##### Table of Contents





UNITED STATES
  SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
      FORM 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31,
    2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to          .   Commission File Number
    001-33002
      L-1
    IDENTITY SOLUTIONS, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

02-0807887(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)177 Broad Street, 12th Floor, Stamford, CT

06901(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
    (203)-504-1100
    Securities registered pursuant to Section 12(b) of the Act:
    Common Stock $.001 par value NYSE
    Securities registered pursuant to Section 12(g)of the Act:
    None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K.
  Rule 12b-2
  Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)   Rule 12b-2). o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





INDEX
   
 PART IItem 1.


Business



3Item 1A.


Risk Factors



18Item 1B.


Unresolved Staff Comments



31Item 2.


Properties



31Item 3.


Legal Proceedings



31Item 4.


Submission of Matters to a Vote of Security
    Holders



32PART IIItem 5.


Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities



33Item 6.


Selected Financial Data



36Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations



38Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk



66Item 8.


Financial Statements and Supplementary Data



68PART IIIItem 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure



68Item 9A.


Controls and Procedures



68Item 9B.


Other Information



71Item 10.


Directors and Executive Officers and Corporate
    Governance



71Item 11.


Executive Compensation



71Item 12.


Security ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters



71Item 13.


Certain Relationships and Related Transactions
    and Director Independence



71Item 14.


Principal Accountant Fees and Services



71PART IVItem 15.


Exhibits and FinancialStatement Schedules



71SIGNATURES



72EXHIBIT INDEX



73EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2    L-1
    Identity Solutions 2009 Annual Report |  2




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  In this Annual Report on
    Form 10-K,
    the words
    L-1
    and the Company refer to
    L-1 Identity
    Solutions, Inc. and, except as otherwise specified herein, to
    L-1
    subsidiaries.
    L-1s
    fiscal year ended on December 31, 2009.
  BUSINESS
    OVERVIEW
  L-1 (L-1 L-1
  Solutions
    and Services.
  Solutions
      Services
   L-1
  
  The L-1
    Portfolio of Identity Management
    Solutions and Services
    L-1
    Identity Solutions 2009 Annual Report |  3




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SECURE
    CREDENTIALING SOLUTIONS
  The Secure
    Credentialing division provides solutions that protect and
    secure identities and assets by helping customers produce the
    most secure credentials possible.
  end-to-end
  L-1 L-1 L-1
  L-1 price-per-card
  L-1 L-1 end-to-end
   
    Revenue growth from
    L-1 online
    skills testing in excess of 68 percent year-over-year in
    2009.
    Demand for workflow re-engineering and upgrades to ID card
    structures and features.
    Addition of facial recognition technologies used today in 31
    States to prevent persons from establishing duplicate identities.
    Use of document authentication in 11 States as part of the
    drivers license issuance process.  L-1
  L-1 L-1.
    L-1
    L-1
    Identity Solutions 2009 Annual Report |  4




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BIOMETRIC /
    ENTERPRISE ACCESS SOLUTIONS
  
     The Biometric Division
    of L-1
    provides solutions that protect and secure personal identities
    and assets by providing
    state-of-the
    art technologies that capture, store, manage and distribute
    biometric data for positive, rapid ID and tracking of persons of
    interest as part of large-scale identity management programs.
    tm tm L-1
      
    A new eGate solution using
    L-1 facial
    recognition is facilitating self service border crossings at the
    Frankfurt International Airport.
    A new middleware platform was developed in partnership with
    European customers that enables HIIDE to integrate with ID
    systems of foreign Defense Ministries in NATO countries.
   
    A next generation technology transformed the access control
    device into a smart security appliance. New devices built on the
    platform are deployed for employee access control at several
    international airports and as part of several U.S. port
    project evaluations.
    A new live scan fingerprint product, Agile TP, was introduced
    for high-volume civil identification programs. The system is
    capable of capturing a full set of fingerprints in less than ten
    seconds.  L-1s
  L-1 L-1
  e-passport
    L-1
    Identity Solutions 2009 Annual Report |  5




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##### Table of Contents



ENROLLMENT
    SERVICES
  The Enrollment
    Services division provides services that protect and secure
    identities and assets by performing fingerprinting and
    processing background checks for civilians at centers across the
    U.S. and Canada.
  L-1
      L-1
  
    Expanding beyond fingerprints to capture additional biometrics.
    Performing background checks for non-employment licenses, such
    as handgun permits.
    Servicing more than 5,000 schools and school districts
    throughout the U.S. with customers across State Agencies,
    public school districts, private schools, colleges and
    universities.
    Serving the healthcare community by processing checks required
    for nurses, doctors, home health care and nursing facility
    workers, and more.
   
    Supporting individuals requiring Financial Industry Regulatory
    Authority (FINRA) registration and others employed as mortgage
    brokers, insurance agents and other positions within financial
    services.  L-1s
  L-1 L-1
  L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  6




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GOVERNMENT
    CONSULTING SERVICES
  
   The Government
    Consulting Services Group provides services that protect and
    secure personal identities and assets by providing highly
    specialized solutions and services that address critical
    concerns in national security and intelligence.
    Advanced Concepts
    (Information 
    Technology (IT))
      
    IT Infrastructure Engineering
    Systems Engineering and Integration
    Software Development
    Information Assurance  McClendon
    (Engineering & Analytical)
  L-1
    
    Systems Engineering & Integration
    GEOINT and MASINT Science
    Intelligence Analysis & Operations
   
    SETA, PMO & Acquisition
    IT & Software Development  SpecTal
    (Intelligence Services)
  L-1
    
    Intelligence Analysis and Operations
    IT and Physical Security
    Linguists    L-1
    L-1
    Identity Solutions 2009 Annual Report |  7




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INDUSTRY
    OVERVIEW
  MARKETS AND
    TRENDS IN CREDENTIALING AND BIOMETRIC SOLUTIONS
  L-1
  L-1
  he/she
  L-1 L-1 L-1
  
    Implementation of biometrics in national security-related
    applications broadly characterized as anti-terror, such as
    border management, national ID, immigration control and critical
    infrastructure applications such as employee authentication and
    access control.
    Integration into commercial access control solutions that grant
    entry and confirm presence in buildings and restricted areas
    based on biometric recognition.
    Expansion of biometrics within law enforcement to enroll, verify
    and ID suspects, detainees and prisoners and confirm if the
    individual is wanted, incarcerated or has a criminal history.
    Inclusion of biometrics as a component of solutions that address
    identity theft.
    Incorporation of biometrics into licensing processes and
    background checks required for people employed in licensed
    positions, such as daycare workers, insurance agents and those
    employed in education-related fields.
    L-1
    Identity Solutions 2009 Annual Report |  8




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##### Table of Contents



L-1 non-U.S. citizens
  L-1 and/or and/or and/or
  L-1
  
    The global economic slowdown and its impact on government
    funding and procurements related to security.
    Dependence on complex government programs with elongated
    procurement, sales and implementation cycles.
    Competition from non-biometric technologies that provide more
    affordable, but less robust, authentication (such as tokens and
    smart cards).
    Privacy and legal challenges relating to biometric identifiers
    by private citizens and advocacy groups.
    The potential for changes in government policy relating to
    privacy issues.
    L-1
    Identity Solutions 2009 Annual Report |  9




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##### Table of Contents



MARKETS AND
    TRENDS FOR GOVERNMENT SERVICES
  L-1
  L-1
  The emphasis on counter-terrorism, irregular warfare,
    Homeland Defense, and combating the spread of weapons of mass
    destruction remain overarching guiding principles for current
    and out-year funding priorities. L-1 L-1
  Demand for technology service providers is expected to
    increase due to the need for Federal agencies to maintain core
    operational functions while the available technical workforce
    shrinks. L-1
  L-1
  Alternative choices of contract acquisition vehicles have
    created market-based environments in government procurement. L-1
  An emphasis on addressing cyber-security is expected to drive
    greater demand for a variety of
    L-1
    government services. L-1.
    L-1
    Identity Solutions 2009 Annual Report |  10




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The current strategic environment dictates the need for more
    dependencies in the form of alliances and partnerships. and/or
  CUSTOMERS
  L-1
  L-1s L-1
  L-1
  
    Most Federal agencies and branches of the U.S. military.
    More than 29 international governments.
    Many State and Local Public Safety Organizations across the
    U.S., including Department of Motor Vehicles and law enforcement
    agencies.
    Many of the traditional large systems integrators.
    Several commercial enterprises including those in gaming,
    finance, healthcare and more.
   L-1
    Growth in International Sales of
 Products and Solutions
  L-1 L-1s
  COMPETITION
  L-1 L-1s
  State-of-the-art
    technologies and solutions that encompass every major biometric
    modality. L-1 L-1 L-1s L-1 L-1
  The flexibility to use products and services together as a
    complete solution or as modular components within an existing
    solution. L-1
    L-1
    Identity Solutions 2009 Annual Report |  11




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##### Table of Contents



Strong and tenured relationships with customers and
    partners. L-1 L-1 L-1
  L-1 multi-modal
  L-1
  
    Delivering the effective means of uniquely identifying
    individuals through advanced multi-modal biometric recognition
    technologies.
    Producing the most highly secure credentials that serves as
    proof of identity.
    Providing biometrically-enabled access control for buildings and
    secure areas.
    Offering enrollment service centers for fast, accurate
    electronic civilian fingerprinting and background checks.
    Delivering government consulting services that address the most
    important areas of security and intelligence in the
    U.S. today.  L-1 L-1s L-1, L-1
   L-1 L-1 L-1. L-1
  L-1
  BUSINESS
    DEVELOPMENT, MARKETING AND SALES, BIDS AND PROPOSALS
  Marketing and
    Sales
  L-1
    L-1s L-1
    L-1
    Identity Solutions 2009 Annual Report |  12




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##### Table of Contents



and/or L-1
  L-1
  Strategic
    Partnerships
  L-1 L-1 L-1 L-1 U.S. L-1 L-1s
  Bids and
    Proposals
  L-1 and/or L-1
  L-1 time-and-materials,
  L-1 L-1 L-1 L-1
  RESEARCH AND
    DEVELOPMENT
    L-1
    
    Proprietary software that addresses image capture.
    Image processing.
    Face, iris, fingerprint and palm recognition.
    L-1
    Identity Solutions 2009 Annual Report |  13




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##### Table of Contents




    Biometric fusion logic and intelligent decision making.
    Information retrieval from identity databases.
    Scalability of search and the accuracy of searching and matching
    algorithms within very large databases.
    Document authentication.  L-1
  L-1 and/or L-1
  L-1 L-1
  L-1
  INTELLECTUAL
    PROPERTY
  L-1
   L-1
  L-1 L-1 L-1 L-1 L-1
  BACKLOG
    L-1
    Identity Solutions 2009 Annual Report |  14




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##### Table of Contents



L-1
    Backlog of $1.3 Billion
      MANUFACTURING
  L-1 L-1 L-1 L-1
  L-1 L-1 L-1 L-1 L-1
  L-1
  L-1 sub-assemblies L-1
  SEASONALITY
  L-1
  L-1
    L-1
    Identity Solutions 2009 Annual Report |  15




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L-1
  FINANCIAL
    INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
    SALES
    L-1s L-1s
  
  2007 
    2009 L-1
    Foreign Operations and Export Sales
  REPORTABLE
    SEGMENTS AND GEOGRAPHIC INFORMATION
  Form 10-K.
  RECENT
    ACQUISITIONS
  L-1 L-1 L-1 L-1s Form 10-K.
   CAPITAL
    REQUIREMENTS
  L-1s L-1 L-1 L-1s L-1 L-1
  L-1 L-1s
  ENVIRONMENTAL
    PROTECTION REGULATIONS
  L-1
  EMPLOYEES
  L-1
  OFFICERS
  L-1
    L-1
    Identity Solutions 2009 Annual Report |  16




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Robert V. LaPenta L-1 L-1
  Dr. Joseph Atick L-1 L-1.
  James A. DePalma L-1 L-1.
  L-1, L-1 L-1
  Doni L. Fordyce L-1. L-1
  Mark S. Molina L-1 L-1. L-1,
    L-1
    Identity Solutions 2009 Annual Report |  17




