,798    |               |  |              | 9,000   |      |  |       | 10,254,000  |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 10,263,000  |            
|Sale of common stock by private placement, net of
    issuance cost                   |                                                                 |                 |        |              |  |            |          |             |  |                 | 1,811,594  |               |  |              | 18,000  |      |  |       | 13,978,000  |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 13,996,000  |            
|Deferred stock- based compensation                                                    |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 866,000     |   |  |   |             |             |   |   | (866,000   | ) |  |   |         |        |  |   |            |            
|Amortization of deferred stock-based compensation                                     |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   |             |             |   |   | 221,000    |   |  |   |         |        |  |   | 221,000     |            
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            
|Balance June 30, 2000                                                                 |                                                                 |                 |        |              |  |            |          |             |  |                 | 33,026,964 |               |  |              | 330,000 |      |  |       | 124,511,000 |   |  |   | (56,241,000  | )           |   |   | (785,000   | ) |  |   | (181,000 | )      |  |   | 67,634,000  |            
|Net loss                                                                              |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   | (29,598,000  | )           |   |   |           |   |  |   |         |        |  |   | (29,598,000 | )          
|Sale of common stock under stock option plans                                         |                                                                 |                 |        |              |  |            |          |             |  |                 | 919,367    |               |  |              | 9,000   |      |  |       | 2,036,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 2,045,000   |            
|Sale of common stock under employee stock
    purchase plan                           |                                                                 |                 |        |              |  |            |          |             |  |                 | 165,010    |               |  |              | 2,000   |      |  |       | 1,007,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 1,009,000   |            
|Sale of common stock by private placement in
    January 2001, net of issuance costs  |                                                                 |                 |        |              |  |            |          |             |  |                 | 264,901    |               |  |              | 3,000   |      |  |       | 1,980,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 1,983,000   |            
|Sale of common stock by private placement in June
    2001, net of issuance costs     |                                                                 |                 |        |              |  |            |          |             |  |                 | 2,225,000  |               |  |              | 22,000  |      |  |       | 14,957,000  |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   | 14,979,000  |            
|Sale of convertible preferred stock to Motorola,
    net of issuance costs            |                                                                 |                 | 234,558 |              |  |            | 3,702,000 |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 3,702,000   |            
|Issuance of warrants in connection with sale of
    convertible preferred stock       |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 1,259,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 1,259,000   |            
|Deferred stock- based compensation                                                    |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 1,170,000   |   |  |   |             |             |   |   | (1,170,000 | ) |  |   |         |        |  |   |            |            
|Amortization of deferred stock-based compensation                                     |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   |             |             |   |   | 889,000    |   |  |   |         |        |  |   | 889,000     |            
|Stock-based compensation                                                              |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 180,000     |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 180,000     |            
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            
|Balance June 30, 2001                                                                 |                                                                 |                 | 234,558 |              |  |            | 3,702,000 |             |  |                 | 36,601,242 |               |  |              | 366,000 |      |  |       | 147,100,000 |   |  |   | (85,839,000  | )           |   |   | (1,066,000 | ) |  |   | (181,000 | )      |  |   | 64,082,000  |            
|Components of comprehensive loss:                                                     |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            
|                                                                                      | Net loss                                                        |                 |         |             |  |            |           |            |  |                 |            |              |  |              |         |     |  |       |             |  |  |   |              | (55,438,000 | ) |   |            |  |  |   |          |       |  |   |             | (55,438,000 | )
|                                                                                      | Unrealized gain on available-for-sale marketable
    securities |                 |         |             |  |            |           |            |  |                 |            |              |  |              |         |     |  |       |             |  |  |   |              |            |   |   |            |  |  |   |          | 35,000 |  |   |             | 35,000      |  
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            
|                                                                                      | Total comprehensive loss                                        |                 |         |             |  |            |           |            |  |                 |            |              |  |              |         |     |  |       |             |  |  |   |              |            |   |   |            |  |  |   |          |       |  |   |             | (55,403,000 | )
|Sale of common stock under stock option plans                                         |                                                                 |                 |        |              |  |            |          |             |  |                 | 976,884    |               |  |              | 10,000  |      |  |       | 4,306,000   |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 4,316,000   |            
|Sale of common stock under employee stock
    purchase plan                           |                                                                 |                 |        |              |  |            |          |             |  |                 | 139,417    |               |  |              | 1,000   |      |  |       | 694,000     |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 695,000     |            
|Sale of common stock by private placement in
    December 2001, net of issuance costs |                                                                 |                 |        |              |  |            |          |             |  |                 | 7,390,000  |               |  |              | 74,000  |      |  |       | 48,273,000  |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 48,347,000  |            
|Issuance of common stock in connection with
    Visionics acquisition                 |                                                                 |                 |        |              |  |            |          |             |  |                 | 39,421,959 |               |  |              | 394,000 |      |  |       | 305,128,000 |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 305,522,000 |            
|Issuance of options and warrants in connection
    with Visionics acquisition         |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 25,745,000  |   |  |   |             |             |   |   | (2,178,000 | ) |  |   |         |        |  |   | 23,567,000  |            
|Issuance of common stock for services received
    relating to Visionics acquisition  |                                                                 |                 |        |              |  |            |          |             |  |                 | 121,556    |               |  |              | 1,000   |      |  |       | 749,000     |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 750,000     |            
|Amortization of deferred stock-based compensation                                     |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       |            |   |  |   |             |             |   |   | 704,000    |   |  |   |         |        |  |   | 704,000     |            
|Stock-based compensation                                                              |                                                                 |                 |        |              |  |            |          |             |  |                 |           |               |  |              |        |      |  |       | 743,000     |   |  |   |             |             |   |   |           |   |  |   |         |        |  |   | 743,000     |            
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            
|Balance June 30, 2002                                                                 |                                                                 |                 | 234,558 |              |  | $          | 3,702,000 |             |  |                 | 84,651,058 |               |  | $            | 846,000 |      |  | $     | 532,738,000 |   |  | $ | (141,277,000 | )           |   | $ | (2,540,000 | ) |  | $ | (146,000 | )      |  | $ | 393,323,000 |            
|                                                                                      |                                                                 |                 |         |              |  |            |           |             |  |                 |            |               |  |              |         |      |  |       |             |   |  |   |              |             |   |   |            |   |  |   |          |        |  |   |             |            

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

53



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##### Table of Contents



IDENTIX INCORPORATED

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |             |            |  
|------------------------------------------------------------ | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------- | ----------- | ---------- | ---- | ---------- | ----------- | --------- | - | ---------- | ----------- | ---------- | -
|                                                             |                                                                                        |                                                                        
|                                                             |                                                                                        | Fiscal Year Ended June 30,                                             
|                                                             |                                                                                        |                                                                        
|                                                             |                                                                                        | 2002                                                                    |            | 2001        |            | 2000
|                                                             |                                                                                        |                                                                         |            |             |            |     
|Cash flows from operating
    activities:                    |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Net loss                                                                               |                                                                         | $          | (55,438,000 | )          |      | $          | (29,598,000 | )         |   | $          | (13,386,000 | )         
|                                                             | Adjustments to reconcile net loss to net cash
    used in operating activities:        |                                                                         |            |             |            |      |            |             |           |   |            |             |           
|                                                             |                                                                                        | Depreciation and amortization                                           |            |             | 3,487,000  |      |            |             | 5,651,000 |   |            |             | 5,771,000  |  
|                                                             |                                                                                        | Loss on disposal of property and equipment                              |            |             | 72,000     |      |            |             | 11,000    |   |            |             | 73,000     |  
|                                                             |                                                                                        | Equity interest in income (loss) of joint
    venture                   |            |             | (329,000   | )    |            |             | (281,000  | ) |            |             | 84,000     |  
|                                                             |                                                                                        | Stock-based compensation expenses                                       |            |             | 1,447,000  |      |            |             | 1,069,000 |   |            |             | 221,000    |  
|                                                             |                                                                                        | Non-cash restructuring, write-offs and other
    merger related charges |            |             | 1,294,000  |      |            |             |          |   |            |             |           |  
|                                                             |                                                                                        | Write-off of intangible assets and other special
    charges            |            |             | 57,000     |      |            |             | 1,890,000 |   |            |             |           |  
|                                                             |                                                                                        | Write-off of capitalized software                                       |            |             |           |      |            |             |          |   |            |             | 304,000    |  
|                                                             |                                                                                        | Acquired in-process research and development                            |            |             | 6,400,000  |      |            |             |          |   |            |             |           |  
|                                                             |                                                                                        | Bad debt expense                                                        |            |             | 1,439,000  |      |            |             | 1,168,000 |   |            |             | 469,000    |  
|                                                             |                                                                                        | Preferred stock and warrant expense                                     |            |             |           |      |            |             | 1,259,000 |   |            |             |           |  
|                                                             | Changes in assets and liabilities, net of effects
    of acquisition:                  |                                                                         |            |             |            |      |            |             |           |   |            |             |           
|                                                             |                                                                                        | Accounts receivable                                                     |            |             | 6,643,000  |      |            |             | 1,576,000 |   |            |             | (3,010,000 | )
|                                                             |                                                                                        | Inventories                                                             |            |             | 122,000    |      |            |             | (979,000  | ) |            |             | 95,000     |  
|                                                             |                                                                                        | Prepaid expenses and other assets                                       |            |             | 920,000    |      |            |             | (580,000  | ) |            |             | (145,000   | )
|                                                             |                                                                                        | Accounts payable                                                        |            |             | (2,924,000 | )    |            |             | 2,025,000 |   |            |             | (1,199,000 | )
|                                                             |                                                                                        | Accrued compensation                                                    |            |             | 2,862,000  |      |            |             | 333,000   |   |            |             | 954,000    |  
|                                                             |                                                                                        | Other accrued liabilities                                               |            |             | 9,511,000  |      |            |             | (156,000  | ) |            |             | 73,000     |  
|                                                             |                                                                                        | Deferred revenue                                                        |            |             | (906,000   | )    |            |             | 4,111,000 |   |            |             | 621,000    |  
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Net cash used in operating activities                                                  |                                                                         |            | (25,343,000 | )          |      |            | (12,501,000 | )         |   |            | (9,075,000  | )         
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|Cash flows from investing
    activities:                    |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Capital expenditures                                                                   |                                                                         |            | (3,292,000  | )          |      |            | (3,954,000  | )         |   |            | (2,235,000  | )         
|                                                             | Cash acquired from acquisition, net of direct
    transaction costs                    |                                                                         |            | 24,330,000  |            |      |            |            |           |   |            |            |           
|                                                             | Proceeds from the sale of property and equipment                                       |                                                                         |            | 20,000      |            |      |            | 19,000      |           |   |            | 20,000      |           
|                                                             | Additions to intangibles and other assets                                              |                                                                         |            | (933,000    | )          |      |            | (1,696,000  | )         |   |            | (807,000    | )         
|                                                             | Purchases of marketable securities                                                     |                                                                         |            | (15,607,000 | )          |      |            |            |           |   |            |            |           
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Net cash provided by (used in) investing
    activities                                |                                                                         |            | 4,518,000   |            |      |            | (5,631,000  | )         |   |            | (3,022,000  | )         
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|Cash flows from financing
    activities:                    |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Borrowings under bank lines of credit                                                  |                                                                         |            |            |            |      |            | 4,914,000   |           |   |            | 4,915,000   |           
|                                                             | Payments under bank lines of credit                                                    |                                                                         |            |            |            |      |            | (5,344,000  | )         |   |            | (9,081,000  | )         
|                                                             | Principal payments on short-term note                                                  |                                                                         |            |            |            |      |            |            |           |   |            | (200,000    | )         
|                                                             | Proceeds from sales of common and preferred stock                                      |                                                                         |            | 53,394,000  |            |      |            | 23,719,000  |           |   |            | 29,070,000  |           
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Net cash provided by financing activities                                              |                                                                         |            | 53,394,000  |            |      |            | 23,289,000  |           |   |            | 24,704,000  |           
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|Net increase in cash and cash equivalents                    |                                                                                        |                                                                         | 32,569,000 |             |            |      | 5,157,000  |             |           |   | 12,607,000 |            
|Cash and cash equivalents at beginning of year               |                                                                                        |                                                                         | 20,777,000 |             |            |      | 15,620,000 |             |           |   | 3,013,000  |            
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|Cash and cash equivalents at end of year                     |                                                                                        | $                                                                       | 53,346,000 |             |            | $    | 20,777,000 |             |           | $ | 15,620,000 |            
|                                                             |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|Supplemental disclosures of cash flow
    information:       |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Cash paid during the year for:                                                         |                                                                         |            |             |            |      |            |             |           |   |            |             |           
|                                                             | Interest                                                                               |                                                                         | $          |            |            |      | $          | 113,000     |           |   | $          | 141,000     |           
|                                                             | Taxes                                                                                  |                                                                         | $          |            |            |      | $          |            |           |   | $          | 18,000      |           
|Schedule of non-cash investing and financing
    activities: |                                                                                        |                                                                         |            |             |            |      |            |             |           |   |            |            
|                                                             | Common stock, options and warrants issued in
    connection with Visionics acquisition |                                                                         | $          | 331,267,000 |            |      | $          |            |           |   | $          |            |           
|                                                             | Common stock issued for services received
    relating to Visionics acquisition        |                                                                         | $          | 750,000     |            |      | $          |            |           |   | $          |            |           

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

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##### Table of Contents



IDENTIX INCORPORATED






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


Year Ended June 30, 2002




|         |                                                        
|-------- | -------------------------------------------------------
|Note 1  | The Company and Its Significant Accounting
    Policies

Identix Incorporated (the Company)
designs, manufactures, develops and markets products for
security, anti-fraud, law enforcement and other applications. In
addition, the Company provides information technology,
engineering and management consulting services to private and
public sector clients through Identix Public Sector, Inc.
(IPS), a wholly owned subsidiary of the Company
(formerly ANADAC, Inc.). The principal markets for the
Companys products are the Americas, Asia, Australia,
Europe and the Middle East. The Company historically operated in
four business segments: (i) imaging, (ii) security,
(iii) government services and (iv) fingerprinting
services.



| |                       
| | ----------------------
| | Basis of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant inter-company balances and transactions have been
eliminated on consolidation.



| |                                         
| | ----------------------------------------
| | Management Estimates and
    Assumptions

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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.



| |                              
| | -----------------------------
| | Need for Additional Financing

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



| |              
| | -------------
| | Joint Venture

In September 1997, the Company entered into a
joint venture agreement with Sylvan Learning Centers, Inc.
(Sylvan) to form Sylvan/ Identix Fingerprinting
Centers, LLC (SIFC) for the purpose of providing
fingerprinting services. The Company owns a 50% interest in the
joint venture. In addition to the Companys equity interest
in the income (loss) from the joint venture, the Company
also derives license fees from SIFC, which are included within
the interest and other income (expense), net, line item of the
consolidated statement of operations.



| |                    
| | -------------------
| | Revenue Recognition

In December 1999, the Securities and Exchange
Commission Staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements
(SAB 101). The Company implemented the
provisions of SAB 101 in the fourth quarter of fiscal 2001,
retroactive to July 1, 2000. As a result of this change in
accounting principle, the Company recorded a charge of
$1,998,000 to reflect the cumulative effect of the change on
prior years as of July 1, 2000. The results for the first
three quarters of fiscal 2001 have been restated to reflect the
adoption of SAB 101 as of July 1, 2000.

55



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The portion of the Companys revenue
impacted by SAB 101 is product revenue derived from the
sale of equipment that requires installation. Certain of the
Companys Imaging segment equipment sales such as its
TouchPrint Live Scan Systems generally require installation
subsequent to shipment and transfer of title. Previously, the
Company had generally recognized revenue upon shipment of
equipment to customers, regardless of installation requirements,
provided final customer acceptance and collection of the related
receivable were probable. The Companys interpretation of
the requirements of SAB 101 resulted in changes to the
Companys accounting method for revenue recognition related
to equipment sales that require installation, since the
installation is not considered perfunctory. Under the
Companys new accounting method, product revenue related to
equipment sales that require installation is deferred until
installation is complete and customer acceptance has been
obtained. Revenue related to product sales that require no
installation such as printers and other peripheral devices as
well as the Companys Security segment products including
DFR-300, DFR-200 and FingerScan V20 continue to be recognized in
accordance with the terms of the sale, generally upon shipment
by the Company, provided no significant obligations remain and
collection of the receivable is deemed reasonably assured.
Revenues from sales of products via authorized representatives,
dealers, distributors or other third party sales channels are
recognized at the time the risks and rewards have transferred
or, in the case of TouchPrint Live Scan Systems that generally
require installation, upon the final installation and acceptance
from the end user.