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Joseph Paresi L-1 L-1. L-1 L-1
  Vincent A. DAngelo L-1 L-1. L-1
  L-1s
    INTERNET
    WEBSITE
  L-1
  L-1 Form 10-K.
  Form 10-K, Form 10-Q Form 8-K,
  1-800-SEC-0330 www.sec.gov
 ITEM 1A. RISK
    FACTORS  Form 10-K L-1 L-1 L-1 L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  18




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BUSINESS
    RISKS
  L-1 has a
    history of operating losses. L-1 L-1 L-1
  Over 95 percent of
    L-1 revenue
    is from government contracts which are often non-standard,
    involve competitive bidding, may be subject to cancellation with
    or without penalty and may produce volatility in earnings and
    revenue L-1s
    
    Include provisions that allow the government agency to
    unilaterally terminate the contract without penalty under some
    circumstances.
    Be subject to purchasing decisions of agencies that are subject
    to political considerations.
    Include bonding requirements.
    Be subject to onerous procurement procedures.
    Be subject to cancellation or reduction if government funding
    becomes unavailable or is cut back.
   L-1
  L-1
  Government contracts are subject to continued appropriations
    by Congress and availability of funding for State and Local
    programs. Reduced funding or changes in procurement policies
    that curtail the use of outside contractors could result in
    terminated, delayed or de-scoped contracts with
    L-1 and
    adversely affect the ability for
    L-1 to meet
    sales and earnings goals. L-1
    L-1
    Identity Solutions 2009 Annual Report |  19




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L-1
  L-1
  L-1
  The full amount of
    L-1 revenues
    reflected in backlog may not be realized, which could harm
    operations and significantly reduce future revenues.
  L-1
  and/or L-1 L-1 L-1
  L-1
  Quarterly results are difficult to predict due to factors
    including long sales cycles; if quarterly financial expectations
    are missed, the
    L-1 stock
    price could decline. L-1
    L-1
    Identity Solutions 2009 Annual Report |  20




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
    Time required for a prospective customer to recognize the need
    for L-1
    solutions.
    Timing of appropriation of funds by governments.
    Political and economic uncertainties.
    Customer requirements for customized features and
    functionalities.
    Turnover of key personnel at existing and prospective customers.
    Customer internal budgeting and processes.
    Customer internal procedures for the approval of large contracts.
    Protest processes affecting government contract awards which may
    be initiated by competitors.  L-1
  
    The size and timing of new contract awards and customer orders
    which may be received unevenly throughout a fiscal year.
    The mix of revenues between solutions and services.
    The application of new accounting standards or interpretations.
    Cancellation or modification of contracts or changes in contract
    revenue estimates.
    Contract performance delays.  L-1s
    exploration of strategic alternatives may not result in any sale
    transaction. L-1
  L-1s
  L-1 may
    be unable to obtain additional capital required to finance
    acquisitions due to continuing adverse market conditions and the
    Company must fund substantial capital expenditures for the
    secure credentialing business. L-1
  L-1 L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  21




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Covenants in the Companys credit facility may restrict
    financial and operating flexibility. L-1 L-1
  L-1 L-1 L-1
  L-1 is
    subject to government regulation and failure to comply with
    applicable regulations could subject the Company to penalties
    that may restrict its ability to conduct business. L-1
  
    Export control regulations.
    Federal Acquisition Regulation, or the FAR, and agency
    regulations supplementing the FAR, which comprehensively
    regulate the formation and administration of, and performance
    under government contracts.
    Truth in Negotiations Act that requires certification and
    disclosure of all cost and pricing data in connection with
    contract negotiations.
    Foreign Corrupt Practices Act.
    Laws, regulations and executive orders restricting the use and
    dissemination of information classified for national security
    purposes and the exportation of certain products and technical
    data.
    Laws and regulation established to protect the privacy and
    personal information of employees and third parties.  L-1 L-1. L-1 L-1
  The Company could be adversely affected by a negative audit
    by the U.S. government.
    L-1
    Identity Solutions 2009 Annual Report |  22




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##### Table of Contents



L-1 L-1
  Biometric technologies have not yet achieved widespread
    commercial acceptance and the strategy of expanding the
    biometric business could adversely affect
    L-1 business
    operations and financial conditions. L-1s
  
    National or international events which may affect the need for
    or interest in biometric solutions or services.
    The cost, performance and reliability of the solutions and
    services and those of the competition.
    Customer perception of the perceived benefit of biometric
    solutions and services and satisfaction with solutions and
    services.
    Public perceptions regarding the confidentiality of private
    information.
    Proposed or enacted legislation related to privacy of
    information.
   
    Marketing efforts and publicity regarding these solutions and
    services.
    Competition from non-biometric technologies that provide more
    affordable, but less robust, authentication (such as tokens and
    smart cards).
    Privacy and legal challenges relating to biometric identifiers
    driven by private citizens and advocacy groups.
    The potential for changes in government policy regarding privacy
    issues with a new executive branch administration.  L-1 L-1
  L-1 faces
    intense competition that could result in lower revenues and
    higher R&D expenditures and could adversely affect results
    of the Companys operations. L-1
    L-1
    L-1
    Identity Solutions 2009 Annual Report |  23




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##### Table of Contents



L-1 L-1. L-1 L-1 L-1
  L-1 must
    keep pace with changing technologies or risk losing existing and
    new customers. L-1 L-1 L-1
  Security breaches in systems sold or maintained by
    L-1 could
    result in the disclosure of sensitive government information or
    private personal information that could result in the loss of
    customers and negative publicity. L-1
  L-1 L-1 L-1
  L-1
  Reliance on external suppliers and contract manufacturers may
    result in delays and loss of sales or customers. L-1 L-1 L-1
  L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  24




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##### Table of Contents



L-1
  The market for
    L-1
    solutions is still developing and if the biometrics industry
    adopts standards or a platform different from
    L-1s,
    then the Companys competitive position would be negatively
    affected. L-1s
  L-1 L-1
  The L-1
    plan to pursue sales in international markets may be limited by
    risks related to conditions in such markets. L-1
   
    Regional economic or political conditions.
    Delays in or absolute prohibitions on exporting solutions,
    products and services resulting from export restrictions for
    certain products and technologies.
    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 related to 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.
    Liabilities resulting from any unauthorized actions of local
    resellers or agents under the Foreign Corrupt Practices Act or
    local anti-corruption statutes.
    Overlap of different tax structures.
    Risks of increases in taxes and other government fees.
    Involuntary renegotiations of contracts with foreign governments.  L-1
  L-1
  If L-1
    does not successfully expand direct sales and services
    organizations and
    L-1
    Identity Solutions 2009 Annual Report |  25




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##### Table of Contents



partnering arrangements, the Company may not be able to
    increase sales to meet
    L-1s
    growth expectations. L-1 L-1
  L-1
  The Company relies in part upon system integrators, Original
    Equipment Manufacturers (OEMs) and distribution partners to sell
    some L-1
    solutions, technologies and services; the Company may be
    adversely affected if those parties do not actively promote the
    products or pursue installations that do not use
    L-1
    solutions, technologies and services. L-1
  L-1 L-1
  If solutions, systems and products are not delivered in a
    timely fashion or do not perform as promised,
    L-1 could
    experience increased costs, lower margins, liquidated damage
    payment obligations and reputational harm. L-1
  L-1 and/or
  L-1 L-1 L-1 L-1 back-up
    L-1
    Identity Solutions 2009 Annual Report |  26




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Failure to maintain the proprietary nature of
    L-1
    technology, intellectual property and manufacturing processes
    could have a material adverse affect on the business and the
    Companys ability to effectively compete. L-1 L-1 L-1
    L-1,
  L-1
  L-1
  L-1s L-1
  Legal claims regarding infringement by
    L-1 or
    suppliers of third party intellectual property rights could
    result in substantial costs, diversion of managerial resources
    and reputational harm. L-1 L-1,
  
    Liability for damages and litigation costs, including
    attorneys fees.
    Lawsuits that prevent
    L-1 from
    further use of the intellectual property.
    License intellectual property from a third party that could
    include significant licensing fees.
    Develop a non-infringing alternative which could be costly and
    delay projects.
    Indemnify clients with respect to losses incurred as a result of
    the alleged infringement.
    Establish alternative sources for products supplied to
    L-1 by third
    parties.  L-1
    L-1
    Identity Solutions 2009 Annual Report |  27




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L-1 faces
    inherent product liability or other liability risks that could
    result in large claims against the Company. L-1 L-1 L-1 L-1 L-1
  L-1 is
    dependent on a small number of individuals and if the Company
    loses key personnel, the business will be adversely
    affected. L-1s L-1 L-1
  If L-1
    fails to recruit and retain skilled employees or employees with
    the necessary
  security clearances, the Company may not be able to perform
    under government services contracts or win new business. L-1 L-1
  L-1 L-1
  Certain
    L-1 shareholders
    have significant relationships with the Company that could
    result in actions taken that are not supported by unaffiliated
    shareholders. L-1, L-1s L-1 L-1 L-1 L-1 L-1.
  L-1
    L-1
    Identity Solutions 2009 Annual Report |  28




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##### Table of Contents



L-1 L-1 L-1 L-1s
  L-1 L-1
  ACQUISITION
    STRATEGY RISKS
  Integration of recently acquired businesses may be difficult
    to achieve and will consume significant financial and managerial
    resources, which may adversely affect operations. L-1
  
    Exposure to unknown liabilities of acquired companies or assets.
    Higher than anticipated acquisition costs and expenses.
   
    Assumption of ongoing litigation matters that may be highly
    complex and involve significant time, cost and expense.
    Potential conflicts between business cultures.
    Adverse changes in business focus perceived by third-party
    constituencies.
    Disruption of ongoing business.
    Potential conflicts in distribution, marketing or other
    important relationships.
    Potential constraints of management resources.
    Failure to maximize financial and strategic position by the
    successful incorporation of acquired technology.
    Failure to realize acquired technology potential, complete
    product development, or obtain / secure appropriate
    protection of intellectual property rights.
    Loss of key employees
    and/or the
    diversion of managements attention from other ongoing
    business concerns.  L-1 L-1
  Acquisitions could result in future impairment and other
    charges, which could adversely affect operational results. L-1
    L-1
    Identity Solutions 2009 Annual Report |  29




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##### Table of Contents




    Technological development capabilities and intellectual capital.
    Expected significant growth in revenues and profits from the
    expanding market in identity solutions.
    Expected synergies resulting from providing multi modal product
    offerings to existing customer base and to new customers of the
    combined Company.    L-1
  L-1
  L-1 L-1
  If L-1
    does not achieve expected benefits from completed acquisitions,
    the price of
    L-1 common
    stock could decline. L-1
  L-1 L-1 L-1 L-1 L-1
  L-1 L-1
          L-1
    Identity Solutions 2009 Annual Report |  30




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##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES  L-1
  L-1 L-1 L-1
    Square

ExpireLocation

Feet

DateBillerica, Massachusetts


90,000


April 2016Bloomington, Minnesota


59,000


Oct. 2014Fort Wayne, Indiana


48,000


Jan. 2010Martinez, California


26,000


Feb. 2011Chantilly, Virginia


24,000


May 2012Nashville, Tennessee


21,000


July 2013Arlington, Virginia


20,000


Dec. 2012Reston, Virginia


19,000


May 2012Jersey City, New Jersey


18,000


July 2017Stamford, Connecticut


17,000


March 2015Springfield, Illinois


15,000


June 2010Markham, Canada


15,000


Nov. 2010Sacramento, California


11,000


MonthlyForest Park, Georgia


10,000


Jan. 2014Oakville, Canada


8,000


Jan. 2010El Segundo, California


8,000


Jan. 2011Lacey, Washington


8,000


June 2010Columbia, Maryland


7,000


Dec. 2012Harrisburg, Pennsylvania


6,000


Sept. 2011Carrollton, Georgia


5,000


Dec. 2010   L-1
  ITEM 3.
    LEGAL
    PROCEEDINGS  OLD DIGIMARC
    LITIGATION
    Rule 10b-5
    L-1
    Identity Solutions 2009 Annual Report |  31