The Company also sells several stand-alone
software products including BioLogon and software developer
kits. Revenue is recognized on software products in accordance
with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended. The
Company recognizes revenue on software products when persuasive
evidence of an arrangement exists, delivery has occurred, the
vendors fee is fixed or determinable and vendor-specific
objective evidence (VSOE) exists to allocate the
total fee to all undelivered elements of the arrangement and
collection is determined to be probable. VSOE is established
based upon either sales of the element (e.g. maintenance,
training or consulting) in individual transactions, or, in
certain cases for maintenance, based upon substantive renewal
rates. In cases where the Company does not have VSOE for all
delivered elements in the transaction (e.g., for licenses), the
fees from these multiple-element agreements are allocated using
the residual value method. Maintenance revenue is deferred and
recognized rateably over the life of the service period of the
related agreement.

The majority of the Companys services are
performed for the U.S. Government under various firm
fixed-price (FFP), time-and-material
(T&M) and cost reimbursement contracts. Revenues
on FFP contracts are generally recognized on the
percentage-of-completion method based on costs incurred in
relation to total estimated costs. Revenues on T&M contracts
are recognized to the extent of billable rates multiplied by
hours worked plus materials expense incurred. Revenues for cost
plus fixed fee (CPFF) contracts are recognized as
costs are incurred, including a proportionate amount of the fee
earned. Unbilled accounts receivable represent revenue accrued
which becomes billable per the terms of contract. Provisions for
estimated contract losses are recorded in the period such losses
are determined.

Services revenues directly from contracts with
the U.S. Government, principally with the Department of
Defense (DOD), and from subcontracts with other
U.S. Government contractors, were approximately 83% of
total services revenue for fiscal 2002, 89% for fiscal 2001 and
86% for fiscal 2000. 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. Identix Public Sector (IPS) is currently
being audited by the Defense Contract Audit Agency for the
period from July 1, 1997 to June 30, 2000. While the
Company believes that the results of such audit will have no
material effect on the Companys financial position or
results of operations, there can be no assurance that no
adjustment will be made and that, if made, such adjustments will
not have a material effect on the Companys financial
position or results of operations.

56



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                
| | ---------------
| | Major Customers

In fiscal 2002, 2001 and 2000, the Company had
one customer, DOD, which accounted for 45%, 40% and 43%
respectively, of total revenue. No other customer accounted for
more than 10% of total revenue.



| |                                                          
| | ---------------------------------------------------------
| | Cash Equivalents and Short-term Marketable
    Securities

Cash equivalents consist of highly liquid
investments with original maturities of three months or less.
Short-term marketable securities are held as securities
available for sale and are carried at their market value based
on quoted market prices as of the balance sheet date. The
amortized cost of securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains or
losses are determined based on the specific identification
method and are reflected in income. Net unrealized gains or
losses are recorded directly in stockholders equity except
those unrealized losses that are deemed to be other than
temporary are reflected in income.



| |                
| | ---------------
| | Restricted Cash

Restricted cash consists of cash balances held by
a bank in the form of certificates of deposit. At June 30,
2002 and 2001, included in other assets are $1,482,000 and
$437,000, respectively, of restricted cash held as collateral
under the operating leases for the Companys Los Gatos,
California, Dublin, California and Virginia facilities.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of cash, cash equivalents, marketable securities, and accounts
receivable. The Company places cash, cash equivalents, and
marketable securities in a variety of financial instruments and,
by policy, limit the amount of credit exposure by investing its
excess cash and cash equivalents with major banks in money
market accounts and by restricting investments in marketable
securities to highly rated securities.

The Company performs ongoing credit evaluations
of its customers and provides for expected losses. Management
believes that any risk of material loss is reduced due to the
Companys substantial number of government customers,
primarily DOD. Accounts receivables from DOD represented 17% of
total consolidated accounts receivables at June 30, 2002
and 38% at June 30, 2001.



| |          
| | ---------
| | Suppliers

Certain components and parts used in the
Companys products are procured from a single source or
limited group of suppliers. The Company does not have long-term
agreements with any of its suppliers. The failure of a supplier,
including a sub-contractor, to deliver on schedule could delay
or interrupt the Companys delivery of products and thereby
adversely affect the Companys revenues and profits.



| |           
| | ----------
| | Fair Value

The carrying value of the Companys
financial instruments, including cash and cash equivalents,
short-term marketable securities, accounts receivable, accounts
payable and accrued liabilities approximate their fair values
due to their relatively short maturities. The Company does not
hold or issue financial instruments for trading purposes.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of standard
cost (which approximates actual cost on a first-in, first-out
cost method).

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. During the
year ended June 30, 2002, the Company physically disposed
of $1,223,000 of inventory which had been provided for at
June 30, 2001 due to the respective products end of
life.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost less
accumulated depreciation and amortization. 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 are 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.

The Company evaluates the recoverability of
property and equipment and other long-lived assets, excluding
goodwill, in accordance with Statement of Financial Accounting
Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the carrying value
of such assets exceeds the future undiscounted cash flows
attributable to such assets. In October 2001, the Financial
Accounting Standards Board (the FASB) issued
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. The
Companys adoption of SFAS No. 144 on July 1,
2002 did not have a material impact on its financial position
and results of operations.



| |                  
| | -----------------
| | Intangible Assets

Acquired intangible assets include developed
technology, service/maintenance agreements, patents/core
technology, trade name/trademark, order backlog and employee
agreements. The acquired intangible assets are amortized over
their estimated useful lives ranging from three months to four
years, (see Note 2 and Note 6).



| |                           
| | --------------------------
| | Software Development Costs

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. The period of time between
technological feasibility and general release of products to
customers is generally extremely short. 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. Research and development expenditures are
charged to research and development in the period incurred. At
June 30, 2002 and 2001, the Company had capitalized
software costs net of amortization of nil and $117,000.



| |                             
| | ----------------------------
| | Foreign Currency Translation

Assets and liabilities of the foreign
subsidiaries are translated into U.S. Dollars at the
exchange rate in effect at the balance sheet date. Revenues,
costs, and expenses are translated using the average exchange
rate for the year. Gains and losses resulting from translation
are accumulated as a separate component of accumulated other
comprehensive income (loss) in stockholders equity. Gains
and losses resulting from foreign currency transactions are
included in the consolidated statement of operations, as
incurred, and have not been significant for the periods
presented.

58



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 and periodically adjusted to
reflect actual experience.

Income
Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce tax assets to the amounts expected to be
realized.

Stock-Based
Compensation

The Company accounts for its employee and
director stock option plans and employee stock purchase plans in
accordance with provisions of the Accounting Principles Board
Opinion (APB) No. 25, Accounting for
Stock Issued to Employees. Additional pro forma
disclosures as required under SFAS No. 123 Accounting
for Stock-Based Compensation are presented in Note 9.
The Company accounts for stock options issued to non-employees
in accordance with the provisions of SFAS 123 and Emerging
Issues Task Force (EITF) 96-18 Accounting for
Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling Goods or Services.

Comprehensive
Loss

Comprehensive loss includes net loss and other
comprehensive loss. Other comprehensive loss includes cumulative
translation adjustments and unrealized gains and losses on
available-for-sale securities. Identix comprehensive loss has
been presented in the Consolidated Statement of Stockholders
Equity. The components of accumulated other comprehensive loss
are as follows:

|                                           |  |          |          |          |  |   |          |  
|------------------------------------------ |  | -------- | -------- | -------- |  | - | -------- | -
|                                           |  | June 30, |          | June 30,
|                                           |  | 2002     |          | 2001    
|                                           |  |          |          |         
|Cumulative translation adjustment          |  | $        | (181,000 | )        |  | $ | (181,000 | )
|Unrealized gain on marketable securities   |  |          | 35,000   |          |  |   |         |  
|                                           |  |          |          |          |  |   |          |  
|Total accumulated other comprehensive loss |  | $        | (146,000 | )        |  | $ | (181,000 | )
|                                           |  |          |          |          |  |   |          |  

In fiscal 2002 and 2001 the comprehensive loss
did not differ from the reported net loss.

Earnings Per
Share

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

Options and warrants to purchase 10,985,438,
7,075,585 and 5,501,084 shares of common stock were outstanding
at June 30, 2002, 2001 and 2000, respectively, but were not
included in the computation of diluted net loss per share as
their effect was anti-dilutive. Also 234,558 shares of
convertible preferred stock were

59



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

outstanding at June 30, 2002 and 2001 and
are convertible into 235,553 shares of common stock, but were
not included in the computation of diluted net loss per share as
their effect was anti-dilutive.

Reclassifications

Certain prior year amounts have been reclassified
to conform to the current year presentation.

In connection with the Companys adoption of
SAB 101 on July 1, 2000, a cumulative effect adjustment was
recognized to reflect an adjustment to the timing of revenue
recognition on product sales that require final installation and
acceptance. Prior to fiscal 2002, amounts were invoiced to
customers when the products were shipped. Commencing with fiscal
2002, the Company began invoicing customers for imaging
equipment sales that require installation and acceptance once
the installation is complete and acceptance has been obtained.
As a result, the Company changed its presentation of deferred
revenues and the related accounts receivable for these equipment
sales requiring installation to exclude such amounts from the
consolidated financial statements. Prior years amounts
have been reclassified to conform to the current years
presentation, as follows:

|                                                                |  |          |            |          |  |   |            |  
|--------------------------------------------------------------- |  | -------- | ---------- | -------- |  | - | ---------- | -
|                                                                |  | June 30, |            | June 30,
|                                                                |  | 2002     |            | 2001    
|                                                                |  |          |            |         
|Accounts receivable gross                                       |  | $        | 19,922,000 |          |  | $ | 25,608,000 |  
|Deferred revenue offset against related accounts
    receivable |  |          | (42,000    | )        |  |   | (2,454,000 | )
|                                                                |  |          |            |          |  |   |            |  
|Accounts receivable per balance sheet                           |  | $        | 19,880,000 |          |  | $ | 23,154,000 |  
|                                                                |  |          |            |          |  |   |            |  

Note 2  Merger with Visionics
Corporation

On June 25, 2002, Identix completed its
merger with Visionics Corporation (Visionics), a
leading provider of biometric technologies and identification
information systems. As Identix merger with Visionics was
completed on June 25, 2002, Identix consolidated
statements of operations for the year ended June 30, 2002,
reflect Visionics results of operations for only the final
three business days of June 2002.

In connection with this stock-for-stock merger
transaction, each outstanding share of Visionics common stock
was exchanged for 1.3436 shares of Identix, resulting in the
issuance of an aggregate of 39,422,000 shares of Identix common
stock for all outstanding shares of Visionics common stock. In
addition, all options and warrants to purchase shares of
Visionics common stock outstanding immediately prior to the
consummation of the merger were converted into options and
warrants to purchase 3,860,000 shares of Identix common stock.
The fair value of Identix common stock issued was
determined to be $7.75 using the five trading day average price
surrounding February 22, 2002, the date the merger was
announced. The fair value of Identix stock options and
warrants issued was determined using the Black-Scholes option
pricing model. The following assumptions were used to determine
the fair value of the options: expected life of 0.50 years
to 2.79 years, risk-free interest rate of 1.38% to 4.03%,
expected volatility of 85% and no expected dividend yield. The
following assumptions were used to determine the fair value of
the warrants: expected life ranging from 0.50 years to
4.67 years, risk-free interest rate ranging from 4.32% to
5.17%, expected volatility of 85% and no expected dividend yield.

The total purchase price consisted of the
following:

|                                                     |                      |   |             |             | 
|---------------------------------------------------- | -------------------- | - | ----------- | ----------- | 
|Value of Identix common stock issued                |                      | $ | 305,522,000 |            
|Value of Visionics options and warrants
    assumed |                      |   | 25,745,000  |            
|Direct transaction costs                             |                      |   | 3,551,000   |            
|                                                     |                      |   |             |            
|                                                     | Total purchase price |   | $           | 334,818,000 | 
|                                                     |                      |   |             |            

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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The allocation of the purchase price to the
assets acquired and liabilities assumed based on the fair value
of Visionics was as follows:

|                                        |                                                  |                                     |   |            |  |  |             |   |             |  
|--------------------------------------- | ------------------------------------------------ | ----------------------------------- | - | ---------- |  |  | ----------- | - | ----------- | -
|Tangibles assets acquired:              |                                                  |                                     |   |            |  |  |             |  
|                                        | Cash and cash equivalents                        |                                     | $ | 27,130,000 |  |  |             |   |            
|                                        | Accounts receivable                              |                                     |   | 4,810,000  |  |  |             |   |            
|                                        | Inventories                                      |                                     |   | 5,130,000  |  |  |             |   |            
|                                        | Prepaid expenses and other current assets        |                                     |   | 500,000    |  |  |             |   |            
|                                        | Property and equipment                           |                                     |   | 2,153,000  |  |  |             |   |            
|                                        |                                                  |                                     |   |            |  |  |             |  
|                                        |                                                  | Total tangible assets               |   |            |  |  |             | $ | 39,723,000  |  
|Amortizable intangible assets acquired: |                                                  |                                     |   |            |  |  |             |  
|                                        | Developed technology                             |                                     |   | 16,100,000 |  |  |             |   |            
|                                        | Service/ Maintenance agreements                  |                                     |   | 3,600,000  |  |  |             |   |            
|                                        | Patents/ Core technology                         |                                     |   | 2,900,000  |  |  |             |   |            
|                                        | Tradename/ Trademark                             |                                     |   | 500,000    |  |  |             |   |            
|                                        | Order backlog and employee agreements            |                                     |   | 300,000    |  |  |             |   |            
|                                        |                                                  |                                     |   |            |  |  |             |  
|                                        |                                                  | Total amortizable intangible assets |   |            |  |  |             |   | 23,400,000  |  
|Goodwill                                |                                                  |                                     |   |            |  |  | 273,099,000 |  
|In-process research and development     |                                                  |                                     |   |            |  |  | 6,400,000   |  
|Fair value of liabilities assumed:      |                                                  |                                     |   |            |  |  |             |  
|                                        | Accounts payable                                 |                                     |   | 3,052,000  |  |  |             |   |            
|                                        | Other accrued liabilities                        |                                     |   | 2,690,000  |  |  |             |   |            
|                                        | Deferred revenue  current                       |                                     |   | 3,484,000  |  |  |             |   |            
|                                        | Deferred revenue and other long-term liabilities |                                     |   | 756,000    |  |  |             |   |            
|                                        |                                                  |                                     |   |            |  |  |             |  
|                                        |                                                  | Total liabilities assumed           |   |            |  |  |             |   | (9,982,000  | )
|Deferred compensation                   |                                                  |                                     |   |            |  |  | 2,178,000   |  
|                                        |                                                  |                                     |   |            |  |  |             |  
|                                        |                                                  | Net assets acquired                 |   |            |  |  |             | $ | 334,818,000 |  
|                                        |                                                  |                                     |   |            |  |  |             |  

In accordance with SFAS 141, Business
Combinations and SFAS 142, Goodwill and Other
Intangible Assets, all identifiable assets acquired were
analyzed to determine their fair values and remaining useful
lives. The amortizable intangible assets acquired have useful
lives, as follows: Developed technology 
5 years; Service/ Maintenance agreements 
6 years; Patents/ Core technology  6 years;
Tradename/ Trademark  3 years; Order backlog and
employee agreements  3 months to 4 years.
Goodwill represents the excess of the purchase price over the
fair value of the net tangible and identifiable intangible
assets acquired. In accordance with SFAS No. 142, goodwill
will not be amortized, but will be tested for impairment at
least annually. The goodwill has been assigned to the
Companys Imaging reporting unit, which is also a
reportable segment. The goodwill is not deductible for tax
purposes.

Developed
Technology and In-Process Research and Development

A portion of the purchase price has been
allocated to developed technology and in-process research and
development. The fair value was estimated through a discounted
cash flow method using the income approach, which determines the
fair value of an asset based on the value of the cash flows that
the asset can be expected to generate in the future. In-process
research and development guidelines discussed in the American
Institute of Certified Public Accountants IPR&D Practice Aid
were utilized in the traditional income

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approach. The rates used to discount the net cash
flows to their present value are based on Visionics
weighted average cost of capital and adjusted upwards or
downwards, as appropriate, for the asset being valued. Discount
rates ranging from 25% to 35% were used for the individual
in-process technology products due to the additional risks
related to the development and success, and based on the stage
of completion of the in-process products. A discount rate of 13%
was applied to developed technology to reflect the lack of
technological and/or market risk associated with achieving the
forecasted sales attributable to those technologies.