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##### Table of Contents



OTHER
   ITEM 4. SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS
    L-1
    Identity Solutions 2009 Annual Report |  32




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##### Table of Contents



PART II ITEM 5. MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  MARKET FOR
    L-1 COMMON
    STOCK
  L-1 L-1
  L-1
  2009


2008Quarter

High


Low


High


LowFirst Quarter

$
8.16


$
3.23


$
18.54


$
10.66Second Quarter

$
9.50


$
4.93


$
16.02


$
12.77Third Quarter

$
8.64


$
6.74


$
17.22


$
11.66Fourth Quarter

$
7.90


$
5.67


$
15.28


$
4.33   DIVIDEND
    POLICY
  L-1 2008.  L-1 L-1
  RECENT SALES OF
    UNREGISTERED SECURITIES
    REPURCHASES OF
    COMMON STOCK
    L-1
    Identity Solutions 2009 Annual Report |  33




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##### Table of Contents



STOCK PERFORMANCE
    CHARTS
  L-1
    L-1s
  STOCK PERFORMANCE
    CHART
  
  L-1
    Identity Solutions 2009 Annual Report |  34




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##### Table of Contents



L-1,
  SUPPLEMENTAL
    STOCK PERFORMANCE CHART
  
  L-1
    Identity Solutions 2009 Annual Report |  35




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA  L-1 Form 10-K
  Years Ended December 31,2009(1)(3)(4)


2008(1)(2)(3)(4)


2007(1)(2)(3)(4)


2006(1)(3)


2005(3)(in thousands, except per share data)Statement of Operations Data:Revenues

$
650,937


$
562,872


$
389,507


$
164,386


$
66,224Cost of revenues


459,319



394,869



268,431



113,529



47,568Gross profit


191,618



168,003



121,076



50,857



18,656Operating expenses:Sales and marketing


40,004



37,055



27,719



14,430



7,832Research and development


20,730



25,244



18,482



11,589



4,618General and administrative


93,855



86,793



62,318



29,953



12,068Asset impairments and merger related expenses






529,683



5,000



22,767



Acquisition related expenses and amortization of acquired
    intangible assets


1,895



2,996



2,519



401



681Total operating expenses


156,484



681,771



116,038



79,140



25,199Operating income (loss)


35,134



(513,768
)


5,038



(28,283
)


(6,543
)Interest income


120



288



407



1,770



362Interest expense


(41,321
)


(27,894
)


(14,314
)


(1,598
)


(159
)Other income (expense), net


(394
)


(260
)


(508
)


(122
)


369Loss before income taxes


(6,461
)


(541,634
)


(9,377
)


(28,233
)


(5,971
)Benefit (provision) for income taxes


2,458



(9,960
)


25,184



(2,804
)


(1,382
)Net income (loss)


(4,003
)


(551,594
)


15,807



(31,037
)


(7,353
)Net loss attributable to non-controlling interest


(195
)














Net income (loss) attributable to
    L-1 shareholders

$
(4,198
)

$
(551,594
)

$
15,807


$
(31,037
)

$
(7,353
)Net income (loss) per share attributable to
    L-1 shareholders:Basic

$
(0.05
)

$
(7.12
)

$
0.22


$
(0.71
)

$
(0.37
)Diluted

$
(0.05
)

$
(7.12
)

$
0.22


$
(0.71
)

$
(0.37
)Weighted average common shares outstanding:Basic


85,516



77,518



71,663



43,823



19,630Diluted


85,516



77,518



72,385



43,823



19,630Balance Sheet Data:Current assets, net of current liabilities

$
9,403


$
24,371


$
40,869


$
11,658


$
77,482Total assets


1,323,825



1,309,821



1,435,595



1,227,225



294,108Long-term debt, including current maturities


446,366



448,491



234,918



80,000



215Equity


730,461



708,480



1,098,749



1,067,085



274,660   L-1
    Identity Solutions 2009 Annual Report |  36




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##### Table of Contents



(1)
    
    The results reflect the adoption of the accounting standard,
    Share-Based Payments, effective January 1, 2006.(2)
    
    See Note 14 to the consolidated financial statements.(3)
    
    The results of each of the years presented have been materially
    impacted by acquisitions. See Note 13 to the consolidated
    financial statements.(4)
    
    Reflects the retrospective adoption of guidance related to the
    accounting for convertible debt instruments and guidance related
    to the expensing of acquisition related costs. See Note 2
    to the consolidated financial statements.  L-1
    Identity Solutions 2009 Annual Report |  37




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##### Table of Contents



ITEM 7. MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  L-1s Form 10-K.
  OVERVIEW
  L-1 (L-1 L-1
   REVENUES
  L-1s off-the-shelf
    L-1
    Identity Solutions 2009 Annual Report |  38




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##### Table of Contents



L-1 L-1 L-1 L-1 L-1
  L-1 L-1 L-1 L-1
  L-1
  L-1 L-1
  ACQUISITIONS
  L-1
  
    August 2008 acquisition of Old Digimarc, which provides secure
    credentialing systems to State and Local government agencies.
    March 2008 acquisition of Bioscrypt, which provides enterprise
    access products and solutions to government agencies and
    commercial entities.
    L-1
    Identity Solutions 2009 Annual Report |  39




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##### Table of Contents




    July 2007 acquisitions of McClendon and ACI, which provide
    technical, network security and professional services to the
    U.S. intelligence and military communities.
    February 2007 acquisition of ComnetiX, which provides an
    important presence in the fingerprinting services segment in the
    Canadian market and a complementary base of customers,
    particularly within the law enforcement community.    
    Synergies resulting from providing a comprehensive product line
    to current and future customers.
    Growth in revenues and profits from expanded markets for
    identity solutions.
    Enhancement of technical capabilities resulting from combining
    the intellectual capital of the acquired businesses.
    Rationalization of technology costs and research and development
    activities.
    Realignment of the businesses to complement each business
    unique capabilities and rationalizing costs.
    Leveraging the Companys infrastructure to achieve higher
    revenues and profitability.  ADJUSTED
    EBITDA
  L-1 interest-net, long-lived
  L-1 long-lived interest-net L-1 L-1 L-1
  L-1 L-1s long-lived stock-based L-1
    L-1
    Identity Solutions 2009 Annual Report |  40




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##### Table of Contents



Year Ended December 31,2009


2008


2007Net Income (Loss)

$
(4,003
)

$
(551,594
)

$
15,807Reconciling Items:(Benefit) Provision for Income Taxes


(2,458
)


9,960



(25,184
)Interest  net


41,201



27,606



13,907Stock-Based Compensation Costs


23,665



18,064



11,291Depreciation and Amortization


37,129



49,412



39,237Long-lived Asset Impairments and Other


(195
)


528,577



5,000Adjusted EBITDA

$
95,339


$
82,025


$
60,058   REPORTABLE
    SEGMENTS AND RESULTS OF OPERATONS
  L-1 L-1 L-1
   Year Ended December 31,2009

2008

2007Solutions:Revenues

$
322,512


$
280,045


$
211,029Operating Income (Loss)


20,240



(527,958
)


(836
)Depreciation and Amortization Expense


29,348



40,928



32,996Adjusted EBITDA


63,264



48,772



47,165Services:Revenues


328,425



282,827



178,478Operating Income


14,894



14,190



5,874Depreciation and Amortization Expense


7,781



8,484



6,241Adjusted EBITDA


32,075



33,253



12,893Consolidated:Revenues


650,937



562,872



389,507Operating Income (Loss)


35,134



(513,768
)


5,038Depreciation and Amortization Expense


37,129



49,412



39,237Adjusted EBITDA


95,339



82,025



60,058       L-1s L-1s
    L-1
    Identity Solutions 2009 Annual Report |  41




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##### Table of Contents



DEPENDENCE ON
    SIGNIFICANT CUSTOMERS
    CONSOLIDATED
    RESULTS OF OPERATIONS
      2009


2008


2007Goodwill impairment

$



$
(430.0
)

$
Impairment of long-lived assets






(61.3
)


(3.0
)(Addition) reduction of valuation allowance


0.7



(48.0
)


21.8Merger related costs


(0.4
)


(0.7
)


Costs and provision related to Suspended Registered Traveler
    Program


(1.5
)


(0.8
)


$
(1.2
)

$
(540.8
)

$
18.8     COMPARISON OF
    2009 TO 2008
  Revenues (in
    thousands)
  Year Ended December 31,2009


2008Revenues:Services

$
327,253


$
282,161Solutions


323,684



280,711$
650,937


$
562,872
   Products and
    Services Revenues
    2009


2008U.S. Federal government services

$
249,553


$
224,272Hardware and consumables


116,305



137,590State and Local government solutions and services


195,237



125,612Software, licensing fees and other


56,057



46,126Maintenance


33,785



29,272Total revenues

$
650,937


$
562,872   L-1s L-1s L-1s
  L-1 L-1 L-1
  L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  42




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##### Table of Contents



L-1
  Cost of Revenues
    and Gross Margin
    (in thousands)
  Year Ended December 31,2009


2008Cost of revenues, excluding items noted below

$
420,126


$
347,036Depreciation and amortization expense


23,021



17,098Amortization of acquired intangible assets


8,446



24,687Stock- based compensation


7,726



6,048Total cost of revenues

$
459,319


$
394,869Gross profit

$
191,618


$
168,003Gross margin


29%



30%   L-1s
  Sales and
    Marketing Expenses (in thousands)
  Year Ended December 31,2009


2008Sales and marketing expenses

$
40,004


$
37,055As a percentage of revenues


6%



7%   L-1
  Research and
    Development Expenses
    (in thousands)
  Year Ended December 31,2009


2008Research and development expenses

$
20,730


$
25,244As a percentage of revenues


3%



4%
    L-1
    Identity Solutions 2009 Annual Report |  43




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##### Table of Contents



L-1 L-1 L-1s L-1s L-1
  General and
    Administrative Expenses
    (in thousands)
  Year Ended December 31,2009


2008General and administrative expenses

$
93,855


$
86,793As percentage of revenues


14%



15%
  L-1s
  Asset Impairments
    and Merger Related Expenses (in thousands)
  Year Ended December 31,2009


2008Asset impairments and merger related expenses

$



$
529,683   L-1
    L-1
    Identity Solutions 2009 Annual Report |  44




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##### Table of Contents



Acquisition
    Related Expenses and Amortization of Acquired Intangible Assets
    (in thousands)
  Year Ended December 31,2009


2008Acquisition related expenses and amortization of acquired
    intangible assets

$
1,895


$
2,996     Interest Income
    and Expense (in thousands)
  Year Ended December 31,2009


2008Interest income

$
120


$
288Interest expense:Contractual interest


(28,191
)


(19,168
)Other financing costs


(13,130
)


(8,726
)Net interest expense

$
(41,201
)

$
(27,606
)   L-1s L-1s
  Other Expense,
    Net (in thousands)
  Year Ended December 31,2009


2008Other expense, net

$
(394
)

$
(260
)
  Income Taxes (in
    thousands)
  Year Ended December 31,2009


2008Benefit (provision) for income taxes

$
2,458


$
(9,960
)
    L-1
    Identity Solutions 2009 Annual Report |  45




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##### Table of Contents



Comprehensive
    Loss (in thousands)
  Year Ended December 31,2009


2008Net loss

$
(4,003
)

$
(551,594
)Changes in accumulated comprehensive income (loss)


1,879



(7,664
)Comprehensive loss

$
(2,124
)

$
(559,258
)     COMPARISON OF
    2008 TO 2007
  Revenues (in
    thousands)
  Year Ended December 31,2008