As the basis for identifying the in-process
research and development, the development projects were
evaluated in the context of Interpretation 4 of FASB
Statement No. 2. In accordance with these provisions, the
research and development projects were examined to determine if
there were any alternative future uses. Such evaluation
consisted of a specific review of efforts, including the overall
objectives of the project, progress toward the objectives, and
the uniqueness of the developments of these objectives. In
addition, each in-process research and development project was
reviewed to determine if technological feasibility had been
achieved. In assessing Visionics research and development
projects, many key characteristics of Visionics, the rate of
technology changes in the industry, product life cycles, and the
various projects stage of development were considered.
Where development projects had reached technological
feasibility, they were classified as developed technology, and
the value assigned to developed technology was capitalized.
Where the development projects had not reached technological
feasibility and had no future alternative uses, they were
classified as in-process research and development and were
charged to expense upon closing of the merger.

Visionics current product portfolio
consists of four main product families: FaceIt, LiveScan,
Identification Based Information System (IBIS), and
Biometric Network Platform (BNP). FaceIt products
are currently in the market and are sold through resellers. As
of June 25, 2002 (the Valuation Date), there
were no significant in-process developments related to FaceIt
products. Visionics has begun significant development efforts to
enhance components of the LiveScan, IBIS, and BNP product
offerings as of the Valuation Date. The in-process developments
by family are: (1) LiveScan  1000 dots per inch
(dpi), (2) IBIS  2nd Generation
Remote Data Terminal (RDT), and
(3) BNP  Automatic Biometric Identification
System (ABIS).

LiveScan:The
current release of LiveScan is a third generation product, which
displays objects at a screen resolution of 500 dpi. As of
the Valuation Date, the Company was developing a LiveScan
product with 1000 dpi. LiveScan  1000 dpi
will increase the products screen resolution and image quality
beyond the current products capabilities.

IBIS:The current
release of IBIS products contains a first generation wireless
networked RDT. As of the Valuation Date, the Company was
developing a second generation RDT for the IBIS family of
products.

BNP:The current
release of the BNP is called the Argus System. As of the
Valuation Date, the Company was developing ABIS, a back-end
scalable database integrated into the BNP.

The following are the estimated fair value and
stage of completion percentages for each of the in-process
products as of the Valuation Date:

|                          |       |            |           |            |  |  |    |   | 
|------------------------- | ----- | ---------- | --------- | ---------- |  |  | -- | - | 
|                          |       |            |           | Stage of  
|In-Process Product        |       | Fair Value |           | Completion
|                          |       |            |           |           
|LiveScan  1000 dpi       |       | $          | 1,800,000 |            |  |  | 21 | %
|IBIS  2nd Generation RDT |       |            | 1,300,000 |            |  |  | 59 | %
|BNP  ABIS                |       |            | 3,300,000 |            |  |  | 84 | %
|                          |       |            |           |            |  |  |    |  
|                          | Total |            | $         | 6,400,000  |  |  |    |   | 
|                          |       |            |           |            |  |  |    |  

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The biometric industry is a rapidly developing
market that requires innovative technology to address the
evolving needs of the consumer. Future success in the biometric
industry will depend on the Companys ability to achieve
scientific and technological advances and to translate such
advances into commercially competitive products on a timely
basis that keep pace with competing technological developments
and address the increasingly sophisticated needs of its
customers. Visionics in-process products are at various
stages of development that require further research and
development to determine technical feasibility and commercial
viability. Current engineering efforts are focused on adding the
planned functionalities to the LiveScan, IBIS, and BNP line of
products. Developing the new product releases is time-consuming,
costly, and complex. There is risk that the developments will
not be competitive with other products using alternative
technologies that offer comparable functionalities.



| |                                    
| | -----------------------------------
| | Service/ Maintenance
    Agreements

The existing service/maintenance agreements
relate to the revenue generated by Visionics from fees that
users pay when they subscribe to a Visionics service/
maintenance contract. The income approach was used in estimating
the fair value of the service/ maintenance agreements. The net
cash flows were estimated using the on-going income expected to
be generated from the existing service/ maintenance agreements
in place as of the Valuation Date. A discount rate of 15% was
used to discount the net cash flows to their present value.



| |                         
| | ------------------------
| | Patents/ Core Technology

The acquired patents/ core technology represents
a series of filed patent applications and a patents/ core
modular architecture that is used in each of Visionics products.
Together, they form a major part of the platform of both the
current and planned future releases. In estimating the fair
value of patents/ core technology, a variation of the income
approach, the royalty savings approach, was used. In the
application of the royalty savings approach, the value of the
patents/ core technology was estimated by capitalizing the
royalties saved because Visionics owned the technology. An
estimated 3.0% royalty rate was used as the approximate royalty
rate that could be attributable to the patents/ core technology.
A discount rate of 21% was used to discount the estimated future
royalties saved to their present value.



| |                                    
| | -----------------------------------
| | Unaudited Pro Forma
    Information

The following unaudited pro forma information
presents a summary of the consolidated results of operations of
the Company, excluding the charge for acquired in-process
research and development, assuming the acquisition of Visionics
occurred on July 1, 2000:

|                                                                        |  |                            |             |      |  |   |             |  
|----------------------------------------------------------------------- |  | -------------------------- | ----------- | ---- |  | - | ----------- | -
|                                                                        |  |                           
|                                                                        |  | Fiscal Year Ended June 30,
|                                                                        |  |                           
|                                                                        |  | 2002                       |             | 2001
|                                                                        |  |                            |             |     
|Revenues                                                                |  | $                          | 105,079,000 |      |  | $ | 112,301,000 |  
|Net loss before cumulative effect of change in
    accounting principle |  | $                          | (42,088,000 | )    |  | $ | (37,745,000 | )
|Loss per share  basic and diluted                                      |  | $                          | (.52        | )    |  | $ | (.52        | )
|Common shares used in basic and diluted loss per
    share computation  |  |                            | 80,491,000  |      |  |   | 73,229,000  |  

63



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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 3  Restructuring, Write-Offs
and Other Merger Related Charges



| |            
| | -----------
| | Fiscal 2002

The Company recorded the following restructuring
and other related charges during the fiscal year ended
June 30, 2002:

|                                |       |               |            |            |  |                       |           |                         |  |   |           |           |  |   |            |            | 
|------------------------------- | ----- | ------------- | ---------- | ---------- |  | --------------------- | --------- | ----------------------- |  | - | --------- | --------- |  | - | ---------- | ---------- | 
|                                |       |               |            | Non-Cash   |  | Cash Payments         |           | Restructuring Liability
|                                |       | Total Charges |            | Charges    |  | Through June 30, 2002 |           | as of June 30, 2002    
|                                |       |               |            |            |  |                       |           |                        
|Severance and benefits          |       | $             | 6,093,000  |            |  | $                     | 900,000   |                         |  | $ | 2,700,000 |           |  | $ | 2,493,000  |           
|Disposal of fixed assets        |       |               | 1,294,000  |            |  |                       | 1,294,000 |                         |  |   |          |           |  |   |           |           
|Lease exit costs                |       |               | 10,340,000 |            |  |                       |          |                         |  |   |          |           |  |   | 10,340,000 |           
|Internal merger costs and other |       |               | 1,071,000  |            |  |                       |          |                         |  |   | 257,000   |           |  |   | 814,000    |           
|                                |       |               |            |            |  |                       |           |                         |  |   |           |           |  |   |            |           
|                                | Total |               | $          | 18,798,000 |  |                       | $         | 2,194,000               |  |   | $         | 2,957,000 |  |   | $          | 13,647,000 | 
|                                |       |               |            |            |  |                       |           |                         |  |   |           |           |  |   |            |           



| |                       
| | ----------------------
| | Severance and Benefits

In July 2001, the Company initiated a workforce
reduction of approximately 42 employees, or 10% of its workforce
to streamline its worldwide functions, operations and resources
primarily in marketing, selling and administration. The
workforce reduction resulted in a $1,712,000 charge during the
quarter ended September 30, 2001 relating primarily to
severance and fringe benefits. Related cash payments of
$1,597,000 were made during the fiscal year ended June 30,
2002. The remaining liability at June 30, 2002 of $115,000
is included in accrued compensation in the consolidated balance
sheet. The Company expects that this amount will be paid by the
end of fiscal year 2003.

In June 2002, in connection with the
Companys merger with Visionics, approximately 110
employees were terminated from the Companys
Los Gatos, California, Dublin, California and IPS
locations. The terminated employees were from all functional
areas of the Company. The workforce reduction resulted in a
charge of $3,481,000 relating primarily to severance and fringe
benefits. Related cash payments of $1,103,000 were made during
the fiscal year ended June 30, 2002. The remaining
liability at June 30, 2002 of $2,378,000 is included in
accrued compensation in the consolidated balance sheet. The
Company expects that this amount will be substantially paid by
June 30, 2003. In connection with the June 2002
terminations, certain stock options were subject to
remeasurement and acceleration resulting in a non-cash charge of
$900,000.



| |                         
| | ------------------------
| | Disposal of Fixed Assets

A non-cash charge of $1,294,000 was recorded for
the write-off of property and equipment due to the
discontinuance of certain product lines as well as the closure
of the Companys Los Gatos, California and Dublin,
California facilities.



| |                 
| | ----------------
| | Lease Exit Costs

A charge of $10,340,000 was recorded for the
estimated cost to terminate or sublease two excess leased
facilities. Of this amount, $1,706,000 is included in other
accrued liabilities and $8,634,000 is included in other
liabilities in the consolidated balance sheet. The estimate is
based on current comparable rates for leases in respective
markets. Should facilities rental rates continue to decrease in
these markets or should it take longer than expected to sublease
these facilities, the actual loss could exceed this estimate.
The costs are expected to be paid through fiscal 2008, based on
the underlying lease agreements.

64



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                    
| | -----------------------------------
| | Internal Merger Costs and
    Other

The Company incurred internal merger related
costs of $587,000 during the period from the announcement of the
merger through its completion. Of this amount, $257,000 was paid
in the year ended June 30, 2002. The remaining balance is
included in accounts payable in the consolidated balance sheet.
The Company expects that this amount will be fully paid during
fiscal year 2003.

A charge of $484,000, mostly related to
additional costs required to shut down the Companys
Virginia Beach-based Law Enforcement Solutions Division
(LESD) group, was recorded. As described below,
management made the decision to exit LESD in June 2001. The
reserve is included in other accrued liabilities in the
consolidated balance sheet. The Company expects this amount will
be paid by June 30, 2003.



| |            
| | -----------
| | Fiscal 2001

In light of continued deteriorating general
economic conditions, during the third quarter ended
March 31, 2001, the Company initiated a review of its asset
carrying values, forecasted sales and the timing of
introductions and end of lives of its products.

As a continuation of this review, in June 2001,
the Company initiated a restructuring of its worldwide
operations to reduce costs and increase operational
efficiencies. The Company consolidated and centralized all
functional areas, including sales, customer service, finance and
marketing. Also, in June 2001, the Company closed the operations
of its Virginia Beach-based LESD group, a business that is not
profitable and not central to the Companys revised
business strategy.

The Company recorded charges during fiscal 2001
totaling $4,517,000 consisting of $1,843,000 for the write-down
of inventory related primarily to the introduction and
end-of-life of certain Imaging and Security products including
the introduction of TouchPrint 2000 and the end-of-life of
TouchPrint 600 and BioLogon version 2.0; $1691,000 for
the write-off of certain IPS intangible assets related to
software and other capitalized costs that the Company no longer
plans to market/use and a $643,000 provision to write-off
certain accounts receivables for customers whose financial
condition deteriorated subsequent to the revenue being
recognized.

Charges recorded during fiscal 2001 in connection
with its review activities, substantially all of which were
non-cash in nature, are summarized as follows:

|                                          |       |   |           |           | 
|----------------------------------------- | ----- | - | --------- | --------- | 
|Inventory write-offs and reserves         |       | $ | 1,843,000 |          
|Write-off of intangibles and other assets |       |   | 1,691,000 |          
|Allowance for doubtful accounts           |       |   | 643,000   |          
|Contract accruals                         |       |   | 185,000   |          
|Employee separation                       |       |   | 155,000   |          
|                                          |       |   |           |          
|                                          | Total |   | $         | 4,517,000 | 
|                                          |       |   |           |          

These charges were included in the Companys
consolidated statement of operations as follows:

|                                                   |       |   |           |           | 
|-------------------------------------------------- | ----- | - | --------- | --------- | 
|Cost of product revenues                           |       | $ | 1,843,000 |          
|Cost of services revenues                          |       |   | 141,000   |          
|General and administrative                         |       |   | 643,000   |          
|Write-off of intangibles and other special charges |       |   | 1,890,000 |          
|                                                   |       |   |           |          
|                                                   | Total |   | $         | 4,517,000 | 
|                                                   |       |   |           |          

65



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                     
|-------- | --------------------
|Note 4  | Balance Sheet Detail

|                                                |                                                             |          |            |            |           |   |            |            |            | 
|----------------------------------------------- | ----------------------------------------------------------- | -------- | ---------- | ---------- | --------- | - | ---------- | ---------- | ---------- | 
|                                                |                                                             |         
|                                                |                                                             | June 30,
|                                                |                                                             |         
|                                                |                                                             | 2002     |            | 2001      
|                                                |                                                             |          |            |           
|Accounts receivable:                            |                                                             |          |            |            |           |   |            |           
|                                                | Commercial and other                                        |          | $          | 13,861,000 |           |   | $          | 9,637,000  |           
|                                                | United States Government:                                   |          |            |            |           |   |            |            |           
|                                                |                                                             | Billed   |            |            | 4,408,000 |   |            |            | 10,683,000 | 
|                                                |                                                             | Unbilled |            |            | 4,212,000 |   |            |            | 3,597,000  | 
|                                                | Other receivables                                           |          |            | 93,000     |           |   |            | 639,000    |           
|Less: allowance for doubtful accounts           |                                                             |          | (2,694,000 | )          |           |   | (1,402,000 | )         
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 19,880,000 |            |           | $ | 23,154,000 |           
|                                                |                                                             |          |            |            |           |   |            |           
|Inventories:                                    |                                                             |          |            |            |           |   |            |           
|                                                | Purchased parts and materials                               |          | $          | 4,190,000  |           |   | $          | 1,603,000  |           
|                                                | Work-in-process                                             |          |            | 4,956,000  |           |   |            | 1,260,000  |           
|                                                | Finished goods, including spares                            |          |            | 1,949,000  |           |   |            | 3,226,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 11,095,000 |            |           | $ | 6,089,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|Property and equipment:                         |                                                             |          |            |            |           |   |            |           
|                                                | Manufacturing, test and office equipment                    |          | $          | 9,204,000  |           |   | $          | 7,559,000  |           
|                                                | Furniture and fixtures                                      |          |            | 2,127,000  |           |   |            | 1,928,000  |           
|                                                | Leasehold improvements                                      |          |            | 2,929,000  |           |   |            | 1,578,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             |          | 14,260,000 |            |           |   | 11,065,000 |           
|Less: accumulated depreciation and amortization |                                                             |          | (8,017,000 | )          |           |   | (6,478,000 | )         
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 6,243,000  |            |           | $ | 4,587,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|Acquired intangible assets:                     |                                                             |          |            |            |           |   |            |           
|                                                | Purchased technology                                        |          | $          | 28,063,000 |           |   | $          | 4,663,000  |           
|                                                | Patents and licenses                                        |          |            | 204,000    |           |   |            | 204,000    |           
|                                                | Capitalized software development costs                      |          |            | 1,465,000  |           |   |            | 1,599,000  |           
|                                                | Less: accumulated amortization                              |          |            | (4,695,000 | )         |   |            | (3,692,000 | )         
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 25,037,000 |            |           | $ | 2,774,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|Other assets:                                   |                                                             |          |            |            |           |   |            |           
|                                                | Deposits                                                    |          | $          | 761,000    |           |   | $          | 962,000    |           
|                                                | Receivables from Companys 50% owned SIFC
    joint venture |          |            | 459,000    |           |   |            | 687,000    |           
|                                                | Other assets                                                |          |            | 1,866,000  |           |   |            | 43,000     |           
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 3,086,000  |            |           | $ | 1,692,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|Accrued compensation:                           |                                                             |          |            |            |           |   |            |           
|                                                | Salary and wages                                            |          | $          | 1,939,000  |           |   | $          | 1,622,000  |           
|                                                | Severance                                                   |          |            | 1,941,000  |           |   |            | 0          |           
|                                                | Benefits                                                    |          |            | 1,963,000  |           |   |            | 1,340,000  |           
|                                                | Payroll taxes                                               |          |            | 239,000    |           |   |            | 266,000    |           
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 6,082,000  |            |           | $ | 3,228,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|Other accrued liabilities:                      |                                                             |          |            |            |           |   |            |           
|                                                | Lease exit costs                                            |          | $          | 1,706,000  |           |   | $          |           |           
|                                                | Other accrued liabilities                                   |          |            | 2,326,000  |           |   |            | 1,307,000  |           
|                                                |                                                             |          |            |            |           |   |            |           
|                                                |                                                             | $        | 4,032,000  |            |           | $ | 1,307,000  |           
|                                                |                                                             |          |            |            |           |   |            |           

66



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |                           |          |           |           |  |   |        |        | 
|------------------ | ------------------------- | -------- | --------- | --------- |  | - | ------ | ------ | 
|                   |                           |         
|                   |                           | June 30,
|                   |                           |         
|                   |                           | 2002     |           | 2001     
|                   |                           |          |           |          
|Other liabilities: |                           |          |           |           |  |   |        |       
|                   | Lease exit costs          |          | $         | 8,634,000 |  |   | $      |       | 
|                   | Severance                 |          |           | 552,000   |  |   |        |       | 
|                   | Other accrued liabilities |          |           | 368,000   |  |   |        | 56,000 | 
|                   |                           |          |           |           |  |   |        |       
|                   |                           | $        | 9,554,000 |           |  | $ | 56,000 |       
|                   |                           |          |           |           |  |   |        |       



|         |                
|-------- | ---------------
|Note 5  | Lines of Credit

At June 30, 2002, the Company had two lines
of credit. The Companys first line of credit (the
Identix Line of Credit) was entered into in
September 2001 and was amended on March 28, 2002. This line
of credit provides for up to the lesser of $15,000,000 or 80% of
the Companys eligible accounts receivable including
IPS accounts receivable. Borrowings under the Identix Line
of Credit are secured by substantially all of the assets of the
Company and bear interest at the banks prime rate of
interest plus 50 basis points (5.25% at June, 2002). The
Identix Line of Credit expires on March 28, 2003. At
June 30, 2002, there were no amounts outstanding under this
line of credit and $9,688,000 was available to borrow.

The Companys second line of credit (the
Visionics Line of Credit) is an inventory and
receivables based line of credit for the lesser of eligible
inventory and accounts receivables or $2,000,000. Borrowings
under this Line of Credit are secured by substantially all the
assets of the Company. The Visionics Line of Credit bears
interest at the banks prime rate of interest plus 50 basis
points (5.25% at June, 2002). The line of credit will expire on
March 30, 2003. At June 30, 2002 there were no amounts
outstanding under this line of credit and $2,000,000 was
available to borrow.

The Identix Line of Credit and the Visionics Line
of Credit agreements contain financial and operating covenants,
including restrictions on the Companys ability to pay
dividends on its common stock. At June 30, 2002, the
Company was in compliance with all such covenants.



|         |                  
|-------- | -----------------
|Note 6  | Intangible Assets

The Companys intangible assets at
June 30 were comprised of the following:

|                                       |  |               |            |               |  |       |            |          |  |              |            |     |  |   |           |  |  |   |            |   |  |   |           | 
|-------------------------------------- |  | ------------- | ---------- | ------------- |  | ----- | ---------- | -------- |  | ------------ | ---------- | --- |  | - | --------- |  |  | - | ---------- | - |  | - | --------- | 
|                                       |  |               |            |              
|                                       |  | June 30, 2002 |            | June 30, 2001
|                                       |  |               |            |              
|                                       |  | Gross         |            |               |  | Gross |            |         
|                                       |  | Carrying      |            | Accumulated   |  |       |            | Carrying |  | Accumulated  |            |    
|                                       |  | Amount        |            | Amortization  |  | Net   |            | Amount   |  | Amortization |            | Net
|                                       |  |               |            |               |  |       |            |          |  |              |            |    
|Acquired intangible assets:            |  |               |            |               |  |       |            |          |  |              |            |     |  |   |           |  |  |   |            |   |  |   |           | 
|Developed technology                   |  | $             | 16,100,000 |               |  | $     | (44,000    | )        |  | $            | 16,056,000 |     |  | $ |          |  |  | $ |           |   |  | $ |          | 
|Service/maintenance agreements         |  |               | 3,600,000  |               |  |       | (8,000     | )        |  |              | 3,592,000  |     |  |   |          |  |  |   |           |   |  |   |          | 
|Patents and core technology            |  |               | 7,563,000  |               |  |       | (2,961,000 | )        |  |              | 4,602,000  |     |  |   | 4,663,000 |  |  |   | (2,021,000 | ) |  |   | 2,642,000 | 
|Tradename/Trademark                    |  |               | 500,000    |               |  |       | (2,000     | )        |  |              | 498,000    |     |  |   |          |  |  |   |           |   |  |   |          | 
|Order backlog and employee contracts   |  |               | 300,000    |               |  |       | (11,000    | )        |  |              | 289,000    |     |  |   |          |  |  |   |           |   |  |   |          | 
|Patents and licenses                   |  |               | 204,000    |               |  |       | (204,000   | )        |  |              |           |     |  |   | 204,000   |  |  |   | (189,000   | ) |  |   | 15,000    | 
|Capitalized software development costs |  |               | 1,465,000  |               |  |       | (1,465,000 | )        |  |              |           |     |  |   | 1,599,000 |  |  |   | (1,482,000 | ) |  |   | 117,000   | 
|                                       |  |               |            |               |  |       |            |          |  |              |            |     |  |   |           |  |  |   |            |   |  |   |           | 
|                                       |  | $             | 29,732,000 |               |  | $     | (4,695,000 | )        |  | $            | 25,037,000 |     |  | $ | 6,466,000 |  |  | $ | (3,692,000 | ) |  | $ | 2,774,000 | 
|                                       |  |               |            |               |  |       |            |          |  |              |            |     |  |   |           |  |  |   |            |   |  |   |           | 

Aggregate amortization expense amounted to
$1,006,000 and $933,000 for the years ended June 30, 2002
and 2001, respectively.

67



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Estimated amortization expense of intangible
assets for each of next five fiscal years is as follows:

|                             |  |   |           | 
|---------------------------- |  | - | --------- | 
|For year ended June 30, 2003 |  | $ | 5,616,000 | 
|For year ended June 30, 2004 |  | $ | 5,272,000 | 
|For year ended June 30, 2005 |  | $ | 4,493,000 | 
|For year ended June 30, 2006 |  | $ | 4,328,000 | 
|For year ended June 30, 2007 |  | $ | 4,259,000 | 

Note 7  Adoption of SFAS
No. 142, Goodwill and Other Intangible
Assets

Effective July 1, 2001 the Company adopted
SFAS No. 142, Goodwill and Other Intangible Assets. The
adoption of SFAS No. 142 resulted in a reduction of
goodwill amortization expense during fiscal 2002 of
approximately $599,000 per quarter. This reduction represents
the amount of amortization of goodwill that, in accordance with
SFAS No. 142, is no longer subject to amortization.
Goodwill is no longer subject to amortization, but is instead
subject to periodic (at minimum, on an annual basis) impairment
testing. Intangible assets that have finite useful lives will
continue to be amortized over their respective useful lives. The
goodwill test for impairment consists of a two-step process that
begins with an estimation of the fair value of a reporting unit.
The first step is a screen for potential impairment and the
second step measures the amount of impairment, if any.

The Companys goodwill balance of
$22,645,000 at July 1, 2001 arose from its April 1999
acquisition of Identicator Technologies, Inc. The goodwill has
been assigned to the Companys Security reporting unit,
which is also a reportable segment. In December 2001, the
Company completed the transitional goodwill impairment testing
required by SFAS No. 142 and determined that goodwill is
not impaired. The fair value of the Security segment was
estimated using the expected present values of future cash flows.

A reconciliation of previously reported net loss
and net loss per share, for each of the three years in the
periods ended June 30, 2002, 2001 and 2000, to the amounts
adjusted for the exclusion of goodwill amortization is as
follows:

|                                                                                        |                            |                            |             |             |   |      |             |             |   |   |             |             |  
|--------------------------------------------------------------------------------------- | -------------------------- | -------------------------- | ----------- | ----------- | - | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                                                                        |                            |                           
|                                                                                        |                            | Fiscal Year Ended June 30,
|                                                                                        |                            |                           
|                                                                                        |                            | 2002                       |             | 2001        |   | 2000
|                                                                                        |                            |                            |             |             |   |     
|Reported net loss                                                                       |                            | $                          | (55,438,000 | )           |   | $    | (29,598,000 | )           |   | $ | (13,386,000 | )          
|                                                                                        | Add: Goodwill amortization |                            |             |            |   |      |             | 2,396,000   |   |   |             | 2,797,000   |  
|                                                                                        |                            |                            |             |             |   |      |             |             |   |   |             |            
|                                                                                        | Adjusted net loss          |                            | $           | (55,438,000 | ) |      | $           | (27,202,000 | ) |   | $           | (10,589,000 | )
|                                                                                        |                            |                            |             |             |   |      |             |             |   |   |             |            
|Basic and diluted net loss per share:                                                   |                            |                            |             |             |   |      |             |             |   |   |             |            
|                                                                                        | Reported net loss          |                            | $           | (1.33       | ) |      | $           | (0.87       | ) |   | $           | (0.43       | )
|                                                                                        | Goodwill amortization      |                            |             |            |   |      |             | 0.07        |   |   |             | 0.09        |  
|                                                                                        |                            |                            |             |             |   |      |             |             |   |   |             |            
|                                                                                        | Adjusted net loss          |                            | $           | (1.33       | ) |      | $           | (0.80       | ) |   | $           | (0.34       | )
|                                                                                        |                            |                            |             |             |   |      |             |             |   |   |             |            
|Weighted average common shares used in basic
    and diluted loss per share computation |                            |                            | 41,609,000  |             |   |      | 33,807,000  |             |   |   | 31,441,000  |            

The change in the carrying amount of goodwill for
the year ended June 30, 2002 resulted solely from the
Companys merger with Visionics and is as follows:

|                                                                                   |  |   |             | 
|---------------------------------------------------------------------------------- |  | - | ----------- | 
|Balance as of July 1, 2001                                                         |  | $ | 22,645,000  | 
|Goodwill acquired during the year in connection
    with the merger with Visionics |  |   | 273,099,000 | 
|                                                                                   |  |   |             | 
|Balance as of June 30, 2002                                                        |  | $ | 295,744,000 | 
|                                                                                   |  |   |             | 

68



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##### Table of Contents



IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 8  Marketable
Securities

The Companys portfolio of marketable
securities at June 30, 2002 consists of the following:

|                                       |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |            | 
|-------------------------------------- | ---------------------------------- | ------------------------------- | ---------- | ---------- |  | ---------- | ------ | ---------- |  | - | ------ | - |  | - | ---------- | ---------- | 
|                                       |                                    |                                
|                                       |                                    | Fiscal Year Ended June 30, 2002
|                                       |                                    |                                
|                                       |                                    |                                 |            | Gross      |  | Gross      |        |           
|                                       |                                    |                                 |            | Unrealized |  | Unrealized |        |           
|                                       |                                    | Cost                            |            | Gains      |  | Losses     |        | Fair Value
|                                       |                                    |                                 |            |            |  |            |        |           
|U.S. government and agency obligations |                                    | $                               | 15,377,000 |            |  | $          | 40,000 |            |  | $ | (5,000 | ) |  | $ | 15,412,000 |           
|                                       |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |           
|Total                                  |                                    | $                               | 15,377,000 |            |  | $          | 40,000 |            |  | $ | (5,000 | ) |  | $ | 15,412,000 |           
|                                       |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |           
|Included in:                           |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |           
|                                       | Marketable securities  short-term |                                 |            |            |  |            |        |            |  |   |        |   |  |   | $          | 5,143,000  | 
|                                       | Marketable securities  long-term  |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            | 10,269,000 | 
|                                       |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |           
|Total                                  |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  | $ | 15,412,000 |           
|                                       |                                    |                                 |            |            |  |            |        |            |  |   |        |   |  |   |            |           

The Companys portfolio of marketable
securities by contractual maturity at June 30, 2002 is as
follows:

|                                     |  |   |            | 
|------------------------------------ |  | - | ---------- | 
|Due in one year or less              |  | $ | 5,143,000  | 
|Due after one year through two years |  |   | 10,269,000 | 
|                                     |  |   |            | 
|Total                                |  | $ | 15,412,000 | 
|                                     |  |   |            | 

Note 9  Capital
Stock

Convertible
Preferred Stock

In July 2000, the Company entered into a
Securities Purchase Agreement with Motorola, Inc.
(Motorola), whereby the Company sold 234,558 shares
of Series A Convertible Preferred Stock (the
Series A Preferred Stock) at $15.99 per share,
resulting in cash proceeds to the Company of $3,702,000, net of
issuance costs. The sale of the Series A Preferred Stock
was exempt from registration under applicable securities laws.
However, Motorola has demand registration rights, which were
effective beginning on January 7, 2001.

In connection with the issuance of the
Series A Preferred Stock, the Company also issued Motorola
a warrant to purchase 187,647 shares of the Companys
common stock at $17.11 per share. The warrant was immediately
exercisable and expires on July 7, 2005. The Company
determined the fair value of the warrant using the Black-Scholes
option pricing model. Based on the net cash proceeds received
from the sale of Series A Preferred Stock of $3,702,000,
the relative fair values of the Series A Preferred Stock
and the warrant totaled $2,443,000 and $1,259,000, respectively.
The relative fair market value of the warrant was credited to
additional paid-in capital within stockholders equity. The
Company recognized a one-time preferred stock and warrant
expense of $1,259,000 relating to the embedded beneficial
conversion feature within the Series A Preferred Stock.

Common
Stock

In connection with the Companys merger with
Visionics (see Note 2), the Company issued an aggregate of
39,422,000 shares of Identix common stock for all outstanding
shares of Visionics common stock.

In December 2001, the Company sold
7,390,000 shares of its Common Stock in a private placement
to new and existing institutional investors, pursuant to a stock
agreement. The shares were sold at $7.00 per share and resulted
in net cash proceeds to the Company of $48,347,000. The purchase
price was based on the closing price of the Companys
common stock in the period prior to the execution of the
agreement, and represent a

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

discount of 11.8% to the prior day closing price,
8.7% to the 20-day straight average or 10.8% to the 20-day
volume weighted average price, each of which were considered by
the Company to be competitively priced for the size of the
transaction.

In June 2001, the Company sold 2,225,000 shares
of its common stock at $6.75 per share in a private placement to
the State of Wisconsin Investment Board. The sale resulted in
net cash proceeds of $14,979,000. The Company has registered the
shares for resale.

In December 2000, the Company entered into a
Common Stock Purchase Agreement with VeriSign Capital
Management, Inc. (VeriSign) pursuant to which, the
Company sold, in January 2001, 264,901 shares of its common
stock at $7.55 per share. The sale resulted in net cash proceeds
to the Company of $1,983,000. The Company has registered the
shares for resale.



| |                       
| | ----------------------
| | Employee Stock Options

In February 2002, the Company adopted the Identix
Incorporated 2002 Equity Incentive Plan (2002 Plan).
Stockholders approved the 2002 Plan in June 2002. The 2002 Plan
will expire in 2012. A total of 5,800,000 Shares of the
Companys common stock have been reserved for the issuance
under the 2002 Plan. The 2002 Plan provides for the
discretionary award of options, restricted stock, stock purchase
rights, performance shares or any combination of these awards to
eligible employees and Non-employee directors of and consultants
to the Company. Options generally vest on an annual basis over a
period of four years.

In April 2000, the Company adopted the Identix
Incorporated New Employee Stock Incentive Plan (New
Employee Plan). The New Employee Plan will expire in 2010.
In February 2001, the Company amended the New Employee Plan so
that a total of 2,500,000 shares of the Companys
common stock are currently reserved for issuance under the New
Employee Plan. Under the New Employee Plan, awards may be
granted as a material inducement to any person accepting
employment or consultancy with the Company, provided such person
is not employed by the Company at the time of the award. The New
Employee Plan provides for the discretionary award of options,
restricted stock, stock purchase rights, performance shares or
any combination of these awards to eligible persons; provided,
however, that only nonqualified stock options may be granted
under the plan. Under the New Employee Plan, the term of any
nonqualified stock option granted may not exceed 15 years.
Options generally vest on an annual basis over a period of four
years.

In August 1995, the Companys shareholders
approved 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 and 2000, the stockholders amended the
Directors Plan so that a total of 860,000 shares of
the Companys common stock are currently reserved for
issuance under the Directors Plan.