2007Revenues:Services

$
282,161


$
177,974Solutions


280,711



211,533$
562,872


$
389,507
   Products and
    Services Revenues
    2008


2007U.S. Federal government services

$
224,272


$
136,328Hardware and consumables


137,590



126,537State and Local government solutions and services


125,612



72,969Software, licensing fees and other


46,126



29,093Maintenance


29,272



24,580Total revenues

$
562,872


$
389,507   L-1s
  L-1s L-1s L-1 L-1
  L-1s L-1
    L-1
    Identity Solutions 2009 Annual Report |  46




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##### Table of Contents



L-1s
  Cost of Revenues
    and Gross Margin
    (in thousands)
  Year Ended December 31,2008


2007Cost of revenues

$
347,036


$
233,862Depreciation expense


17,098



6,671Amortization of acquired intangible assets


24,687



27,095Stock-based compensation


6,048



803Total cost of revenues

$
394,869


$
268,431Gross profit

$
168,003


$
121,076Gross margin


30%



31%
  Sales and
    Marketing Expenses (in thousands)
  Year Ended December 31,2008


2007Sales and marketing expenses

$
37,055


$
27,719As a percentage of revenues


7%



7%   L-1s
    L-1
    Identity Solutions 2009 Annual Report |  47




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##### Table of Contents



Research and
    Development Expenses
    (in thousands)
  Year Ended December 31,2008


2007Research and development expenses

$
25,244


$
18,482As a percentage of revenues


4%



5%   L-1 L-1 L-1 L-1s
   General and
    Administrative Expenses
    (in thousands)
  Year Ended December 31,2008


2007General and administrative expenses

$
86,793


$
62,318As percentage of revenues


15%



16%   L-1 L-1s L-1s
  Asset Impairments
    and Merger Related Expenses (in thousands)
  Year Ended December 31,2008


2007Asset impairments and merger related expenses

$
529,683


$
5,000
    L-1
    Identity Solutions 2009 Annual Report |  48




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##### Table of Contents



L-1
  Acquisition
    Related Expenses and Amortization of Acquired Intangible Assets
    (in thousands)
  Year Ended December 31,2008


2007Acquisition related expenses and amortization of acquired
    intangible assets

$
2,996


$
2,519     Interest Income
    and Expense (in thousands)
  Year Ended December 31,2008


2007Interest income

$
288


$
407Interest expense:Contractual interest


(19,168
)


(10,015
)Other financing costs


(8,726
)


(4,299
)Net interest expense

$
(27,606
)

$
(13,907
)   L-1s
   Other Expense,
    Net (in thousands)
  Year Ended December 31,2008


2007Other expense, net

$
(260
)

$
(508
)     Income Taxes (in
    thousands)
  Year Ended December 31,2008


2007Benefit (provision) for income taxes

$
(9,960
)

$
25,184
    L-1
    Identity Solutions 2009 Annual Report |  49




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##### Table of Contents



Comprehensive
    Income (Loss) (in thousands)
  Year Ended December 31,2008


2007Net income (loss)

$
(551,594
)

$
15,807Changes in accumulated comprehensive income (loss)


(7,664
)


5,722Comprehensive income (loss)

$
(559,258
)

$
21,529   L-1
  LIQUIDITY AND
    CAPITAL RESOURCES
  Capital
    Requirements
  L-1s
  L-1s L-1 L-1s L-1 L-1 fund L-1s
  Liquidity
  L-1 L-1 L-1s L-1 L-1s L-1 L-1s L-1 L-1 L-1s L-1s L-1s
  Credit
    Agreement
  L-1 L-1s L-1 L-1,
    L-1
    Identity Solutions 2009 Annual Report |  50




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##### Table of Contents



L-1, L-1s L-1s L-1.
  L-1 Tranche B-1 Tranche B-2 Tranche B-1 Tranche B-2
   L-1 L-1 L-1 L-1s Tranche B-1 Tranche B-2
  L-1
  
    As of the end of any fiscal quarter, the ratio of Consolidated
    EBITDA (as defined in the Credit Agreement) of
    L-1
    Operating and its consolidated subsidiaries for the period of
    four consecutive fiscal quarters ending on or immediately prior
    to such date to the sum of (i) Consolidated Interest
    Charges (as defined in the Credit Agreement) of
    L-1
    Operating and its consolidated subsidiaries paid or payable in
    cash during the period of four consecutive fiscal quarters ended
    on or immediately prior to such date, plus
    (ii) Consolidated Debt Amortization (as defined in the
    Credit Agreement) of the borrower and its consolidated
    subsidiaries as of such date, shall not be less than 2.25:1.00.
    At December 31, 2009, the ratio was 2.35:1:00.
    As of the end of any fiscal quarter, the ratio of
    L-1
    Operatings Consolidated Funded Indebtedness (as defined in
    the Credit Agreement which excludes standby letters of credit
    issued in connection with performance bonds) as of such date to
    its Consolidated EBITDA (as defined in the Credit Agreement) for
    the period of four consecutive fiscal quarters ended on or
    immediately prior to such date, may not be
    L-1
    Identity Solutions 2009 Annual Report |  51




---



##### Table of Contents



more than: (i) 3.25:1.00 from the Closing Date (as defined
    in the Credit Agreement) to and including March 10, 2010,
    (ii) 3.00:1.00 from March 11, 2010 to March 30,
    2011, and (iii) 2.75:1.00 at the end of each fiscal quarter
    thereafter. At December 31, 2009, the ratio was 2.97:1.00.  L-1s
    L-1
  L-1 L-1 L-1
  
    L-1
    Identity Solutions 2009 Annual Report |  52




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##### Table of Contents



L-1
  Convertible
    Senior Notes
  L-1 L-1s L-1
  business-day trading-day
    L-1
    Identity Solutions 2009 Annual Report |  53




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##### Table of Contents



Equity
    Securities
  L-1 L-1 L-1 L-1 L-1 L-1s
  Consolidated Cash
    Flows
  For the Years Ended December 31,2009


2008


2007Operating activities

$
60,602


$
52,768


$
40,958Investing activities


(66,246
)


(350,919
)


(151,919
)Financing activities


(8,521
)


310,820



114,055Effect of exchange rates on cash and cash equivalents


340



(423
)


116Net increase (decrease) in cash and cash equivalents

$
(13,825
)

$
12,246


$
3,210   Comparison of
    2009 to 2008
  L-1s
  L-1 L-1s L-1 L-1 L-1 L-1s L-1
  Comparison of
    2008 to 2007
  L-1s
    L-1
    Identity Solutions 2009 Annual Report |  54




---



##### Table of Contents



L-1
    L-1
   WORKING
    CAPITAL
  December 31,
    2009
    L-1s L-1s
      December 31,
    2008
  L-1s
  L-1s
    L-1
    Identity Solutions 2009 Annual Report |  55




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##### Table of Contents



CONTRACTUAL
    OBLIGATIONS
  L-1s
  Less than








More thanTotal


1 Year


2-3 Years


3-5 Years


5 YearsOperating lease obligations

$
32,421



8,682



12,445



8,083



3,211Debt and capital lease obligations

$
542,281



53,527



295,733



193,021



   L-1s Tranche B-1 Tranche B-2 L-1s
    L-1 L-1
  L-1
    Identity Solutions 2009 Annual Report |  56




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##### Table of Contents



Contingent
    Obligations
  L-1
  Off Balance Sheet
    Arrangements
  L-1 L-1s
  Inflation
  L-1s L-1s
  Critical
    Accounting Policies and Significant Estimates
  L-1 L-1 L-1 L-1s L-1s L-1s L-1s
   Valuation of
    Goodwill and Other Long-Lived Assets
  L-1s
  L-1 long-lived
  L-1 L-1 long-lived L-1 L-1s L-1 L-1 L-1s
  L-1s L-1s L-1
    L-1
    Identity Solutions 2009 Annual Report |  57




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##### Table of Contents



L-1
  L-1 L-1 L-1 L-1s L-1s
  L-1s
  L-1
  
    Significant underperformance relative to expected operating
    results.
    Significant changes in the manner of use of assets or the
    strategy for
    L-1s
    overall business.
    Underutilization of
    L-1s
    tangible assets.
    Discontinuance of product lines by
    L-1 or its
    customers.
    Significant negative industry or economic trends.
    Significant decline in
    L-1 stock
    price for a sustained period.
    Significant decline in
    L-1 market
    capitalization relative to net book value.  L-1 L-1s
  L-1 L-1 L-1 L-1s L-1 L-1 L-1 L-1
  Purchase Price
    Allocations of Acquired Businesses
  L-1 L-1s
  
    Assessments of appropriate valuation methodologies in the
    circumstances.
    Future expected cash flows from product sales, customer
    contracts and acquired developed technologies, patents and other
    intellectual property.
    Expected costs to complete any in process research and
    development projects and commercialize viable products and
    estimated cash flows from sales of such products.
    The acquired Companies brand awareness and market position.
    Assumptions about the period of time over which
    L-1 will
    continue to use the acquired brand and intangible assets.
    Discount rates.
    L-1
    Identity Solutions 2009 Annual Report |  58




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##### Table of Contents



Revenue
    Recognition
  L-1
  
    Persuasive evidence of an arrangement exists 
    L-1 requires
    evidence of an agreement with a customer specifying the terms
    and conditions of the products or services to be delivered
    typically in the form of a signed contract or purchase order.
    Delivery has occurred  For products, delivery
    generally takes place when title to the products, which in
    certain instances includes hardware and software licenses, are
    shipped to or accepted by the customer. For services, delivery
    takes place as the services are performed.
    The fee is fixed or determinable  Fees are fixed or
    determinable if they are not subject to a refund or cancellation
    and do not have payment terms that exceed
    L-1 standard
    payment terms.
    Collection is probable 
    L-1
    evaluates all customers with significant transactions to
    determine whether collection of the sales price is probable.
   
    Secure credentialing solutions, primarily to Federal and State
    government customers.
    Sale of hardware products and related maintenance and services.
    Sale of printing system components and consumables including
    printers, secure coating, ribbon, film, and other parts,
    primarily to Federal government customers.
    Sale of portable devices that provide iris, face and fingerprint
    identification and recognition related maintenance and services.
    Licenses of
    off-the-shelf
    versions of fingerprint, face and iris recognition software and
    related maintenance and services.
    Sale of software and software developer kits and related
    maintenance and services.
    Services and software to scan, collect and transmit fingerprints
    for identity and background verification.
    Sale of document authentication products and services, which
    typically include sales of hardware, software, maintenance and
    support.
    Information technology and security services provided to the
    U.S. intelligence community.  L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report |  59




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L-1
  L-1
  L-1 L-1 L-1s L-1 L-1 L-1
  L-1
    L-1
    Identity Solutions 2009 Annual Report |  60




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##### Table of Contents



L-1
  L-1
    
    Contracts or elements of contracts for the production of
    drivers licenses and other identification credentials that
    require the delivery and installation of customized software.
    Identity solutions contracts, typically providing for the
    development, customization and installation of fingerprinting,
    face and iris recognition systems for government
  agencies, law enforcement agencies and commercial businesses.  L-1
  L-1 L-1 cost-to-cost L-1
  L-1 L-1
    
    Design and integration complexities.
    Nature and number of workstations and sites installed.
    Projected number of credentials to be produced.
    Size of databases.
    L-1
    Identity Solutions 2009 Annual Report |  61




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##### Table of Contents




    Cost of consumable materials expected to be used.
    Level of post-installation involvement.
    Competitive considerations.  L-1 L-1 L-1
  Income
    Taxes
  L-1
  L-1s L-1, L-1
    L-1
    Identity Solutions 2009 Annual Report |  62




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##### Table of Contents



L-1
  Stock-Based
    Compensation
      Year Ended December 31,2009

2008Expected common stock price volatility


59.3%



51.9%Risk free interest rate


3.9%



4.1%Expected life of options


6.3 Years



6.3 YearsExpected annual dividends






     Contingencies and
    Litigation
  Recent Accounting
    Pronouncements
    Fair Value
    Measurements and Disclosures.
  Disclosures about Derivative Instruments and Hedging
    Activities.
  Business Combinations,
    L-1
    Identity Solutions 2009 Annual Report |  63