The Directors Plan provides that when a person
who is not, and has not been in the preceding twelve months, an
officer or an employee of the Company is elected or appointed a
member of the Board, the Company will grant that person on the
effective date of such election or appointment (i) a
nonqualified stock option to purchase 30,000 shares of
Company common stock if less than six months have elapsed since
the last annual meeting of stockholders or (ii) a
nonqualified stock option to purchase 15,000 shares of common
stock if at least six months have elapsed since the last annual
meeting of stockholders. The Directors Plan, as currently in
effect, further provides that on the first meeting of the Board
immediately following the annual meeting of stockholders of the
Company (even if held on the same day as the meeting of
stockholders), the Company will grant to each non-employee
director then in office a nonqualified stock option to purchase
an additional 30,000 shares of Company common stock.

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. Options vest quarterly over a one-year period from
the date of grant.

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 1995, the stockholders approved the
Identix Incorporated Equity Incentive Plan (1995
Plan). The 1995 Plan will expire in 2005. In October 1997,
1998 and 2000, the stockholders amended the 1995 Plan so that a
total of 4,700,000 shares of the Companys common
stock are currently 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 and
non-employee directors of and consultants to the Company.

In October 1992, the stockholders approved 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 have been reserved for
issuance under the 1992 Plan. As of September 17, 2001, no
shares are available for issuance under the 1992 plan.

Under the 1992, 1995 and 2002 Plans, the term of
any incentive stock option granted may not exceed 10 years
and the term of any nonqualified stock option may not exceed
15 years. The exercise price of incentive stock options
must not be less than the fair market value of the
Companys common stock at the date of grant. The exercise
price of nonqualified stock options must be at least 85% of the
fair market value of the Companys common stock at the date
of grant.

In connection with the acquisition of Visionics,
the Company has assumed Visionics stock option plans.
Approximately 3,225,128 shares of the Companys common
stock have been reserved for issuance under the assumed plans
and the related options are included in the following table:

|                            |                                                                     |           |           |             |   |              |           |            |   |   |      |       | 
|--------------------------- | ------------------------------------------------------------------- | --------- | --------- | ----------- | - | ------------ | --------- | ---------- | - | - | ---- | ----- | 
|                            |                                                                     | Shares    |           |             |   |             
|                            |                                                                     | Available |           | Options     |   | Weighted    
|                            |                                                                     | for Grant |           | Outstanding |   | Average Pice
|                            |                                                                     |           |           |             |   |             
|Balance as of June 30, 1999 |                                                                     |           | 616,172   |             |   |              | 5,007,464 |            |   | $ | 4.28 |      
|                            | Shares reserved upon adoption of amendment to
    1995 Plan         |           |           | 1,700,000   |   |              |           |           |   |   |      |       | 
|                            | Shares reserved upon adoption of New Employee Plan                  |           |           | 1,500,000   |   |              |           |           |   |   |      |       | 
|                            | Options granted                                                     |           |           | (1,988,000  | ) |              |           | 1,988,000  |   |   | $    | 12.09 | 
|                            | Options exercised                                                   |           |           |            |   |              |           | (1,650,893 | ) |   | $    | 2.70  | 
|                            | Options canceled                                                    |           |           | 227,855     |   |              |           | (227,855   | ) |   | $    | 7.69  | 
|                            | Options canceled and expired                                        |           |           |            |   |              |           | (254       | ) |   | $    | 0.26  | 
|                            |                                                                     |           |           |             |   |              |           |            |   |   |      |      
|Balance as of June 30, 2000 |                                                                     |           | 2,056,027 |             |   |              | 5,116,462 |            |   | $ | 7.26 |      
|                            | Shares reserved upon adoption of amendment to
    Directors Plan   |           |           | 450,000     |   |              |           |           |   |   |      |       | 
|                            | Shares reserved upon adoption of amendment to New
    Employee Plan |           |           | 1,000,000   |   |              |           |           |   |   |      |       | 
|                            | Options granted                                                     |           |           | (2,508,750  | ) |              |           | 2,508,750  |   |   | $    | 11.26 | 
|                            | Options exercised                                                   |           |           |            |   |              |           | (919,367   | ) |   | $    | 2.13  | 
|                            | Options canceled                                                    |           |           | 437,813     |   |              |           | (437,813   | ) |   | $    | 9.40  | 
|                            | Options canceled and expired                                        |           |           |            |   |              |           | (11,152    | ) |   | $    | 0.26  | 
|                            |                                                                     |           |           |             |   |              |           |            |   |   |      |      

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                            |                                                             |           |           |             |   |              |           |            |   |   |      |       | 
|--------------------------- | ----------------------------------------------------------- | --------- | --------- | ----------- | - | ------------ | --------- | ---------- | - | - | ---- | ----- | 
|                            |                                                             | Shares    |           |             |   |             
|                            |                                                             | Available |           | Options     |   | Weighted    
|                            |                                                             | for Grant |           | Outstanding |   | Average Pice
|                            |                                                             |           |           |             |   |             
|Balance as of June 30, 2001 |                                                             |           | 1,435,090 |             |   |              | 6,256,880 |            |   | $ | 9.77 |      
|                            | Shares reserved upon adoption of amendment to
    2002 Plan |           |           | 5,800,000   |   |              |           |           |   |   |      |       | 
|                            | Shares reserved for Visionics assumed options               |           |           | 3,225,128   |   |              |           |           |   |   |      |       | 
|                            | Shares assumed for Visionics acquisition                    |           |           | (3,225,128  | ) |              |           | 3,225,128  |   |   | $    | 4.93  | 
|                            | Options granted                                             |           |           | (2,124,794  | ) |              |           | 2,124,794  |   |   | $    | 7.86  | 
|                            | Options exercised                                           |           |           |            |   |              |           | (976,884   | ) |   | $    | 4.25  | 
|                            | Options canceled                                            |           |           | 1,292,943   |   |              |           | (1,292,943 | ) |   | $    | 11.46 | 
|                            | Options canceled and expired                                |           |           |            |   |              |           | (14,037    | ) |   | $    | 11.46 | 
|                            |                                                             |           |           |             |   |              |           |            |   |   |      |      
|Balance as of June 30, 2002 |                                                             |           | 6,403,239 |             |   |              | 9,322,938 |            |   | $ | 7.61 |      

During fiscal 2002, the Company recognized
expense of $1,447,000 for stock options granted to employees at
exercise prices below fair market value at the time of grant,
for a remeasurement charge related to the modification of stock
option terms upon termination of the Companys former CEO
and for stock options granted to non-employees. During fiscal
2001 and 2002, the Company recognized expense of $1,069,000 and
$221,000, respectively, for stock options granted to employees
at exercise prices below fair market value at the time of grant
and for stock options granted to non-employees.

The following table summarizes options
outstanding at June 30, 2002:

|                         |  |                     |           |                     |  |                  |      |        |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ------ |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted Average    |  | Weighted Average |      |        |  | Weighted Average
|Range of Exercise Prices |  | Number              |           | Remaining Life      |  | Exercise Price   |      | Number |  | Exercise Price  
|                         |  |                     |           |                     |  |                  |      |        |  |                 
|                         |  |                     |           | (In years)          |  |                  |      |        |  |                 
|$0.01-$4.75              |  |                     | 2,469,045 |                     |  |                  | 7.64 |        |  | $                | 2.63  |  |  |  | 1,381,571 |  |  | $ | 2.19  | 
|$4.88-$7.98              |  |                     | 2,375,832 |                     |  |                  | 8.29 |        |  |                  | 6.25  |  |  |  | 816,540   |  |  |   | 7.07  | 
|$7.95-$10.20             |  |                     | 2,439,742 |                     |  |                  | 8.53 |        |  |                  | 9.21  |  |  |  | 1,053,304 |  |  |   | 9.19  | 
|$10.69-$16.38            |  |                     | 2,038,319 |                     |  |                  | 8.41 |        |  |                  | 13.32 |  |  |  | 1,131,486 |  |  |   | 14.11 | 
|                         |  |                     |           |                     |  |                  |      |        |  |                  |       |  |  |  |           |  |  |   |       | 
|                         |  |                     | 9,322,938 |                     |  |                  | 8.21 |        |  | $                | 7.61  |  |  |  | 4,382,901 |  |  | $ | 7.86  | 
|                         |  |                     |           |                     |  |                  |      |        |  |                  |       |  |  |  |           |  |  |   |       | 

Employee
Stock Purchase Plan

On October 30, 1998, the Company adopted an
employee stock purchase plan (ESPP), through which
qualified employees of the Company may participate in stock
ownership of the Company. At June 30, 2002 shares of common
stock reserved for the ESPP totaled 127,242. 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) June 30 and December 31 purchase date.
Pursuant to the ESPP, 139,417, 165,011 and 32,721 shares were
issued at a weighted average price of $4.99, $6.12 and $7.20 per
share during fiscal 2002, 2001 and 2000, respectively.

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro Forma
Disclosures

The weighted average fair value at date of grant
for options granted during fiscal 2002, 2001 and 2000 was $4.72,
$8.78 and $5.25 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes
option pricing model with the following assumptions:

|                        |  |                            |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | -------------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  |                           
|                        |  | Fiscal Year Ended June 30,
|                        |  |                           
|                        |  | 2002                       |      | 2001 |  | 2000
|                        |  |                            |      |      |  |     
|Expected life (years)   |  |                            | 3.76 |      |  |      | 4    |   |  |  | 4    |  
|Risk free interest rate |  |                            | 3.93 | %    |  |      | 5.31 | % |  |  | 6.10 | %
|Volatility              |  |                            | 93   | %    |  |      | 81   | % |  |  | 70   | %
|Dividend yield          |  |                            |     | %    |  |      |     | % |  |  |     | %

The Companys fair value calculations for
employees stock purchase rights under the ESPP were made
using the Black-Scholes option pricing model with weighted
average assumptions consistent with those used for employee
grants as indicated above.

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
loss and net loss per share would have been as follows:

|                    |                               |                            |   |             |   |      |   |             |   |  |   |             |  
|------------------- | ----------------------------- | -------------------------- | - | ----------- | - | ---- | - | ----------- | - |  | - | ----------- | -
|                    |                               |                           
|                    |                               | Fiscal Year Ended June 30,
|                    |                               |                           
|                    |                               | 2002                       |   | 2001        |   | 2000
|                    |                               |                            |   |             |   |     
|Net loss:           |                               |                            |   |             |   |      |   |             |   |  |   |            
|                    | As reported                   |                            | $ | (55,438,000 | ) |      | $ | (29,598,000 | ) |  | $ | (13,386,000 | )
|                    | Pro forma                     |                            |   | (64,968,000 | ) |      |   | (41,316,000 | ) |  |   | (17,343,000 | )
|Net loss per share: |                               |                            |   |             |   |      |   |             |   |  |   |            
|                    | As reported basic and diluted |                            | $ | (1.33       | ) |      | $ | (0.88       | ) |  | $ | (0.43       | )
|                    | Pro forma basic and diluted   |                            |   | (1.56       | ) |      |   | (1.22       | ) |  |   | (0.55       | )

Employee
Stock Ownership Plan

The IPS Employee Stock Ownership Plan
(ESOP) enables eligible employees of IPS 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 ESOP made by the Company. The Companys expense for
the ESOP was $73,000 in fiscal 2002, $94,000 in fiscal 2001 and
$77,000 in fiscal 2000. A total of 197,297, 194,610 and 265,651
allocated shares of the Companys common stock were held by
the ESOP at June 30, 2002, 2001 and 2000, respectively.

Warrants

In connection with the Companys merger with
Visionics (see Note 2), all warrants to purchase shares of
Visionics common stock outstanding immediately prior to the
consummation of the merger were converted into warrants to
purchase 635,211 shares of the Companys common stock at
exercise prices ranging from $1.24 per share to $12.55 per
share. All the warrants issued are immediately exercisable and
expire at various dates through October 23, 2006. Warrants
to purchase 410,860, 142,344 and 82,007 shares of common stock
had per share exercise prices ranging from $1.24 to $1.40, from
$4.22 to $5.82 and from $9.83 to $12.55, respectively.

In connection with the private placement of the
Companys common stock in July 1999, the Company issued to
the investors warrants to purchase 905,798 shares of common
stock for $11.33 per share until

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

January 1, 2001 and an additional 362,319
shares at $11.18 per share until July 1, 2004. A warrant to
purchase 33,186 shares of common stock for $10.85 per share was
also issued to the broker who arranged the private placement.
Under the terms of the agreement, Identix agreed to register for
resale the shares and warrants. In April 2000, warrants to
purchase 905,798 of the Companys common shares at $11.33
per share were exercised. The Company received net cash proceeds
of $10,263,000.

In connection with the private placement of the
Companys Series A Convertible Preferred Stock, the
Company issued to the investor a warrant to purchase 187,647
shares of the Companys common stock at $17.11 per share.
The warrant is immediately excercisable and expires on
July 7, 2005. The Company determined the fair value of the
warrant using the Black-Scholes option pricing model and, based
on the net cash proceeds received from the sales of
Series A Preferred Stock the relative fair value of the
warrant totaled $1,259,000.

Note 10  Related Party
Transactions

A member of the 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 $1,076,000, $1,620,000, and $2,920,000
in fiscal 2002, 2001 and 2000, respectively. Amounts outstanding
to IMS at June 30, 2002 and 2001 were approximately $48,000
and $33,000, respectively.

The Company purchases certain complete biometric
security products, research and development, engineering and
administrative services from International Technology Concepts,
Inc. (IT Concepts). Two former officers and
shareholders of the Company are directors, officers and
principal shareholders of IT Concepts. IT Concepts
billed the Company approximately $5,263,000 in fiscal 2002,
$3,672,000 in fiscal 2001 and $3,080,000 in fiscal 2000. Amounts
outstanding to IT Concepts at June 30, 2002 and 2001
were approximately $43,000 and $287,000, respectively.

Note 11  Income
Taxes

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

|                                                   |  |                            |             |      |  |      |             |   |  |   |            |  
|-------------------------------------------------- |  | -------------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | ---------- | -
|                                                   |  |                           
|                                                   |  | Fiscal Year Ended June 30,
|                                                   |  |                           
|                                                   |  | 2002                       |             | 2001 |  | 2000
|                                                   |  |                            |             |      |  |     
|Federal tax at statutory rate                      |  | $                          | (18,833,000 | )    |  | $    | (10,037,000 | ) |  | $ | (4,582,000 | )
|State tax, net of federal benefit                  |  |                            | (1,924,000  | )    |  |      | (1,181,000  | ) |  |   | (542,000   | )
|Non-deductible preferred stock and warrant expense |  |                            |            |      |  |      | 428,000     |   |  |   |           |  
|Stock-based compensation                           |  |                            | 239,000     |      |  |      |            |   |  |   |           |  
|Goodwill amortization                              |  |                            |            |      |  |      | 1,257,000   |   |  |   | 1,304,000  |  
|Change in valuation allowance                      |  |                            | 18,634,000  |      |  |      | 9,513,000   |   |  |   | 3,818,000  |  
|In-process research and development write-off      |  |                            | 2,176,000   |      |  |      |            |   |  |   |           |  
|Other                                              |  |                            | (246,000    | )    |  |      | 20,000      |   |  |   | 57,000     |  
|                                                   |  |                            |             |      |  |      |             |   |  |   |            |  
|                                                   |  | $                          | 46,000      |      |  | $    |            |   |  | $ | 55,000     |  
|                                                   |  |                            |             |      |  |      |             |   |  |   |            |  

74



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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred tax assets (liabilities) comprise
the following:

|                                                |                                |          |             |             |   |   |             |            |  
|----------------------------------------------- | ------------------------------ | -------- | ----------- | ----------- | - | - | ----------- | ---------- | -
|                                                |                                |         
|                                                |                                | June 30,
|                                                |                                |         
|                                                |                                | 2002     |             | 2001       
|                                                |                                |          |             |            
|Net operating loss and tax credit carryforwards |                                | $        | 55,996,000  |             |   | $ | 22,994,000  |           
|Inventory reserve and basis difference          |                                |          | 9,108,000   |             |   |   | 1,495,000   |           
|Depreciation and amortization                   |                                |          | 661,000     |             |   |   | 690,000     |           
|Accounts receivable and sales reserve           |                                |          | 1,108,000   |             |   |   | 533,000     |           
|Deferred revenue                                |                                |          | 2,148,000   |             |   |   | 1,964,000   |           
|Tax credit                                      |                                |          | 3,088,000   |             |   |   | 792,000     |           
|Other                                           |                                |          | 227,000     |             |   |   | 150,000     |           
|                                                |                                |          |             |             |   |   |             |           
|                                                | Gross deferred tax assets      |          |             | 72,336,000  |   |   |             | 28,618,000 |  
|Valuation allowance                             |                                |          | (61,864,000 | )           |   |   | (27,179,000 | )         
|                                                |                                |          |             |             |   |   |             |           
|                                                | Net deferred assets            |          |             | 10,472,000  |   |   |             | 1,439,000  |  
|                                                |                                |          |             |             |   |   |             |           
|Unbilled accounts receivable                    |                                |          | (1,602,000  | )           |   |   | (1,439,000  | )         
|Acquired intangibles                            |                                |          | (8,870,000  | )           |   |   |            |           
|                                                |                                |          |             |             |   |   |             |           
|                                                | Gross deferred tax liabilities |          |             | (10,472,000 | ) |   |             | (1,439,000 | )
|                                                |                                |          |             |             |   |   |             |           
|                                                | Total net deferred tax asset   |          | $           |            |   |   | $           |           |  
|                                                |                                |          |             |             |   |   |             |           

The Company has a valuation allowance of
$61,864,000 as of June 30, 2002. Based upon the results of
the current year operations, the Companys projected
operating results, and all other available objective
information, the Companys management does not believe that
sufficient future taxable income will be generated to realize
all of the net deferred tax assets. Included in the valuation
allowance as of June 30, 2002 and 2001 are tax benefits
attributable to non-compensatory stock options of $2,381,000 and
$4,335,000 which, when realized, will be a credit to additional
paid-in-capital, respectively.