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##### Table of Contents



Accounting for
    Costs Associated with Exit or Disposal Activities L-1
  Noncontrolling Interests in Consolidated Financial
    Statements
  Accounting
    for Convertible Debt Instruments That May Be Settled in Cash
    upon Conversion (Including Partial Cash Settlement)
  Interim
    Disclosures about Financial Instruments
  Accounting
    for Assets Acquired and Liabilities Assumed in a Business
    Combination That Arise from Contingencies L-1
  Subsequent
    Events,
  Fair
    Value Measurements and Disclosure.
  Recently Issued
    Accounting Standards
  Amendments
    to FASB Interpretation No. 46(R L-1
    L-1
    Identity Solutions 2009 Annual Report |  64




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##### Table of Contents



L-1s
  Multiple
    Element Arrangements,
  Certain Revenue Arrangements That Include Software
    Elements,
  Fair
    Value Measurements and Disclosures  Improving
    Disclosures about Fair Value Measurements.
    L-1
    Identity Solutions 2009 Annual Report |  65




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##### Table of Contents



QUARTERLY
    FINANCIAL DATA (UNAUDITED)
    First Quarter


Second Quarter


Third Quarter


Fourth QuarterFor the Year Ended December 31, 2009Revenues

$
150,189


$
168,053


$
172,533


$
160,163Gross profit


43,590



48,781



54,993



44,252Net income (loss)


(3,786
)


(1,249
)


1,372



(540
)Basic net income (loss) per share

$
(0.04
)

$
(0.01
)

$
$0.02


$
(0.01
)Diluted net income (loss) per share

$
(0.04
)

$
(0.01
)

$
$0.02


$
(0.01
)For the Year Ended December 31, 2008Revenues

$
115,996


$
144,952


$
154,464


$
147,460Gross profit


31,354



47,626



47,274



41,749Net income (loss)


(2,584
)


2,464



(1,913
)


(549,561
)Basic net income (loss) per share

$
(0.04
)

$
$0.03


$
(0.02
)

$
(6.56
)Diluted net income (loss) per share

$
(0.04
)

$
$0.03


$
(0.02
)

$
(6.56
)   L-1s
   ITEM 7A. QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK  INTEREST RATE
    RISK
  L-1 L-1s
  L-1s L-1
  
    If during any five consecutive trading day period the trading
    day period the trading price is less than 98 percent of the
    product of the last reported sales price multiplied by the
    applicable conversion rate.
    After December 31, 2009, if the sale price of
    L-1 common
    stock for twenty or more trading days exceeds 130 percent
    of the initial conversion price.
    If the Company calls the Convertible Notes for redemption or
    upon certain specified transactions.
    L-1
    Identity Solutions 2009 Annual Report |  66




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##### Table of Contents



L-1
  L-1
  FOREIGN CURRENCY
    EXPOSURES
  L-1 L-1
  L-1 L-1s L-1s
  Prepaid Forward
    Contract
  L-1 L-1 L-1
  Forward-Looking
    Statements
  Form 10-K
    L-1
    Identity Solutions 2009 Annual Report |  67




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##### Table of Contents



L-1 L-1s L-1 L-1 L-1s L-1 L-1 L-1 L-1s
 ITEM 8. FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K.
 PART III ITEM 9. CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   ITEM 9A. CONTROLS
    AND PROCEDURES  (a) Evaluation of disclosure controls and procedures.
  L-1 L-1 L-1
  L-1 L-1
  Form 10-K, L-1 L-1 Rule 13a-15(e) L-1s L-1s
  (b) Managements annual report on internal control
    over financial reporting
  Rule 13a-15(f) 15d-15(f)
    L-1
    Identity Solutions 2009 Annual Report |  68




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##### Table of Contents



L-1 L-1
  rules 13a-15(c) 15d-15(c)
    (c) Changes in internal controls
  L-1s L-1 L-1 L-1 L-1s rules 13a-15(d) 15d-15(d)
  L-1s Rule 13a-14(a) Form 10-K. L-1s L-1s
    L-1
    Identity Solutions 2009 Annual Report |  69




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTRED PUBLIC ACCOUNTING FIRM
   L-1
   L-1 Internal Control  Integrated Framework Managements Annual Report on Internal Control over
    Financial Reporting
        Internal Control  Integrated Framework
        L-1
    Identity Solutions 2009 Annual Report |  70




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##### Table of Contents



ITEM 9B. OTHER
    INFORMATION   ITEM 10. DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT  L-1s
 ITEM 11. EXECUTIVE
    COMPENSATION  L-1s
 ITEM 12. SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  L-1s
 ITEM 13. CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS  L-1s
 ITEM 14. PRINCIPAL
    ACCOUNTANT FEES AND SERVICES  L-1s
 PART IV ITEM 15. EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  (a), (c) Financial Statements and Schedules
  page F-1.
    (b) Exhibits
    L-1
    Identity Solutions 2009 Annual Report |  71




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##### Table of Contents



SIGNATURES    L-1
 By:
    /s/  Robert
    V. LaPenta       Signature

Title/s/  Robert
    V. LaPentaRobert
    V. LaPenta

Chairman, President and Chief Executive Officer
    (Principal Executive Officer)/s/  James
    A. DePalmaJames
    A. DePalma

Executive Vice President, Chief Financial Officer and Treasurer
    (Principal Financial Officer)/s/  Vincent
    A. DAngeloVincent
    A. DAngelo

Senior Vice President, Finance and Chief Accounting Officer
    (Principal Accounting Officer)/s/  B.G.
    BeckB.G.
    Beck

Director/s/  Milton
    E. CooperMilton
    E. Cooper

Director/s/  Robert
    S. GelbardRobert
    S. Gelbard

Director/s/  Malcolm
    J. GudisMalcolm
    J. Gudis

Director/s/  John
    E. LawlerJohn
    E. Lawler

Director/s/  Admiral
    James M. LoyAdmiral
    James M. Loy

Director/s/  Peter
    NessenPeter
    Nessen

Director/s/  Harriet
    Mouchly-WeissHarriet
    Mouchly-Weiss

Director/s/  B.
    Boykin RoseB.
    Boykin Rose

Director   L-1
    Identity Solutions 2009 Annual Report |  72




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##### Table of Contents



EXHIBIT INDEX   ExhibitNumber

Description2
.1

Agreement and Plan of Reorganization, dated as of
    January 11, 2006, by and among Viisage Technology, Inc.,
    VIDS Acquisition Corp. and Identix Incorporated (filed as
    Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on January 13, 2006).*2
.2

Agreement and Plan of Merger, dated as of February 5, 2006,
    by and among Viisage Technology, Inc., SecuriMetrics, Inc. and
    VS Able Acquisition Corp. (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on February 6, 2006).*2
.3

Agreement and Plan of Merger, dated as of July 14, 2006, by
    and among Viisage Technology, Inc., Iris Acquisition I Corp.,
    Iridian Technologies, Inc., Perseus 2000 L.L.C., as stockholder
    representative, and other parties named therein (filed as
    Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on July 18, 2006).*2
.4

Arrangement Agreement, dated as of November 15, 2006 (the
    Arrangement Agreement), among
    L-1 Identity
    Solutions, Inc., 6653375 Canada Inc. and ComnetiX Inc. (filed as
    Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on November 16, 2006).*2
.4(a)

Amendment No. 1 to the Arrangement Agreement, dated
    January 9, 2007 (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on January 11, 2007).*2
.4(b)

Amendment No. 2 to the Arrangement Agreement, dated
    January 25, 2007 (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on January 29, 2007).*2
.4(c)

Amendment No. 3 to the Arrangement Agreement, dated
    February 7, 2007 (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on February 13, 2007).*
  2
.5

Agreement and Plan of Reorganization, dated May 16, 2007,
    by and among
    L-1 Identity
    Solutions, Inc.,
    L-1 Identity
    Solutions Operating Company and
    L-1 Merger
    Co. (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 16, 2007).*2
.6

Agreement and Plan of Merger, dated as of June 18, 2007, by
    and among McClendon LLC, the selling stockholders,
    L-1 Identity
    Solutions, Inc.,
    L-1 Identity
    Solutions Operating Company and Patty Hardt, as the selling
    stockholders representative (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on June 20, 2007).*2
.7

Arrangement Agreement, dated as of January 5, 2008, by and
    among L-1
    Identity Solutions, Inc.,
    L-1 Identity
    Solutions Operating Company, 6897525 Canada Inc. and Bioscrypt
    Inc. (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on January 10, 2008).*2
.8

Amended and Restated Agreement and Plan of Merger, dated as of
    June 29, 2008, by and among
    L-1 Identity
    Solutions, Inc., Dolomite Acquisition Co. and Digimarc
    Corporation (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on July 3, 2008).*2
.8(a)

Amendment No. 1 to the Amended and Restated Agreement and
    Plan of Merger, dated July 17, 2008, by and among
    L-1 Identity
    Solutions, Inc., Dolomite Acquisition Co. and Digimarc
    Corporation (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on July 17, 2008).*3
.1

Amended and Restated Certificate of Incorporation as filed with
    the Secretary of State of the State of Delaware on May 16,
    2007 (filed as Exhibit 3.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 16, 2007).*3
.2

Amended and Restated By-Laws (filed as Exhibit 3.2 to
    L-1s
    Current Report on
    Form 8-K
    filed on November 5, 2007).*
    L-1
    Identity Solutions 2009 Annual Report |  73




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4
.1

Specimen Certificates for Common Stock (filed as
    Exhibit 4.1 to
    L-1s
    Registration Statement on
    Form 8-A
    filed on August 29, 2006).*4
.2

Indenture relating to Convertible Senior Notes due 2027, dated
    as May 17, 2007, by and between
    L-1 Identity
    Solutions, Inc. and The Bank of New York, as trustee (including
    the form of 3.75 percent Convertible Senior Notes due 2027)
    (filed as Exhibit 4.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 23, 2007).*4
.3

Warrant, dated as of March 9, 2004, issued by Identix
    Incorporated in favor of Delean Vision Worldwide, Inc. (filed as
    Exhibit 4.2 to the Registration Statement on
    Form S-3
    filed by Identix Incorporated on March 25, 2004).*10
.1

Amended and Restated License Agreement, dated as of
    August 20, 1996, between Viisage Technology, Inc. and Lau
    Technologies (filed as Exhibit 10.1 to Amendment No. 1
    to
    L-1s
    Registration Statement on
    Form S-1
    filed on October 9, 1996) (SEC File
    No. 333-10649).*10
.2

Investment Agreement, dated as of October 5, 2005, between
    Viisage Technology, Inc. and
    L-1
    Investment Partners, LLC (filed as Exhibit 10.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on October 11, 2005).*10
.3

Registration Rights Agreement, dated December 16, 2005, by
    and among Viisage Technology, Inc.,
    L-1
    Investment Partners LLC and Aston Capital Partners, L.P. (filed
    as Exhibit 10.5 to the Schedule 13D filed by Aston
    Capital Partners, L.P. on December 23, 2005).*10
.4

Consulting Agreement, dated August 29, 2006, between
    L-1
    Investment Partners LLC and Viisage Technology, Inc. (filed as
    Exhibit 10.07 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*
  10
.5

Termination and Non-Competition Agreement, dated August 29,
    2006, between
    L-1 Identity
    Solutions, Inc. and
    L-1
    Investment Partners LLC (filed as Exhibit 10.08 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*10
.6

Sublease Agreement, dated August 29, 2006, between
    L-1
    Investment Partners LLC and Viisage Technology, Inc. (filed as
    Exhibit 10.09 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*10
.7

Securities Purchase Agreement, dated September 11, 2006, by
    and among SpecTal, LLC, John A. Cross, Louise V. Brouillette,
    Ann J. Holcomb, Ronald Hammond, Jr. and Mark Oliva,
    L-1 Identity
    Solutions, Inc. and John A. Cross, as sellers
    representative (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 14, 2006).*10
.7(a)

Amendment No. 1 to Securities Purchase Agreement, dated
    October 19, 2006, among
    L-1 Identity
    Solutions, Inc. and John A. Cross, as sellers
    representative (filed as Exhibit 10.02 to
    L-1s
    Current Report on
    Form 8-K
    filed on October 25, 2006).*10
.8

Stock Purchase Agreement, dated as of May 1, 2007, by and
    among Advanced Concepts, Inc., John Register and Frank White,
    L-1 Identity
    Solutions, Inc., and John Register, in his capacity as the
    sellers representative (filed as Exhibit 2.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 2, 2007).*10
.9

Purchase Agreement, dated as of May 10, 2007, by and among
    L-1 Identity
    Solutions, Inc.,
    L-1 Identity
    Solutions Operating Company and Bear, Stearns & Co.
    Inc and Banc of America Securities LLC, as representatives of
    the initial purchasers (filed as Exhibit 10.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 23, 2007).*
    L-1
    Identity Solutions 2009 Annual Report |  74




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##### Table of Contents



10
.10

Pre-paid Forward Share Purchase Agreement, dated as of
    May 10, 2007, by and between
    L-1 Identity
    Solutions, Inc.,
    L-1 Identity
    Solutions Operating Company and Bear, Stearns International
    Limited (filed as Exhibit 10.2 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 23, 2007).*10
.11

Assignment and Assumption Agreement, dated as of May 16,
    2007, by and between
    L-1 Identity
    Solutions, Inc. and
    L-1 Identity
    Solutions Operating Company (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed on May 16, 2007).*10
.12

Registration Rights Agreement, dated as of May 17, 2007, by
    and among
    L-1 Identity
    Solutions, Inc. and Bear, Stearns & Co. Inc. and Banc
    of America Securities LLC, as representatives of the initial
    purchasers (incorporated by reference to Exhibit 4.3 to
    L-1s
    Current Report on
    Form 8-K
    filed on May 23, 2007).*10
.13

Securities Purchase Agreement, dated as of June 29, 2008,
    by and between
    L-1 Identity
    Solutions, Inc. and Robert V. LaPenta (filed as
    Exhibit 10.1 to
    L-1s
    Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).*10
.14

Securities Purchase Agreement, dated as of June 29, 2008,
    by and between
    L-1 Identity
    Solutions, Inc. and Iridian Asset Management LLC (filed as
    Exhibit 10.3 to
    L-1s
    Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).*10
.15

Securities Purchase Agreement, dated as of June 30, 2008,
    by and between
    L-1 Identity
    Solutions, Inc. and LRSR LLC (filed as Exhibit 10.2 to
    L-1s
    Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).*10
.15(a)

Amendment No. 1 to the Securities Purchase Agreement, dated
    as of August 4, 2008, by and between
    L-1 Identity
    Solutions, Inc. and LRSR LLC (filed as Exhibit 10.2(a) to
    L-1s
    Registration Statement on
    Form S-3
    filed on August 5, 2008).*
  10
.16

Registration Rights Agreement, dated as of June 29, 2008,
    by and between
    L-1 Identity
    Solutions, Inc. and Robert V. LaPenta (filed as
    Exhibit 10.2 to the Statement on
    Schedule 13-D/A
    filed by Aston Capital Partners, L.P. and others on July 3,
    2008).*10
.17

Registration Rights Agreement, dated as of June 29, 2008,
    by and between
    L-1 Identity
    Solutions, Inc. and Iridian Asset Management LLC (filed as
    Exhibit 4.2 to
    L-1s
    Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).*10
.18

Registration Rights Agreement, dated as of August 5, 2008,
    by and among
    L-1 Identity
    Solutions, Inc. and MHR Capital Partners Master Account LP, MHR
    Capital Partners (100) LP and MHR Institutional
    Partners III LP (filed as Exhibit 4.15 to
    L-1s
    Registration Statement on
    Form S-3
    filed on August 5, 2008).*10
.19

Registration Rights Agreement, dated as of February 17,
    2006, by and between Viisage Technology, Inc. and the former
    stockholders of SecuriMetrics, Inc. named therein (filed as
    Exhibit 4.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on February 24, 2006).*10
.20

Viisage Technology, Inc. Second Amended and Restated 1996
    Management Stock Option Plan (included as Appendix B to
    L-1s
    Schedule 14A filed on April 16, 2004).*10
.20(a)

Form of Option Agreement for the Viisage Technology, Inc. 1996
    Management Stock Option Plan (filed as Exhibit 10.10 to
    Amendment No. 1 to
    L-1s
    Registration Statement on
    Form S-1
    (SEC File
    No. 333-10649)
    filed on October 9, 1996).*10
.21

Viisage Technology, Inc. Amended and Restated 1996 Director
    Stock Option Plan (included as Appendix C to
    L-1s
    Schedule 14A filed on April 16, 2004).*10
.21(a)

Form of Option Agreement for the Viisage Technology, Inc.
    1996 Director Stock Option Plan (filed as
    Exhibit 10.11 to Amendment No. 1 to
    L-1s
    Registration Statement on
    Form S-1
    filed on October 9, 1996) (SEC File
    No. 333-10649).*
    L-1
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10
.22

Amended and Restated Viisage Technology, Inc. 2001 Stock in Lieu
    of Cash Compensation for Directors Plan (filed as
    Exhibit 10.42 to
    L-1s
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2001) (SEC File
    No. 000-21559).*10
.23

L-1 Identity
    Solutions, Inc. 2005 Long Term Incentive Plan (included as
    Appendix B to
    L-1s
    Schedule 14A filed on September 7, 2005).*10
.23(a)

Form of Grant Agreement under the
    L-1 Identity
    Solutions, Inc. 2005 Long Term Incentive Plan.(filed as
    Exhibit 10.12(a) to
    L-1s
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2008, filed on
    February 28, 2008).*10
.24

L-1 Identity
    Solutions, Inc. 2008 Long-Term Incentive Plan (included as
    Appendix A to
    L-1s
    Schedule 14A filed on March 14, 2008).*10
.24(a)

Form of L-1
    Identity Solutions, Inc. 2008 Long-Term Incentive Plan Option
    Award Grant Agreement (filed as Exhibit 99.2 to
    L-1s
    Registration Statement on
    Form S-8
    filed on May 30, 2008).*10
.25

Bioscrypt Inc. Primary Stock Option Plan (filed as
    Exhibit 99.1 to
    L-1s
    Registration Statement on
    Form S-8
    filed on March 5, 2008).*10
.26

Bioscrypt Inc. A4Vision Plan (filed as Exhibit 99.2 to
    L-1s
    Registration Statement on
    Form S-8
    filed on March 5, 2008).*10
.27

Identix Incorporated 2002 Equity Incentive Plan (filed as
    Exhibit 99.3 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.27(a)

Form of Grant Agreement under the Identix Incorporated 2002
    Equity Incentive Plan (filed as Exhibit 10.22(a) to
    L-1s
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed on
    February 28, 2008).*10
.28

Identix Incorporated New Employee Stock Incentive Plan (filed as
    Exhibit 99.4 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*
  10
.29

Identix Incorporated Non-employee Directors Stock Option Plan
    (filed as Exhibit 99.5 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.30

Identix Incorporated Equity Incentive Plan (filed as
    Exhibit 99.6 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.31

Visionics Corporation 1990 Stock Option Plan (filed as
    Exhibit 99.7 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.32

Visionics Corporation 1998 Stock Option Plan (filed as
    Exhibit 99.8 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.33

Visionics Corporation Stock Incentive Plan (filed as
    Exhibit 99.9 to
    L-1s
    Registration Statement on
    Form S-8
    filed on August 30, 2006).*10
.34

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Robert V. LaPenta (filed as
    Exhibit 10.01 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*10
.34(a)

Amendment to LaPenta Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.35

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and James DePalma (filed as
    Exhibit 10.02 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*10
.35(a)

Amendment to DePalma Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.2 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.36

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Joseph Paresi (filed as
    Exhibit 10.03 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*
    L-1
    Identity Solutions 2009 Annual Report |  76




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##### Table of Contents



10
.36(a)

Amendment to Paresi Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.3 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.37

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Mark S. Molina (filed as
    Exhibit 10.04 to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*10
.37(a)

Amendment to Molina Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.4 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.38

Employment Agreement, dated Sept 21, 2006, between
    L-1 Identity
    Solutions, Inc. and Vincent DAngelo. (filed as
    Exhibit 10.33 to
    L-1s
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed on
    February 28, 2008).*10
.39

Employment Agreement, dated December 19, 2006, between
    L-1 Identity
    Solutions, Inc. and Dr. Joseph J. Atick (filed as
    Exhibit 10.01 to
    L-1s
    Current Report on
    Form 8-K
    filed on December 22, 2006).*10
.39(a)

Amendment to Dr. Atick Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.5 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.40

Employment Agreement, dated January 31, 2007, between
    L-1 Identity
    Solutions, Inc. and Doni Fordyce (filed as Exhibit 10.01 to
    L-1s
    Current Report on
    Form 8-K
    filed on January 9, 2007).*10
.40(a)

Amendment to Fordyce Employment Agreement dated as of
    July 31, 2009 (filed as Exhibit 10.6 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 5, 2009).*10
.41

Form of Indemnification Agreement (filed as Exhibit 10.10
    to
    L-1s
    Current Report on
    Form 8-K
    filed on September 6, 2006).*
  10
.42

Second Amended and Restated Credit Agreement, dated as of
    August 5, 2008, among
    L-1 Identity
    Solutions Operating Company,
    L-1 Identity
    Solutions, Inc., Bank of America, N.A., Wachovia Bank, National
    Association, Banc of America Securities LLC and Wachovia Capital
    Markets LLC. (filed as Exhibit 10.1 to
    L-1s
    Current Report on
    Form 8-K
    filed on August 8, 2008)(the Credit Agreement)*10
.42(a)

Amendment No. 1 to the Credit Agreement dated as of
    July 8, 2009, by and among
    L-1 Identity
    Solutions Operating Company,
    L-1 Identity
    Solutions, Inc., each of the other guarantors thereto, each
    lender thereto, and Bank of America, N.A. (filed as
    Exhibit 10.01 to
    L-1s
    Current Report on
    Form 8-K
    filed on July 14, 2009)*21
.1

List of Subsidiaries.23
.1

Consent of Deloitte & Touche LLP, Independent
    Registered Public Accounting Firm.31
.1

Certification pursuant to Exchange Act
    Rules 13a-14
    and 15d-14 of the Chief Executive Officer.31
.2

Certification pursuant to Exchange Act
    Rules 13a-14
    and 15d-14 of the Chief Financial Officer.32
.1

Certification pursuant to 18 U.S.C. Section 1350 of
    the Chief Executive Officer.32
.2

Certification pursuant to 18 U.S.C. Section 1350 of
    the Chief Financial Officer.     *
    
    Incorporated herein by reference.
    