The Company has federal net operating loss
carryforwards of approximately $156,674,000 and $71,412,000 as
of June 30, 2002 and June 30, 2001, available to
reduce future taxable income, respectively. As of June 30,
2002 and 2001, the Company has state net operating loss
carryforwards of approximately $67,740,000 and $27,137,000,
respectively. These carryforwards begin to expire from 2003
through 2022. For federal and state tax purposes, the
Companys net operating loss carryforwards may be subject
to certain limitations on annual utilization in the event of
changes in ownership, as defined by federal and state law.

As of June 30, 2002 and 2001, the Company
has federal research and experimentation credit carryforwards of
approximately $2,684,000 and $792,000, respectively, which
expire from 2008 to 2022. The Company also has state research
and experimentation tax credit carryforwards of approximately
$436,000 as of June 30, 2002, which will be carried forward
indefinitely.

Note 12  Reportable Segment
Data

The Company has determined that its reportable
segments are those based on its method of internal reporting.
The Companys reportable segments are Imaging, Security,
Government Services and Fingerprinting Services. Management has
organized the Company on product lines. The Companys
reportable segments are strategic business units that offer
different products and services and include inter-segment
revenues, corporate allocations and administrative expenses.
Revenues are attributed to the reportable segment of the sales
or service organizations, and costs directly and indirectly
incurred in generating revenues are similarly assigned. The
accounting policies of the segments are the same as those
described in Note 1 The Company and its Significant
Accounting Policies. Identix merger with Visionics
was completed on June 25, 2002.

75



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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Thus, Identix consolidated results of
operation for the year ended June 30, 2002 reflects
Visionics results of operations for the final three
business days of June 2002. Segment information is as follows:

|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |             |  
|----------------------------------------- | ------------------------------------- | -------------------------- | ----------- | ----------- | - | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                          |                                       |                           
|                                          |                                       | Fiscal Year Ended June 30,
|                                          |                                       |                           
|                                          |                                       | 2002                       |             | 2001        |   | 2000
|                                          |                                       |                            |             |             |   |     
|Total revenues:                           |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           | 20,228,000  |   |      | $           | 27,010,000  |   |   | $           | 22,313,000  |  
|                                          | Security                              |                            |             | 8,171,000   |   |      |             | 8,051,000   |   |   |             | 8,612,000   |  
|                                          | Government Services                   |                            |             | 46,974,000  |   |      |             | 50,561,000  |   |   |             | 45,463,000  |  
|                                          | Elimination of inter-segment revenues |                            |             | (2,183,000  | ) |      |             | (3,794,000  | ) |   |             | (3,693,000  | )
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          | 73,190,000  |             |   | $    | 81,828,000  |             |   | $ | 72,695,000  |            
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|Depreciation and amortization:            |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           | 1,400,000   |   |      | $           | 1,162,000   |   |   | $           | 1,080,000   |  
|                                          | Security                              |                            |             | 1,453,000   |   |      |             | 3,751,000   |   |   |             | 3,773,000   |  
|                                          | Government Services                   |                            |             | 634,000     |   |      |             | 738,000     |   |   |             | 918,000     |  
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          | 3,487,000   |             |   | $    | 5,651,000   |             |   | $ | 5,771,000   |            
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|Interest and other income (expense), net: |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           | 162,000     |   |      | $           | 267,000     |   |   | $           | 244,000     |  
|                                          | Security                              |                            |             | 364,000     |   |      |             | 470,000     |   |   |             | 124,000     |  
|                                          | Government Services                   |                            |             | 35,000      |   |      |             | 391,000     |   |   |             | 322,000     |  
|                                          | Fingerprinting Services               |                            |             | 388,000     |   |      |             | 308,000     |   |   |             | 225,000     |  
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          | 949,000     |             |   | $    | 1,436,000   |             |   | $ | 915,000     |            
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|Interest expense:                         |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           |            |   |      | $           | 1,000       |   |   | $           | 19,000      |  
|                                          | Security                              |                            |             |            |   |      |             |            |   |   |             | 14,000      |  
|                                          | Government Services                   |                            |             |            |   |      |             | 112,000     |   |   |             | 108,000     |  
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          |            |             |   | $    | 113,000     |             |   | $ | 141,000     |            
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|Net income (loss):                        |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           | (29,843,000 | ) |      | $           | (4,128,000  | ) |   | $           | (1,496,000  | )
|                                          | Security                              |                            |             | (19,706,000 | ) |      |             | (23,783,000 | ) |   |             | (13,286,000 | )
|                                          | Government Services                   |                            |             | (6,606,000  | ) |      |             | (2,276,000  | ) |   |             | 1,255,000   |  
|                                          | Fingerprinting Services               |                            |             | 717,000     |   |      |             | 589,000     |   |   |             | 141,000     |  
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          | (55,438,000 | )           |   | $    | (29,598,000 | )           |   | $ | (13,386,000 | )          
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|Capital expenditures:                     |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          | Imaging                               |                            | $           | 635,000     |   |      | $           | 1,964,000   |   |   | $           | 1,376,000   |  
|                                          | Security                              |                            |             | 406,000     |   |      |             | 1,229,000   |   |   |             | 449,000     |  
|                                          | Government Services                   |                            |             | 2,251,000   |   |      |             | 761,000     |   |   |             | 410,000     |  
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            
|                                          |                                       | $                          | 3,292,000   |             |   | $    | 3,954,000   |             |   | $ | 2,235,000   |            
|                                          |                                       |                            |             |             |   |      |             |             |   |   |             |            

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                     |                     |          |             |             |  |   |            |            | 
|-------------------- | ------------------- | -------- | ----------- | ----------- |  | - | ---------- | ---------- | 
|                     |                     |         
|                     |                     | June 30,
|                     |                     |         
|                     |                     | 2002     |             | 2001       
|                     |                     |          |             |            
|Identifiable assets: |                     |          |             |             |  |   |            |           
|                     | Imaging             |          | $           | 398,704,000 |  |   | $          | 33,870,000 | 
|                     | Security            |          |             | 20,985,000  |  |   |            | 30,579,000 | 
|                     | Government Services |          |             | 11,566,000  |  |   |            | 19,037,000 | 
|                     |                     |          |             |             |  |   |            |           
|                     |                     | $        | 431,255,000 |             |  | $ | 83,486,000 |           
|                     |                     |          |             |             |  |   |            |           

Note 13  Foreign Operations
Data

In geographical reporting, revenues are
attributed to the geographical location of the sales and service
organizations:

|                |               |                            |            |            |  |      |            |            |  |   |            |            | 
|--------------- | ------------- | -------------------------- | ---------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                |               |                           
|                |               | Fiscal Year Ended June 30,
|                |               |                           
|                |               | 2002                       |            | 2001       |  | 2000
|                |               |                            |            |            |  |     
|Total revenues: |               |                            |            |            |  |      |            |            |  |   |            |           
|                | North America |                            | $          | 69,587,000 |  |      | $          | 78,123,000 |  |   | $          | 68,517,000 | 
|                | International |                            |            | 3,603,000  |  |      |            | 3,705,000  |  |   |            | 4,178,000  | 
|                |               |                            |            |            |  |      |            |            |  |   |            |           
|                |               | $                          | 73,190,000 |            |  | $    | 81,828,000 |            |  | $ | 72,695,000 |           
|                |               |                            |            |            |  |      |            |            |  |   |            |           

|                     |               |          |             |             |  |   |            |            | 
|-------------------- | ------------- | -------- | ----------- | ----------- |  | - | ---------- | ---------- | 
|                     |               |         
|                     |               | June 30,
|                     |               |         
|                     |               | 2002     |             | 2001       
|                     |               |          |             |            
|Identifiable assets: |               |          |             |             |  |   |            |           
|                     | North America |          | $           | 430,431,000 |  |   | $          | 82,452,000 | 
|                     | International |          |             | 824,000     |  |   |            | 1,034,000  | 
|                     |               |          |             |             |  |   |            |           
|                     |               | $        | 431,255,000 |             |  | $ | 83,486,000 |           
|                     |               |          |             |             |  |   |            |           

Note 14  Commitments

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

77



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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum lease payments for operating
leases are as follows:

|                            |       |   |            |            | 
|--------------------------- | ----- | - | ---------- | ---------- | 
|Fiscal year ending June 30: |       |   |            |           
|2003                        |       | $ | 7,015,000  |           
|2004                        |       |   | 7,302,000  |           
|2005                        |       |   | 7,541,000  |           
|2006                        |       |   | 6,869,000  |           
|2007                        |       |   | 6,412,000  |           
|Thereafter                  |       |   | 10,557,000 |           
|                            |       |   |            |           
|                            | Total |   | $          | 45,696,000 | 
|                            |       |   |            |           

Included in the above future minimum payments is
$12,838,000 related to two leased facilities that were vacated
in connection the Companys merger with Visionics. The
Company has recorded a charge of $10,340,000 representing a
portion of the future lease costs related to these excess leased
facilities. (see Note 3).

Rent expense is recorded on a straight-line basis
over the term of the individual lease. Total rental expense
under operating leases was $4,786,000, $2,550,000 and $1,654,000
for the years ended June 30, 2002, 2001 and 2000,
respectively.



|          |                                 
|--------- | --------------------------------
|Note 15  | Recent Accounting Pronouncements

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



|          |                  
|--------- | -----------------
|Note 16  | Subsequent Events

In July 2002, the Company announced additional
workforce reductions of 11 employees primarily in the areas
of field service and sales. As a result of this workforce
reduction, the Company expects to record a charge of
approximately $110,000 during the first quarter of
fiscal 2003.



|          |                                                      
|--------- | -----------------------------------------------------
|Note 17  | Quarterly Consolidated Financial Data
    (Unaudited)

The following tables present certain unaudited
consolidated quarterly financial information for each of the
eight quarters ended June 30, 2002. In the opinion of the
Companys management, this quarterly information has been
prepared on the same basis as the consolidated financial
statements and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
unaudited quarterly results.

As discussed in Note 1, the Company changed
its accounting method for revenue recognition in the fourth
quarter of the year ended June 30, 2001, retroactive to
July 1, 2000. Accordingly, the following

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IDENTIX INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

unaudited quarterly consolidated financial data
for the first three quarters of the year ended June 30,
2001 has been restated to reflect the impact of the change in
accounting method as if adopted on July 1, 2000.

In thousands, except share and per share amounts:

|                                                                                        |  |                |            |              |  |           |            |          |  |          |            |   |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------- |  | -------------- | ---------- | ------------ |  | --------- | ---------- | -------- |  | -------- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                        |  |               
|                                                                                        |  | Quarters Ended
|                                                                                        |  |               
|                                                                                        |  | September 30,  |            | December 31, |  | March 31, |            | June 30, |  |         
|                                                                                        |  | 2001           |            | 2001         |  | 2002      |            | 2002(a)  |  | Total(a)
|                                                                                        |  |                |            |              |  |           |            |          |  |         
|Revenues                                                                                |  | $              | 16,764     |              |  | $         | 19,512     |          |  | $        | 19,232     |   |  | $ | 17,682     |   |  | $ | 73,190     |  
|Gross profit                                                                            |  |                | 2,746      |              |  |           | 3,703      |          |  |          | 2,989      |   |  |   | 2,349      |   |  |   | 11,787     |  
|Net loss                                                                                |  | $              | (8,476     | )            |  | $         | (6,203     | )        |  | $        | (7,464     | ) |  | $ | (33,294    | ) |  | $ | (55,437    | )
|Basic and diluted net loss per share                                                    |  | $              | (0.23      | )            |  | $         | (0.16      | )        |  | $        | (0.17      | ) |  | $ | (0.72      | ) |  | $ | (1.33      | )
|Weighted average common shares used in basic and
    diluted loss per share computation |  |                | 36,629,000 |              |  |           | 37,824,000 |          |  |          | 44,814,000 |   |  |   | 46,129,000 |   |  |   | 41,609,000 |  



---



|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Identix merger with Visionics was completed
    on June 25, 2002. Thus, Identix consolidated results
    of operations for the fourth quarter and year ended
    June 30, 2002 reflect Visionics results of operations
    for only the final three business days of June 2002.

|                                                                                        |                                                                       |                    |            |                   |   |                |            |               |   |               |            |             |   |             |            |             |   |   |            |       |   |   |            |       |   |   |            |       |   |   |            |       |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------ | ---------- | ----------------- | - | -------------- | ---------- | ------------- | - | ------------- | ---------- | ----------- | - | ----------- | ---------- | ----------- | - | - | ---------- | ----- | - | - | ---------- | ----- | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                                        |                                                                       |                   
|                                                                                        |                                                                       | Quarters Ended    
|                                                                                        |                                                                       |                   
|                                                                                        |                                                                       |                    |            |                   |   |                |            |              
|                                                                                        |                                                                       | September 30, 2000 |            | December 31, 2000 |   | March 31, 2001 |            | June 30, 2001 |   | Total        
|                                                                                        |                                                                       |                    |            |                   |   |                |            |               |   |              
|                                                                                        |                                                                       | As Previously      |            |                   |   | As Previously  |            |               |   | As Previously |            |             |   |             |            |            
|                                                                                        |                                                                       | Reported           |            | As Restated       |   | Reported       |            | As Restated   |   | Reported      |            | As Restated |   | As Reported |            | As Reported
|                                                                                        |                                                                       |                    |            |                   |   |                |            |               |   |               |            |             |   |             |            |            
|Revenues                                                                                |                                                                       | $                  | 21,367     |                   |   | $              | 20,095     |               |   | $             | 21,226     |             |   | $           | 20,974     |             |   | $ | 19,985     |       |   | $ | 20,224     |       |   | $ | 20,535     |       |   | $ | 81,828     |      
|Gross profit                                                                            |                                                                       |                    | 4,987      |                   |   |                | 4,322      |               |   |               | 5,206      |             |   |             | 5,083      |             |   |   | 4,204      |       |   |   | 4,315      |       |   |   | 3,538      |       |   |   | 17,258     |      
|Loss before cumulative effect of a change in
    accounting principle                   |                                                                       |                    | (4,711     | )                 |   |                | (5,376     | )             |   |               | (5,057     | )           |   |             | (5,180     | )           |   |   | (8,480     | )     |   |   | (8,369     | )     |   |   | (8,675     | )     |   |   | (27,600    | )    
|Cumulative effect of a change in accounting
    principle                               |                                                                       |                    |           |                   |   |                | (1,998     | )             |   |               |           |             |   |             |           |             |   |   |           |       |   |   |           |       |   |   |           |       |   |   | (1,998     | )    
|Net loss                                                                                |                                                                       | $                  | (4,711     | )                 |   | $              | (7,374     | )             |   | $             | (5,057     | )           |   | $           | (5,180     | )           |   | $ | (8,480     | )     |   | $ | (8,369     | )     |   | $ | (8,675     | )     |   |   | (29,598    | )    
|Basic and diluted net loss per
    share:                                               |                                                                       |                    |            |                   |   |                |            |               |   |               |            |             |   |             |            |             |   |   |            |       |   |   |            |       |   |   |            |       |   |   |            |      
|                                                                                        | Loss before cumulative effect of a change in
    accounting principle |                    | $          | (0.14             | ) |                | $          | (0.16         | ) |               | $          | (0.15       | ) |             | $          | (0.15       | ) |   | $          | (0.25 | ) |   | $          | (0.25 | ) |   | $          | (0.25 | ) |   | $          | (0.82 | )
|                                                                                        | Cumulative effect of a change in accounting
    principle             |                    |            |                  |   |                | $          | (0.06         | ) |               |            |            |   |             |            |            |   |   |            |      |   |   |            |      |   |   |            |      |   |   | $          | (0.06 | )
|                                                                                        | Basic and diluted net loss per share                                  |                    | $          | (0.14             | ) |                | $          | (0.22         | ) |               | $          | (0.15       | ) |             | $          | (0.15       | ) |   | $          | (0.25 | ) |   | $          | (0.25 | ) |   | $          | (0.25 | ) |   | $          | (0.88 | )
|Weighted average common shares used in basic and
    diluted loss per share computation |                                                                       |                    | 33,208,000 |                   |   |                | 33,208,000 |               |   |               | 33,439,000 |             |   |             | 33,439,000 |             |   |   | 33,954,000 |       |   |   | 33,954,000 |       |   |   | 34,638,000 |       |   |   | 33,807,000 |      

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

None.