    Exhibit is a management contract or compensatory plan or
    arrangement.
    L-1
    Identity Solutions 2009 Annual Report |  77




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##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2009 and 2008


F-3Consolidated Statements of Operations for the
    years ended December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Changes in Equity and
    Comprehensive Income (Loss) for the years ended
    December 31, 2009, 2008 and 2007


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2009, 2008 and 2007


F-6Notes to Consolidated Financial Statements


F-7   L-1
    Identity Solutions 2009 Annual Report | F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   L-1
   L-1
    L-1
  Internal Control  Integrated Framework
      L-1
    Identity Solutions 2009 Annual Report | F-2




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.Consolidated Balance Sheets
    (In thousands, except numbers of shares)
  December 31,2009


2008AssetsCurrent assets:Cash and cash equivalents

$
6,624


$
20,449Accounts receivable, net


116,353



105,606Inventory, net


29,384



34,509Deferred tax asset, net


11,514



11,101Other current assets


9,249



9,628Total current assets


173,124



181,293Property and equipment, net


115,500



81,268Goodwill


889,814



890,977Intangible assets, net


102,375



108,282Deferred tax asset, net


26,733



23,609Other assets, net


16,279



24,392Total assets

$
1,323,825


$
1,309,821Liabilities and EquityCurrent liabilities:Accounts payable and accrued expenses

$
110,089


$
118,109Current portion of deferred revenue


19,890



16,998Current maturities of long-term debt


27,062



19,256Other current liabilities


6,680



2,559Total current liabilities


163,721



156,922Deferred revenue, net of current portion


6,676



13,323Long-term debt, net of current maturities


419,304



429,235Other long-term liabilities


3,663



1,861Total liabilities


593,364



601,341Commitments and contingenciesEquity:Common stock, $0.001 par value; 125,000,000 shares
    authorized; 91,745,135 and 86,615,859 shares issued at
    December 31, 2009 and 2008, respectively


92



87Series A preferred convertible stock, $0.01 par value,
    15,107 shares issued and outstanding at December 31,
    2008






15,107Additional paid-in capital


1,432,898



1,393,763Accumulated deficit


(627,449
)


(623,251
)Pre-paid forward contract


(69,808
)


(69,808
)Treasury stock, 368,843 shares of common stock, at cost


(6,173
)


(6,161
)Accumulated other comprehensive (loss) income


622



(1,257
)Noncontrolling interest


279



Total equity


730,461



708,480Total liabilities and equity

$
1,323,825


$
1,309,821     L-1
    Identity Solutions 2009 Annual Report | F-3




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.Consolidated Statements of Operations
    (In thousands, except per share data)
  For the Years Ended December 31,2009


2008


2007Revenues:Services

$
327,253


$
282,161


$
177,974Solutions


323,684



280,711



211,533Total revenues


650,937



562,872



389,507Cost of revenues:Services


249,355



206,998



130,516Solutions


201,518



163,184



110,820Amortization of acquired intangible assets


8,446



24,687



27,095Total cost of revenues


459,319



394,869



268,431Gross profit


191,618



168,003



121,076Operating expenses:Sales and marketing


40,004



37,055



27,719Research and development


20,730



25,244



18,482General and administrative


93,855



86,793



62,318Asset impairments and merger related expenses






529,683



5,000Acquisition related expenses and amortization of acquired
    intangible assets


1,895



2,996



2,519Total operating expenses


156,484



681,771



116,038Operating income (loss)


35,134



(513,768
)


5,038Interest income


120



288



407Interest expense:Contractual interest


(28,191
)


(19,168
)


(10,015
)Other financing costs


(13,130
)


(8,726
)


(4,299
)Other expense, net


(394
)


(260
)


(508
)Loss before income taxes


(6,461
)


(541,634
)


(9,377
)Benefit (provision) for income taxes


2,458



(9,960
)


25,184Net income (loss)


(4,003
)


(551,594
)


15,807Net income attributable to noncontrolling interest


(195
)






Net income (loss) attributable to
    L-1 shareholders

$
(4,198
)

$
(551,594
)

$
15,807Net income (loss) per share attributable to
    L-1 shareholders:Basic

$
(0.05
)

$
(7.12
)

$
0.22Diluted

$
(0.05
)

$
(7.12
)

$
0.22Weighted average common shares outstanding:Basic


85,516



77,518



71,663Diluted


85,516



77,518



72,385     L-1
    Identity Solutions 2009 Annual Report | F-4




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.Consolidated Statements of Changes in Equity and
    Comprehensive Income (Loss)
    (In thousands)
  Pre-paidForwardSeries A








Contract To





AccumulatedConvertible


Additional





Purchase





Other


Non-Common


Preferred


Paid-in


Accumulated


Common


Treasury


Comprehensive


Controlling





ComprehensiveStock


Stock


Capital


Deficit


Stock


Stock


Income (Loss)


Interest


Total


Income (Loss)Balance, January 1, 2007


73







1,153,791



(87,464
)










685







1,067,085Exercise of employee stock options


1







10,037























10,038Adjustment to fair value of stock options assumed in merger with
    Identix










8,520























8,520Common stock issued for acquisition of McClendon


2







32,998























33,000Common stock issued for directors fees










545























545Common stock issued under employee stock purchase plan










2,315























2,315Deferred tax benefit of stock options exercised










130























130Retirement plan contributions paid in common stock










261























261Pre-paid forward contract


















(69,808
)














(69,808
)Stock-based compensation expense










9,243























9,243Issuance of convertible notes










15,891























15,891Foreign currency translation gain


























5,722







5,722


$
5,722Net income














15,807



















15,807



15,807Comprehensive income





































$
21,529Balance, December 31, 2007


76







1,233,731



(71,657
)


(69,808
)






6,407







1,098,749Exercise of employee stock options










2,860























2,860Common stock and stock options issued for acquisition of
    Bioscrypt


2







36,568























36,570Common stock issued to investors


8







103,857























103,865Preferred stock issued to investor






15,107



























15,107Common stock issued for directors fees










582























582Common stock issued under employee stock purchase plan


1







3,313























3,314Stock options issued for officers bonus










125























125Deferred tax charge of stock options exercised










(331
)






















(331
)Retirement plan contributions paid in common stock










1,294























1,294Warrants issued & exercised










1,481























1,481Repurchase of common stock






















(6,161
)










(6,161
)Stock-based compensation expense










10,283























10,283Foreign currency translation loss


























(6,582
)






(6,582
)

$
(6,582
)Unrealized loss of financial instruments, net of tax, net of tax


























(1,082
)






(1,082
)


(1,082
)Net loss














(551,594
)


















(551,594
)


(551,594
)$
(559,258
)Comprehensive loss


































Balance, December 31, 2008

$
87


$
15,107


$
1,393,763


$
(623,251
)

$
(69,808
)

$
(6,161
)

$
(1,257
)

$



$
708,480Reclassification of noncontrolling interest






























84



84Exercise of employee stock options










87























87Common stock issued for directors fees










208























208Common stock issued under employee stock purchase plan


1







3,351























3,352Deferred tax charge of stock options exercised










(845
)






















(845
)Retirement plan contributions paid in common stock


2







8,468























8,470Stock-based compensation expense


1







12,941























12,942Conversion of Series A convertible preferred stock


1



(15,107
)


15,106























Foreign currency translation gain


























1,391







1,391


$
1,391Unrealized gain of financial instruments, net of tax


























488







488



488Net loss














(4,198
)














195



(4,003
)


(4,003
)Comprehensive loss





































$
(2,124
)Other










(181
)










(12
)










(193
)Balance, December 31, 2009

$
92


$



$
1,432,898


$
(627,449
)

$
(69,808
)

$
(6,173
)

$
622


$
279


$
730,461     L-1
    Identity Solutions 2009 Annual Report | F-5




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
  Consolidated
    Statements of Cash Flows
   For the Years Ended December 31,2009


2008


2007Cash Flow from Operating Activities:Net income (loss)

$
(4,003
)

$
(551,594
)

$
15,807Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


37,129



49,412



39,237Stock-based compensation costs


23,665



18,064



11,291Asset impairments






528,577



5,000(Benefit) provision for non-cash income taxes


(2,764
)


7,548



(25,872
)Tax effect of stock option exercises


(110
)


(651
)


(2,676
)Amortization of deferred financing costs and debt discount


12,145



8,726



4,299Other non cash items


(68
)


349



119Change in operating assets and liabilities, net of effects of
    acquisitions:Accounts receivable


(9,980
)


179



(9,331
)Inventory


4,888



(7,872
)


(9,548
)Other assets


4,366



(6,418
)


655Accounts payable, accrued expenses and other liabilities


(786
)


4,762



11,574Deferred revenue


(3,880
)


1,686



403Net cash provided by operating activities


60,602



52,768



40,958Cash Flow from Investing Activities:Acquisitions and related costs, net of cash acquired


(3,749
)


(320,480
)


(132,839
)Capital expenditures


(54,992
)


(22,523
)


(12,995
)Additions to intangible assets


(7,545
)


(7,963
)


(6,304
)Decrease in restricted cash


40



47



219Net cash used in investing activities


(66,246
)


(350,919
)


(151,919
)Cash Flow from Financing Activities:Net (repayments) borrowings under revolving credit agreement






(84,000
)


4,000Proceeds from long term debt






295,000



175,000Principal payments of term loan


(14,194
)


(3,750
)


Debt and equity issuance costs


(808
)


(14,033
)


(6,393
)Borrowings under revolving credit agreement


24,868







Principal payments on borrowings under revolving credit
    agreement and other debt


(20,895
)


(1,062
)


(766
)Proceeds from issuance of common stock to investors, net of
    issuance costs






103,865



Proceeds from issuance of preferred stock to investor






15,107



Proceeds from issuance of common stock to employees


2,474



2,669



1,838Proceeds from exercise of stock options by employees


87



2,860



10,038Repurchase of common stock






(6,161
)


Payment for pre-paid forward contract










(69,808
)Other


(53
)


325



146Net cash provided by financing activities


(8,521
)


310,820



114,055Effect of exchange rate changes on cash and cash equivalents


340



(423
)


116Net increase (decrease) in cash and cash equivalents


(13,825
)


12,246



3,210Cash and cash equivalents, beginning of year


20,449



8,203



4,993Cash and cash equivalents, end of year

$
6,624


$
20,449


$
8,203Supplemental Cash Flow Information:Cash paid for interest

$
28,943


$
15,599


$
8,934Cash paid for income taxes

$
849


$
1,163


$
465Non-cash Transactions:Common stock issued and options assumed in connection with
    acquisitions

$



$
36,570


$
41,520Warrants issued for patents

$



$
1,305


$
Common stock issued in exchange for preferred stock

$
15,107


$



$
Capital leases and other long term debt issued for purchase of
    equipment

$
1,205


$



$
     L-1
    Identity Solutions 2009 Annual Report | F-6




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
 Notes To
    Consolidated Financial Statements  1.
    DESCRIPTION OF
    BUSINESS  Operations
  L-1 (L-1
      Reorganization
  L-1 L-1 (L-1 L-1 L-1
  L-1
  December 31,


December 31,2009


2008Assets:Deferred financing costs

$
2,506


$
3,454Investment in
    L-1 Operating


894,988



868,925$
897,494


$
872,379Liabilities and equity:Accrued interest

$
825


$
825Deferred tax liability


5,200



7,297Convertible debt


161,008



155,777167,033



163,899Equity


730,461



708,480$
897,494


$
872,379   2. SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of
    Consolidation
  L-1
    L-1
    Identity Solutions 2009 Annual Report | F-7




---



##### Table of Contents



Use of
    Estimates
    Computation of
    Net Income (Loss) per Share
   2009


2008


2007Net income (loss) attributable to
    L-1 shareholders

$
(4,198
)

$
(551,594
)

$
15,807Weighted Average common shares outstanding:Basic


85,516



77,518



71,663Effect of dilutive stock options, warrants and restricted stock
    awards










722Diluted


85,516



77,518



72,385Net income (loss) per share attributable to
    L-1 shareholders:Basic

$
(0.05
)

$
(7.12
)

$
0.22Diluted

$
(0.05
)

$
(7.12
)

$
0.22   Revenue
    Recognition
    L-1
    Identity Solutions 2009 Annual Report | F-8




---



##### Table of Contents




    Secure Credentialing solutions, primarily to federal and state
    government customers.
    Sales of hardware products and related maintenance and services.
    Sales of printing system components and consumables including
    printers, secure coating ribbon, film, and other parts,
    primarily to federal government customers.
    Sales of portable devices that provide iris and face and
    fingerprint identification and recognition and related
    maintenance and services.
    Licenses of
    off-the-shelf
    versions of fingerprint, face and iris recognition software and
    related maintenance and services.
    Sales of software and software developer kits and related
    maintenance and services.
    Services and software to scan, collect, and transmit
    fingerprints for identity and background verification.
    Document authentication solutions, which typically include sales
    of hardware, software, maintenance and support.
    Information technology and security services provided to
    U.S. intelligence community.
  