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 2001 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 and Employment
Agreements in the Proxy Statement.




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.

|        |   |             |  |                                                                                                                                                                                                                                                      
|------- | - | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 2 | .0          |  | Agreement and Plan of Merger dated as of
    February 22, 2002 by and among Identix, Visionics
    Corporation and Viper Acquisition Corporation (incorporated by
    reference to the February 22, 2002 Form 8-K)                                   
|        | 3 | .1          |  | Certificate of Incorporation (incorporated by
    reference to the December 16, 1998 Form 8-K)                                                                                                                                                       
|        | 3 | .2          |  | Amended and Restated Bylaws (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                                                                                                                            
|        | 4 | .1          |  | Registration Rights Agreement dated June 30,
    1999 (incorporated by reference to the registration statement on
    Form S-3, no. 333-82239, filed July 2, 1999)                                                                                   
|        | 4 | .2          |  | Form of Series I Warrant (incorporated by
    reference to the registration statement on Form S-3,
    no. 333-82239, filed July 2, 1999)                                                                                                            
|        | 4 | .3          |  | Warrant dated June 29, 2001 between
    Visionics Corporation and Morgan Keegan, Inc. (incorporated by
    reference to the post-effective amendment no. 1 to the
    registration statement on Form S-4, no. 333-84428,
    filed September 5, 2002)

80



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|        |    |             |  |                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .4          |  | Warrant dated October 11, 2001 between
    Visionics Corporation and Morgan Keegan & Company, Inc.
    (incorporated by reference to the post effective amendment no. 1
    to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)
|        | 4  | .5          |  | Warrant dated October 24, 2001 between
    Visionics Corporation and Thomas Pierce (incorporated by
    reference to the post-effective amendment no. 1 to the
    registration statement on Form S-4, no. 333-84428,
    filed September 5, 2002)                
|        | 4  | .6          |  | Form of Warrant dated January 8, 1999
    (incorporated by reference to the post-effective amendment
    no. 1 to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)                                                             
|        | 4  | .7          |  | Form of Warrant dated June 28, 2001
    (incorporated by reference to the post effective amendment
    no. 1 to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)                                                               
|        | 4  | .8          |  | Securities Purchase Agreement between Identix and
    Motorola, Inc., dated July 2000 (incorporated by reference to
    the September 26, 2000 Form 10-K)                                                                                                         
|        | 4  | .9          |  | Certificate of Designation of Series A
    Preferred Stock of Identix (incorporated by reference to the
    September 26, 2000 Form 10-K)                                                                                                                         
|        | 4  | .10         |  | Information and Registration Rights Agreement
    between Identix and Motorola, Inc., dated July 7, 2000
    (incorporated by reference to the September 26, 2000
    Form 10-K)                                                                                  
|        | 4  | .11         |  | Warrant to Purchase 187,647 Shares of
    Identix Common Stock, dated July 6, 2000 (incorporated by
    reference to the September 26, 2000 Form 10-K)                                                                                                            
|        | 4  | .12         |  | Common Stock Purchase Agreement between Identix
    and VeriSign Capital Management, Inc., dated December 22,
    2000 (incorporated by reference to the February 14, 2001
    Form 10-Q)                                                                         
|        | 4  | .13         |  | Share Purchase Agreement between Identix and
    State of Wisconsin Investment Board, dated, June 11, 2001
    (incorporated by reference to the registration statement on
    Form S-3, no. 333-63306, filed June 19, 2001)                                      
|        | 4  | .14         |  | Form of Common Stock Purchase Agreement dated
    November 30, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                                                                                                           
|        | 10 | .1          |  | Identix 1983 Incentive Stock Option Plan and form
    of Incentive Stock Option Agreement and Non-Statutory Stock
    Option Agreement (incorporated by reference to Identix
    registration statement no. 29-95551)                                            
|        | 10 | .2          |  | ANADAC 1984 Incentive Stock Option Plan and forms
    of Incentive Stock Option Agreement and Non-Statutory Stock
    Option Agreement (incorporated by reference to Identix
    registration statement 33-55074)                                                
|        | 10 | .3          |  | Identix 1992 Employee Stock Option Plan, and
    forms of Incentive Stock Option Agreement and Non-Qualified
    Stock Option Agreement (incorporated by reference to the
    registration statement on Form S-8, no. 333-77803,
    filed May 5, 1999)           
|        | 10 | .4          |  | Amendment to Identix 1992 Employee Stock Option
    Plan, dated June 18, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                                                                                                 
|        | 10 | .5          |  | Second Amendment to Identix 1992 Employee Stock
    Option Plan, dated January 29, 2002 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                                                                             
|        | 10 | .6          |  | Identix 1995 Equity Incentive Plan, as amended
    June 18, 2001 and January 29, 2002 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                                                                               
|        | 10 | .7          |  | Identix 1995 Non-employee Directors Stock Option
    Plan, as amended June 18, 2001 and January 29, 2002
    (incorporated by reference to the May 15, 2002
    Form 10-Q)                                                                                        
|        | 10 | .8          |  | Identix New Employee Stock Incentive Plan, as
    amended June 18, 2001 and January 29, 2002
    (incorporated by reference to the May 15, 2002
    Form 10-Q)                                                                                                    
|        | 10 | .9          |  | Identix 2002 Equity Incentive Plan (incorporated
    by reference to the registration statement on Form S-8,
    no. 333-91858, filed July 7, 2002)                                                                                                               
|        | 10 | .10         |  | Visionics Corporation 1990 Stock Option Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                                                                     
|        | 10 | .11         |  | Visionics Corporation 1998 Stock Option Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                                                                     

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|        |    |             |  |                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .12         |  | Visionics Corporation Stock Incentive Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                                                     
|        | 10 | .13         |  | Employee Stock Purchase Plan (incorporated by
    reference to the registration statement on Form S-8,
    no. 333-69141, filed December 17, 1998)                                                                                              
|        | 10 | .14         |  | Foreign Subsidiary Employee Stock Purchase Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-69141, filed December 17, 1998)                                                                           
|        | 10 | .15         |  | Subcontract between ANADAC and Advanced
    Engineering and Research Associates, Inc., dated August 25,
    2000 (incorporated by reference to the September 28, 2001
    Form 10-K)                                                            
|        | 10 | .16         |  | Deed of Lease between Brit Limited Partnership
    and Anadac, Inc. dated September 28, 2000 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                                                      
|        | 10 | .17         |  | Standard Industrial Commercial Multi-Tenant Lease
    between Identix and Vasona Business Park, dated December 8,
    2000 (incorporated by reference to the February 14, 2001
    Form 10-Q)                                                   
|        | 10 | .18         |  | Office Building Lease between Identix and Pacific
    Gulf Properties Inc., dated July 19, 2000, as amended
    December 12, 2000 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                           
|        | 10 | .19         |  | Office Lease between ANADAC and Federal Center
    Limited Partnership dated April 2, 1999, as amended
    December 1, 1999 and April 11, 2001 (incorporated by
    reference to the September 28, 2001 Form 10-K)                              
|        | 10 | .20         |  | Lease for the Minnetonka, Minnesota premises
    dated November 7, 1989 (incorporated by reference to
    Visionics Corporations registration statement on
    Form S-18, no. 33-36939C, dated December 6, 1990)                               
|        | 10 | .21         |  | Amendment to Lease for the Minnetonka, Minnesota
    premises dated March 11, 1996 (incorporated by reference to
    Visionics Corporations December 23, 1997
    Form 10-K)                                                                   
|        | 10 | .22         |  | Compensation Continuation Agreement between
    Identix and James P. Scullion, dated January 5, 2000
    (incorporated by reference to the March 31, 2000
    Form 10-Q)                                                                        
|        | 10 | .23         |  | Amendment No. 1 to Compensation Continuation
    Agreement between Identix and James P. Scullion, dated
    August 22, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                                 
|        | 10 | .24         |  | Amendment No. 2 to Compensation Continuation
    Agreement between Identix and James P. Scullion, dated
    January 29, 2002 (incorporated by reference to the
    May 15, 2002 Form 10-Q)                                                      
|        | 10 | .25         |  | Form of Separation Agreement and Release between
    Identix and James P. Scullion (incorporated by reference to
    registration statement of Form S-4, no. 333-84428,
    filed May 15, 2002)                                                 
|        | 10 | .26         |  | Employment Agreement between Identix and Oscar
    Pieper, dated April 26, 1999 (incorporated by reference to
    the November 26, 2000 Form 10-Q)                                                                                              
|        | 10 | .27         |  | Employment Agreement between Identix and Grant
    Evans, dated April 26, 1999 (incorporated by reference to
    the November 26, 2000 Form 10-Q)                                                                                               
|        | 10 | .28         |  | Amendment No. 1 to Employment Agreement
    between Identix and Grant Evans, dated August 22, 2001
    (incorporated by reference to the September 28, 2001
    Form 10-K)                                                                      
|        | 10 | .29         |  | Amendment No. 2 to Employment Agreement
    between Identix and Grant Evans, dated October 25, 2001
    (incorporated by reference to the February 14, 2002
    Form 10-Q)                                                                      
|        | 10 | .30         |  | Compensation Agreement between ANADAC and
    Paul J. Bulger, dated May 11, 1999 (incorporated by
    reference to the September 28, 2001 Form 10-K)                                                                                            
|        | 10 | .31         |  | Employment Agreement between Identix and
    Daniel H. Dellegrotti, dated June 21, 2001
    (incorporated by reference to the September 28, 2001
    Form 10-K)                                                                                 
|        | 10 | .32         |  | Employment Agreement between Identix and Robert
    McCashin, dated October 19, 2000 and Option Agreement
    between Identix and Robert McCashin, dated October 19, 2000
    (incorporated by reference to the February 14, 2001
    Form 10-Q)
|        | 10 | .33         |  | Amendment No. 1 to Employment Agreement
    between Identix and Robert McCashin, dated August 22, 2001
    (incorporated by reference to the November 14, 2001
    Form 10-Q)                                                                   

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|        |    |             |  |                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .34         |  | Form of Amendment No. 2 to Employment
    Agreement between Identix and Robert McCashin (incorporated by
    reference to the registration statement on Form S-4,
    no. 333-84428, filed April 25, 2002)   
|        | 10 | .35         |  | Employment Agreement between Identix and
    Erik E. Prusch, dated April 2, 2001 (incorporated by
    reference to the March 5, 2001 Form 10-Q)                                                              
|        | 10 | .36         |  | Amendment No. 1 to Employment Agreement
    between Identix and Erik E. Prusch, dated August 22,
    2001 (incorporated by reference to the November 14, 2001
    Form 10-Q)                                 
|        | 10 | .37         |  | Secured Promissory Note dated October 5,
    2001 by Erik E. Prusch in favor of Identix (incorporated by
    reference to the February 14, 2002 Form 10-Q)                                                   
|        | 10 | .38         |  | Second Deed of Trust and Assignment of Rents
    dated October 5, 2001 between Erik E. Prusch, as
    Trustor, and Identix, as Beneficiary (incorporated by reference
    to the February 14, 2002 Form 10-Q)
|        | 10 | .39         |  | Form of Indemnification Agreement between Identix
    and certain of its officers (incorporated by reference to the
    November 26, 2000 Form 10-Q)                                                         
|        | 10 | .40         |  | Employment Agreement between Identix and
    Mark S. Molina, dated August 22, 2001 (incorporated by
    reference to the November 14, 2001 Form 10-Q)                                                        
|        | 10 | .41         |  | Employment Agreement between Identix and
    Linda J. Howard, dated August 22, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                                       
|        | 10 | .42         |  | Employment Agreement between Identix and Sunday
    Lewis, dated August 22, 2001 (incorporated by reference to
    the November 14, 2001 Form 10-Q)                                                          
|        | 10 | .43         |  | Employment Agreement between Identix and Valerie
    J. Lyons, dated August 22, 2001 (incorporated by reference
    to the November 14, 2001 Form 10-Q)                                                      
|        | 10 | .44         |  | Form of Separation Agreement and Release between
    Identix and Valerie J. Lyons                                                                                                                            
|        | 10 | .45         |  | Form of Employment Agreement between Identix and
    Joseph J. Atick (incorporated by reference to the registration
    statement on Form S-4, no. 333-84428, filed April 25,
    2002)                      
|        | 10 | .46         |  | Loan and Security Agreement between Identix and
    Silicon Valley Bank, dated September 26, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                         
|        | 10 | .47         |  | Streamline Facility Agreement between Identix and
    Silicon Valley Bank, dated September 26, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                       
|        | 10 | .48         |  | Collateral Assignment, Patent Mortgage and
    Security Agreement between Identix and Silicon Valley Bank,
    dated September 26, 2001 (incorporated by reference to the
    November 14, 2001 Form 10-Q)   
|        | 10 | .49         |  | Amendment to Loan Documents dated March 28,
    2002 (incorporated by reference to the May 15, 2002
    Form 10-Q)                                                                                           
|        | 10 | .50         |  | Loan Agreement dated November 19, 2000
    between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    December 8, 2000 Form 10-K)             
|        | 10 | .51         |  | Change in Terms Agreement dated December 19,
    2001 between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    February 14, 2002 Form 10-Q) 
|        | 10 | .52         |  | Business Loan Agreement dated December 19,
    2001 between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    February 14, 2002 Form 10-Q)   
|        | 21 | .1          |  | Subsidiaries of Identix                                                                                                                                                                                      
|        | 23 | .1          |  | Consent of Independent Accountants                                                                                                                                                                           
|        | 99 | .1          |  | 906 Certifications                                                                                                                                                                                           

(b) Reports on Form 8-K:

During the fiscal year ended June 30, 2002,
the following reports on Form 8-K were filed:

Report on Form8-K filed June 27, 2002
confirming the completion of the merger of Viper Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of the
Company, with and into Visionics Corporation pursuant to an
Agreement and Plan of Merger dated February 22, 2002.

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

|                                 |                          |            |   |            |  |            |   |            |     |  |   |           |  |  |   |           | 
|-------------------------------- | ------------------------ | ---------- | - | ---------- |  | ---------- | - | ---------- | --- |  | - | --------- |  |  | - | --------- | 
|                                 |                          | Balance at |   | Charged to |  |            |   | Balance at
|                                 |                          | Beginning  |   | Costs and  |  |            |   | End       
|Description                      |                          | of Period  |   | Expenses   |  | Deductions |   | of Period 
|                                 |                          |            |   |            |  |            |   |           
|Allowance for Doubtful Accounts: |                          |            |   |            |  |            |   |            |     |  |   |           |  |  |   |          
|                                 | Year ended June 30, 2000 |            | $ | 809,000    |  |            | $ | 469,000    |     |  | $ | 212,000   |  |  | $ | 1,066,000 | 
|                                 | Year ended June 30, 2001 |            | $ | 1,066,000  |  |            | $ | 1,168,000  |     |  | $ | 832,000   |  |  | $ | 1,402,000 | 
|                                 | Year ended June 30, 2002 |            | $ | 1,402,000  |  |            | $ | 1,867,000  | (a) |  | $ | 575,000   |  |  | $ | 2,694,000 | 
|Inventory Reserve:               |                          |            |   |            |  |            |   |            |     |  |   |           |  |  |   |          
|                                 | Year ended June 30, 2000 |            | $ | 1,916,000  |  |            | $ | 1,096,000  |     |  | $ | 1,238,000 |  |  | $ | 1,774,000 | 
|                                 | Year ended June 30, 2001 |            | $ | 1,774,000  |  |            | $ | 1,770,000  |     |  | $ | 1,096,000 |  |  | $ | 2,448,000 | 
|                                 | Year ended June 30, 2002 |            | $ | 2,448,000  |  |            | $ | 730,000    | (a) |  | $ | 1,223,000 |  |  | $ | 1,955,000 | 



---



|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Included in charges to costs and expenses for the
    year ended June 30, 2002, are additions for allowance for
    doubtful accounts and provision for inventory reserves of
    $428,000 and $543,000, respectively, resulting from
    Identix merger with Visionics Corporation.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant,
Identix Incorporated, a corporation organized and existing under
the laws of the State of Delaware, has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Minnetonka, State of Minnesota, on
the 26th day of September 2002.



| |                     
| | --------------------
| | IDENTIX INCORPORATED



| |     |                    
| | --- | -------------------
| | By: | /s/ JOSEPH J. ATICK

| |                                          
| | -----------------------------------------
| |                                          
| | Joseph J. Atick                          
| | President and Chief Executive
    Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Joseph J. Atick and Mark S. Molina, 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 the Annual
Report for the fiscal year ended June 30, 2002 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.

|                                     |  |                                                                          |  |                   
|------------------------------------ |  | ------------------------------------------------------------------------ |  | ------------------
|Signature                            |  | Title                                                                    |  | Date              
|                                     |  |                                                                          |  |                   
|/s/ JOSEPH J. ATICKJoseph J. Atick   |  | President and Chief Executive Officer (Principal
    Executive Officer)  |  | September 26, 2002
|                                    
|/s/ ERIK E. PRUSCHErik E. Prusch     |  | Chief Financial Officer (Principal Financial and
    Accounting Officer) |  | September 26, 2002
|                                    
|/s/ ROBERT MCCASHINRobert McCashin   |  | Chairman                                                                 |  | September 26, 2002
|                                    
|/s/ MILTON E. COOPERMilton E. Cooper |  | Director                                                                 |  | September 26, 2002
|                                    
|/s/ MALCOLM J. GUDISMalcolm J. Gudis |  | Director                                                                 |  | September 26, 2002
|                                    
|/s/ JOHN E. HAUGOJohn E. Haugo       |  | Director                                                                 |  | September 26, 2002
|                                    
|/s/ JOHN E. LAWLERJohn E. Lawler     |  | Director                                                                 |  | September 26, 2002

85



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|                                       |  |          |  |                   
|-------------------------------------- |  | -------- |  | ------------------
|Signature                              |  | Title    |  | Date              
|                                       |  |          |  |                   
|/s/ GEORGE LATIMERGeorge Latimer       |  | Director |  | September 26, 2002
|                                      
|/s/ PATRICK H. MORTONPatrick H. Morton |  | Director |  | September 26, 2002

86



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CERTIFICATIONS

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



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Identix Incorporated;                                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report.                           



| |     |                    
| | --- | -------------------
| | By: | /s/ JOSEPH J. ATICK

| |                
| | ---------------
| |                
| | Joseph J. Atick

Date: September 26, 2002


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



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Identix Incorporated;                                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report; and
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report.                           



| |     |                   
| | --- | ------------------
| | By: | /s/ ERIK E. PRUSCH

| |               
| | --------------
| |               
| | Erik E. Prusch

Date: September 26, 2002


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EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .0          |  | Agreement and Plan of Merger dated as of
    February 22, 2002 by and among Identix, Visionics
    Corporation and Viper Acquisition Corporation (incorporated by
    reference to the February 22, 2002 Form 8-K)                                                
|        | 3  | .1          |  | Certificate of Incorporation (incorporated by
    reference to the December 16, 1998 Form 8-K)                                                                                                                                                                    
|        | 3  | .2          |  | Amended and Restated Bylaws (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                                                                                                                                         
|        | 4  | .1          |  | Registration Rights Agreement dated June 30,
    1999 (incorporated by reference to the registration statement on
    Form S-3, no. 333-82239, filed July 2, 1999)                                                                                                
|        | 4  | .2          |  | Form of Series I Warrant (incorporated by
    reference to the registration statement on Form S-3,
    no. 333-82239, filed July 2, 1999)                                                                                                                         
|        | 4  | .3          |  | Warrant dated June 29, 2001 between
    Visionics Corporation and Morgan Keegan, Inc. (incorporated by
    reference to the post-effective amendment no. 1 to the
    registration statement on Form S-4, no. 333-84428,
    filed September 5, 2002)             
|        | 4  | .4          |  | Warrant dated October 11, 2001 between
    Visionics Corporation and Morgan Keegan & Company, Inc.
    (incorporated by reference to the post effective amendment no. 1
    to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)
|        | 4  | .5          |  | Warrant dated October 24, 2001 between
    Visionics Corporation and Thomas Pierce (incorporated by
    reference to the post-effective amendment no. 1 to the
    registration statement on Form S-4, no. 333-84428,
    filed September 5, 2002)                
|        | 4  | .6          |  | Form of Warrant dated January 8, 1999
    (incorporated by reference to the post-effective amendment
    no. 1 to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)                                                             
|        | 4  | .7          |  | Form of Warrant dated June 28, 2001
    (incorporated by reference to the post effective amendment
    no. 1 to the registration statement on Form S-4,
    no. 333-84428, filed September 5, 2002)                                                               
|        | 4  | .8          |  | Securities Purchase Agreement between Identix and
    Motorola, Inc., dated July 2000 (incorporated by reference to
    the September 26, 2000 Form 10-K)                                                                                                         
|        | 4  | .9          |  | Certificate of Designation of Series A
    Preferred Stock of Identix (incorporated by reference to the
    September 26, 2000 Form 10-K)                                                                                                                         
|        | 4  | .10         |  | Information and Registration Rights Agreement
    between Identix and Motorola, Inc., dated July 7, 2000
    (incorporated by reference to the September 26, 2000
    Form 10-K)                                                                                  
|        | 4  | .11         |  | Warrant to Purchase 187,647 Shares of
    Identix Common Stock, dated July 6, 2000 (incorporated by
    reference to the September 26, 2000 Form 10-K)                                                                                                            
|        | 4  | .12         |  | Common Stock Purchase Agreement between Identix
    and VeriSign Capital Management, Inc., dated December 22,
    2000 (incorporated by reference to the February 14, 2001
    Form 10-Q)                                                                         
|        | 4  | .13         |  | Share Purchase Agreement between Identix and
    State of Wisconsin Investment Board, dated, June 11, 2001
    (incorporated by reference to the registration statement on
    Form S-3, no. 333-63306, filed June 19, 2001)                                      
|        | 4  | .14         |  | Form of Common Stock Purchase Agreement dated
    November 30, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                                                                                                           
|        | 10 | .1          |  | Identix 1983 Incentive Stock Option Plan and form
    of Incentive Stock Option Agreement and Non-Statutory Stock
    Option Agreement (incorporated by reference to Identix
    registration statement no. 29-95551)                                            
|        | 10 | .2          |  | ANADAC 1984 Incentive Stock Option Plan and forms
    of Incentive Stock Option Agreement and Non-Statutory Stock
    Option Agreement (incorporated by reference to Identix
    registration statement 33-55074)                                                
|        | 10 | .3          |  | Identix 1992 Employee Stock Option Plan, and
    forms of Incentive Stock Option Agreement and Non-Qualified
    Stock Option Agreement (incorporated by reference to the
    registration statement on Form S-8, no. 333-77803,
    filed May 5, 1999)           
|        | 10 | .4          |  | Amendment to Identix 1992 Employee Stock Option
    Plan, dated June 18, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                                                                                                                 

88



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|        |    |             |  |                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .5          |  | Second Amendment to Identix 1992 Employee Stock
    Option Plan, dated January 29, 2002 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                             
|        | 10 | .6          |  | Identix 1995 Equity Incentive Plan, as amended
    June 18, 2001 and January 29, 2002 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                               
|        | 10 | .7          |  | Identix 1995 Non-employee Directors Stock Option
    Plan, as amended June 18, 2001 and January 29, 2002
    (incorporated by reference to the May 15, 2002
    Form 10-Q)                                        
|        | 10 | .8          |  | Identix New Employee Stock Incentive Plan, as
    amended June 18, 2001 and January 29, 2002
    (incorporated by reference to the May 15, 2002
    Form 10-Q)                                                    
|        | 10 | .9          |  | Identix 2002 Equity Incentive Plan (incorporated
    by reference to the registration statement on Form S-8,
    no. 333-91858, filed July 7, 2002)                                                               
|        | 10 | .10         |  | Visionics Corporation 1990 Stock Option Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                     
|        | 10 | .11         |  | Visionics Corporation 1998 Stock Option Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                     
|        | 10 | .12         |  | Visionics Corporation Stock Incentive Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-91858, filed July 7, 2002)                                                       
|        | 10 | .13         |  | Employee Stock Purchase Plan (incorporated by
    reference to the registration statement on Form S-8,
    no. 333-69141, filed December 17, 1998)                                                                
|        | 10 | .14         |  | Foreign Subsidiary Employee Stock Purchase Plan
    (incorporated by reference to the registration statement on
    Form S-8, no. 333-69141, filed December 17, 1998)                                             
|        | 10 | .15         |  | Subcontract between ANADAC and Advanced
    Engineering and Research Associates, Inc., dated August 25,
    2000 (incorporated by reference to the September 28, 2001
    Form 10-K)                              
|        | 10 | .16         |  | Deed of Lease between Brit Limited Partnership
    and Anadac, Inc. dated September 28, 2000 (incorporated by
    reference to the May 15, 2002 Form 10-Q)                                                        
|        | 10 | .17         |  | Standard Industrial Commercial Multi-Tenant Lease
    between Identix and Vasona Business Park, dated December 8,
    2000 (incorporated by reference to the February 14, 2001
    Form 10-Q)                     
|        | 10 | .18         |  | Office Building Lease between Identix and Pacific
    Gulf Properties Inc., dated July 19, 2000, as amended
    December 12, 2000 (incorporated by reference to the
    September 28, 2001 Form 10-K)             
|        | 10 | .19         |  | Office Lease between ANADAC and Federal Center
    Limited Partnership dated April 2, 1999, as amended
    December 1, 1999 and April 11, 2001 (incorporated by
    reference to the September 28, 2001 Form 10-K)
|        | 10 | .20         |  | Lease for the Minnetonka, Minnesota premises
    dated November 7, 1989 (incorporated by reference to
    Visionics Corporations registration statement on
    Form S-18, no. 33-36939C, dated December 6, 1990) 
|        | 10 | .21         |  | Amendment to Lease for the Minnetonka, Minnesota
    premises dated March 11, 1996 (incorporated by reference to
    Visionics Corporations December 23, 1997
    Form 10-K)                                     
|        | 10 | .22         |  | Compensation Continuation Agreement between
    Identix and James P. Scullion, dated January 5, 2000
    (incorporated by reference to the March 31, 2000
    Form 10-Q)                                          
|        | 10 | .23         |  | Amendment No. 1 to Compensation Continuation
    Agreement between Identix and James P. Scullion, dated
    August 22, 2001 (incorporated by reference to the
    September 28, 2001 Form 10-K)                   
|        | 10 | .24         |  | Amendment No. 2 to Compensation Continuation
    Agreement between Identix and James P. Scullion, dated
    January 29, 2002 (incorporated by reference to the
    May 15, 2002 Form 10-Q)                        
|        | 10 | .25         |  | Form of Separation Agreement and Release between
    Identix and James P. Scullion (incorporated by reference to
    registration statement of Form S-4, no. 333-84428,
    filed May 15, 2002)                   
|        | 10 | .26         |  | Employment Agreement between Identix and Oscar
    Pieper, dated April 26, 1999 (incorporated by reference to
    the November 26, 2000 Form 10-Q)                                                                
|        | 10 | .27         |  | Employment Agreement between Identix and Grant
    Evans, dated April 26, 1999 (incorporated by reference to
    the November 26, 2000 Form 10-Q)                                                                 

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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .28         |  | Amendment No. 1 to Employment Agreement
    between Identix and Grant Evans, dated August 22, 2001
    (incorporated by reference to the September 28, 2001
    Form 10-K)                                                                      
|        | 10 | .29         |  | Amendment No. 2 to Employment Agreement
    between Identix and Grant Evans, dated October 25, 2001
    (incorporated by reference to the February 14, 2002
    Form 10-Q)                                                                      
|        | 10 | .30         |  | Compensation Agreement between ANADAC and
    Paul J. Bulger, dated May 11, 1999 (incorporated by
    reference to the September 28, 2001 Form 10-K)                                                                                            
|        | 10 | .31         |  | Employment Agreement between Identix and
    Daniel H. Dellegrotti, dated June 21, 2001
    (incorporated by reference to the September 28, 2001
    Form 10-K)                                                                                 
|        | 10 | .32         |  | Employment Agreement between Identix and Robert
    McCashin, dated October 19, 2000 and Option Agreement
    between Identix and Robert McCashin, dated October 19, 2000
    (incorporated by reference to the February 14, 2001
    Form 10-Q)
|        | 10 | .33         |  | Amendment No. 1 to Employment Agreement
    between Identix and Robert McCashin, dated August 22, 2001
    (incorporated by reference to the November 14, 2001
    Form 10-Q)                                                                   
|        | 10 | .34         |  | Form of Amendment No. 2 to Employment
    Agreement between Identix and Robert McCashin (incorporated by
    reference to the registration statement on Form S-4,
    no. 333-84428, filed April 25, 2002)                                      
|        | 10 | .35         |  | Employment Agreement between Identix and
    Erik E. Prusch, dated April 2, 2001 (incorporated by
    reference to the March 5, 2001 Form 10-Q)                                                                                                 
|        | 10 | .36         |  | Amendment No. 1 to Employment Agreement
    between Identix and Erik E. Prusch, dated August 22,
    2001 (incorporated by reference to the November 14, 2001
    Form 10-Q)                                                                    
|        | 10 | .37         |  | Secured Promissory Note dated October 5,
    2001 by Erik E. Prusch in favor of Identix (incorporated by
    reference to the February 14, 2002 Form 10-Q)                                                                                      
|        | 10 | .38         |  | Second Deed of Trust and Assignment of Rents
    dated October 5, 2001 between Erik E. Prusch, as
    Trustor, and Identix, as Beneficiary (incorporated by reference
    to the February 14, 2002 Form 10-Q)                                   
|        | 10 | .39         |  | Form of Indemnification Agreement between Identix
    and certain of its officers (incorporated by reference to the
    November 26, 2000 Form 10-Q)                                                                                            
|        | 10 | .40         |  | Employment Agreement between Identix and
    Mark S. Molina, dated August 22, 2001 (incorporated by
    reference to the November 14, 2001 Form 10-Q)                                                                                           
|        | 10 | .41         |  | Employment Agreement between Identix and
    Linda J. Howard, dated August 22, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                                                                          
|        | 10 | .42         |  | Employment Agreement between Identix and Sunday
    Lewis, dated August 22, 2001 (incorporated by reference to
    the November 14, 2001 Form 10-Q)                                                                                             
|        | 10 | .43         |  | Employment Agreement between Identix and Valerie
    J. Lyons, dated August 22, 2001 (incorporated by reference
    to the November 14, 2001 Form 10-Q)                                                                                         
|        | 10 | .44         |  | Form of Separation Agreement and Release between
    Identix and Valerie J. Lyons                                                                                                                                                               
|        | 10 | .45         |  | Form of Employment Agreement between Identix and
    Joseph J. Atick (incorporated by reference to the registration
    statement on Form S-4, no. 333-84428, filed April 25,
    2002)                                                         
|        | 10 | .46         |  | Loan and Security Agreement between Identix and
    Silicon Valley Bank, dated September 26, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                                                            
|        | 10 | .47         |  | Streamline Facility Agreement between Identix and
    Silicon Valley Bank, dated September 26, 2001 (incorporated
    by reference to the November 14, 2001 Form 10-Q)                                                                          
|        | 10 | .48         |  | Collateral Assignment, Patent Mortgage and
    Security Agreement between Identix and Silicon Valley Bank,
    dated September 26, 2001 (incorporated by reference to the
    November 14, 2001 Form 10-Q)                                      
|        | 10 | .49         |  | Amendment to Loan Documents dated March 28,
    2002 (incorporated by reference to the May 15, 2002
    Form 10-Q)                                                                                                                              
|        | 10 | .50         |  | Loan Agreement dated November 19, 2000
    between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    December 8, 2000 Form 10-K)                                                

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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                             
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .51         |  | Change in Terms Agreement dated December 19,
    2001 between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    February 14, 2002 Form 10-Q)
|        | 10 | .52         |  | Business Loan Agreement dated December 19,
    2001 between Visionics Corporation and Associated Bank Minnesota
    (incorporated by reference to Visionics Corporations
    February 14, 2002 Form 10-Q)  
|        | 21 | .1          |  | Subsidiaries of Identix                                                                                                                                                                                     
|        | 23 | .1          |  | Consent of Independent Accountants                                                                                                                                                                          
|        | 99 | .1          |  | 906 Certifications                                                                                                                                                                                          

91