    L-1
    Identity Solutions 2009 Annual Report | F-9




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##### Table of Contents



L-1s
      more-than-incidental
  L-1
    
    Contracts or elements of contracts for the production of
    drivers licenses and other identification credentials that
    require delivery and installation of customized software.
    Identity solutions contracts, typically providing for the
    development, customization and installation of fingerprinting,
    face and iris recognition solutions for government agencies, law
    enforcement agencies and businesses. These contracts are
    generally for a fixed price, and include milestones and
    acceptance criteria for the various deliverables under the
    contract.
    L-1
    Identity Solutions 2009 Annual Report | F-10




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##### Table of Contents



cost-to-cost
  L-1 L-1
   Cash and Cash
    Equivalents
    L-1
    Identity Solutions 2009 Annual Report | F-11




---



##### Table of Contents



Financial
    Instruments
  L-1s
  Assets (Liabilities)Recorded amount at

Fair Value atDecember 31,

December 31,2009

2009Accounts Receivable

$
116,353

$
116,353Accounts Payable and Accrued Expenses, Excluding Interest Rate
    Protection Agreements


(108,193)


(108,193)Other Current Liabilities


(6,680)


(6,680)Revolving Credit Facility


(4,868)


(4,868)Term Loan


(278,878)


(283,833)Convertible Notes


(161,008)


(160,388)Other Debt


(1,611)


(1,611)Derivatives:Foreign Currency Forward Contracts (included in accounts payable
    and accrued expenses)


(9)


(9)Interest Rate Protection Agreements (included in accounts
    payable and accrued expenses)


(1,896)


(1,896)   Recorded amount at


Fair Value atDecember 31,


December 31,2008


2008Accounts Receivable

$
105,606


$
105,606Accounts Payable and Accrued Expenses, Excluding Interest Rate
    Protection Agreement


(116,327
)


(116,327
)Other Current Liabilities


(2,559
)


(2,559
)Revolving Credit Facility






Term Loan


(291,778
)


(256,256
)Convertible Notes


(155,777
)


(83,895
)Other Debt


(936
)


(936
)Derivatives:Foreign Currency Forward Contracts (included in accounts payable
    and accrued expenses)


435



435Interest Rate Protection Agreements (included in accounts
    payable and accrued expenses)


(1,782
)


(1,782
)   L-1
    Identity Solutions 2009 Annual Report | F-12




---



##### Table of Contents



Concentrations of
    Credit Risk
        Inventory and
    Suppliers
  L-1 first-in, L-1
  Property and
    Equipment
  Intangible
    Assets
    Goodwill
    L-1
    Identity Solutions 2009 Annual Report | F-13




---



##### Table of Contents



L-1 L-1
  Long-Lived
    Assets
  Accounting for the Impairment or Disposal of Long-Lived
    Assets L-1
  Research and
    Development Costs
  Research and Development Arrangements
  Financing
    Costs
    Software
    Costs
  L-1
    Warranty
    Income
    Taxes
    L-1
    Identity Solutions 2009 Annual Report | F-14




---



##### Table of Contents



Foreign Currency
    Translation and Transactions
  L-1s
    L-1
    Identity Solutions 2009 Annual Report | F-15




---



##### Table of Contents



Stock-Based
    Compensation
    L-1
  
   Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2009


2008


2007Cost of revenues

$
7,726


$
6,048


$
803Research and development


1,785



1,814



1,167Sales and marketing


1,944



1,818



1,806General and administrative


12,210



8,384



7,515Total Stock-based compensation

$
23,665


$
18,064


$
11,291   L-1
    Identity Solutions 2009 Annual Report | F-16




---



##### Table of Contents



Advertising
    Costs
    Recent Accounting
    Pronouncements
    Fair Value
    Measurements and Disclosures.
  Disclosures about Derivative Instruments and Hedging
    Activities.
  Business Combinations, Accounting for Costs Associated with Exit or Disposal
    Activities
  L-1
  Noncontrolling Interests in Consolidated Financial
    Statements
  Accounting
    for Convertible Debt Instruments That May Be Settled in Cash
    upon Conversion (Including Partial Cash Settlement)
  Interim
    Disclosures about Financial Instruments
  Accounting
    for Assets Acquired and Liabilities Assumed in a Business
    Combination That Arise from Contingencies
    L-1
    Identity Solutions 2009 Annual Report | F-17




---



##### Table of Contents



L-1
  Subsequent
    Events,
  Fair Value
    Measurements and Disclosures.
  Recently Issued
    Accounting Standards
  Amendments
    to FASB Interpretation No. 46(R L-1 L-1s
   Multiple
    Element Arrangements,
  Certain Revenue Arrangements That Include Software
    Elements,
  Fair
    Value Measurements and Disclosures  Improving
    Disclosures about Fair Value Measurements.
    L-1
    Identity Solutions 2009 Annual Report | F-18




---



##### Table of Contents



3.
    ADDITIONAL
    FINANCIAL INFORMATION  Property and
    Equipment
    WeightedDecember 31,


Average2009


2008


Useful LifeSystem assets

$
92,753


$
81,394



3-7 yearsComputer and office equipment


9,147



7,046



3-5 yearsMachinery and equipment


23,107



18,029



2 yearsConstruction in progress


53,436



23,970



Leasehold improvements


7,652



1,217



5 yearsOther- including tooling and demo equipment


4,234



1,880



2-5 years190,329



133,536Less, accumulated depreciation


74,829



52,268$
115,500


$
81,268           Depreciation and
    Amortization
 Twelve Months EndedDecember 31,


December 31,


December 31,2009


2008


2007Cost of revenues

$
23,021


$
17,098


$
6,671Sales and marketing


294



318



231Research and development


437



820



610General and administrative


3,698



3,494



2,111$
27,450


$
21,730


$
9,623   L-1
    Identity Solutions 2009 Annual Report | F-19




---



##### Table of Contents



Inventory,
    net
    December 31,2009


2008Purchased parts and materials

$
23,107


$
27,218Work in progress


615



1,171Inventoried contract costs


3,193



2,629Finished goods


2,469



3,491$
29,384


$
34,509     Goodwill
    Solutions


Services


TotalBalance, January 1, 2007

$
813,435


$
138,008


$
951,443ComnetiX acquisition






15,046



15,046ACI acquisition






49,761



49,761McClendon acquisition






54,723



54,723Additions (reductions) of deferred tax asset valuation allowance


(35,951
)


560



(35,391
)Other, net


7,111



11,577



18,688Balance, December 31, 2007


784,595



269,675



1,054,270Reclassification of ComnetiX products business


9,780



(9,780
)


Bioscrypt acquisition


39,440







39,440Old Digimarc acquisition


228,967







228,967Impairment charges


(430,000
)






(430,000
)Other, net


(3,655
)


1,955



(1,700
)Balance, December 31, 2008


629,127



261,850



890,977Old Digimarc final acquisition adjustments


(3,379
)






(3,379
)Currency translation adjustments


192



938



1,130Other, net


559



527



1,086Balance, December 31, 2009

$
626,499


$
263,315


$
889,814       L-1
    Identity Solutions 2009 Annual Report | F-20




---



##### Table of Contents



Intangible
    Assets
    December 31, 2009


December 31, 2008Accumulated





AccumulatedCost


Amortization


Cost


AmortizationAcquisition related intangibles:Completed technology

$
14,425


$
(4,853
)

$
14,606


$
(2,187
)Core technology


340



(79
)


340



(11
)Trade names and trademarks


7,263



(2,269
)


7,168



(1,463
)Customer contracts and relationships


104,063



(31,382
)


103,852



(22,509
)126,091



(38,583
)


125,966



(26,170
)Non-acquisition related intangibles


23,591



(8,724
)


16,029



(7,543
)$
149,682


$
(47,307
)

$
141,995


$
(33,713
)       Twelve Months EndedDecember 31,


December 31,


December 31,2009


2008


2007Cost of revenues

$
8,446


$
24,687


$
27,095General and administrative


1,233



2,996



2,519$
9,679


$
27,683


$
29,614     L-1
    Identity Solutions 2009 Annual Report | F-21




---



##### Table of Contents



Accounts Payable
    and Accrued Expenses
    December 31,2009


2008Accounts payable

$
48,852


$
48,601Accrued compensation


12,027



16,123Accrued vacation


8,373



7,874Accrued subcontractor costs


5,398



7,668Accrued professional services


4,836



8,196Accrued retirement plan contributions


6,027



5,701Other


24,576



23,946$
110,089


$
118,109   Warranty
    Reserves
    December 31,Balance, January 1, 2007

$
1,660Provisions


619Charges


(1,634
)Balance, December 31, 2007


645Provisions


132Charges


(30
)Balance, December 31, 2008


747Provisions


73Charges


(170
)Balance, December 31, 2009

$
650   Accounts
    Receivable, net
  Balance, January 1, 2007

$
683Additions


571Write-offs


(40
)Balance, December 31, 2007


1,214Additions


825Write-offs


(261
)Balance, December 31, 2008


1,778Additions


4,079Write-offs


(948
)Balance, December 31, 2009

$
4,909   Derivatives
    L-1
    Identity Solutions 2009 Annual Report | F-22




---



##### Table of Contents



Gain (loss) reclassified fromOCI to Income StatementRecognized


Twelve Months


Twelve MonthsIn OCI at


Ended


EndedDecember 31, 2009


December 31, 2009


December 31, 2008Interest rate protection agreements

$
(978
)

$
(489
)

$
Foreign currency forward contracts


-



235



-       Amounts of Gain (Loss) Recognizedin Income StatementTwelve Months

Twelve MonthsIncome Statement

Ended

EndedCaption

December 31, 2009

December 31, 2008Interest rate protection agreements

Interest Expense

$
(429
)

$
-Foreign currency forward contracts

Other Expense, net

$
50


$
435   L-1
  Products and
    Services Revenues
    2009


2008


2007U.S. Federal government services

$
249,553


$
224,272


$
136,328Hardware and consumables


116,305



137,590



126,537State and local government solutions and services


195,237



125,612



72,969Software, licensing fees and other


56,057



46,126



29,093Maintenance


33,785



29,272



24,580Total revenues

$
650,937


$
562,872


$
389,507   L-1
    Identity Solutions 2009 Annual Report | F-23




---



##### Table of Contents



4.
    RELATED PARTY
    TRANSACTIONS  L-1 L-1s L-1
  L-1 L-1 L-1 L-1 L-1s L-1 L-1s L-1
  L-1 L-1
  L-1 L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report | F-24




---



##### Table of Contents



and/or
  L-1 L-1 L-1 L-1
  L-1 L-1s L-1 L-1s L-1,
    L-1
    Identity Solutions 2009 Annual Report | F-25




---



##### Table of Contents



5.
    LONG-TERM DEBT
    AND FINANCING ARRANGEMENTS    December 31,


December 31,2009


2008$175.0 million aggregate principal amount 3.75 percent
    Convertible Senior Notes due May 15, 2027

$
175,000


$
175,000Borrowings under revolving credit agreements


4,868



-Borrowings under term loan


282,056



296,250Capital leases and other


1,611



936463,535



472,186Less: Unamortized discount on convertible notes


13,991



19,223Less: Unamortized original issue discount on term loan


3,178



4,472Current portion of long-term debt


27,062



19,256$
419,304


$
429,235      Credit
    Agreement
  L-1 L-1 L-1, L-1, L-1s L-1s
  L-1.
  L-1 Tranche B-1 Tranche B-2 Tranche B-1 Tranche B-2
    L-1
    Identity Solutions 2009 Annual Report | F-26




---



##### Table of Contents



L-1 L-1 L-1 L-1s Tranche B-1, Tranche B-2
  L-1
  
    As of the end of any fiscal quarter, the ratio of Consolidated
    EBITDA (as defined in the Credit Agreement) for the period of
    four consecutive fiscal quarters ending on or immediately prior
    to such date to the sum of (i) Consolidated Interest
    Charges (as defined in the Credit Agreement), of
    L-1
    Operating and its consolidated subsidiaries paid or payable in
    cash during the period of four consecutive fiscal quarters ended
    on or immediately prior to such date, plus
    (ii) Consolidated Debt Amortization (as defined in the
    Credit Agreement) as of such date, shall not be less than
    2.25:1.00. At December 31, 2009 the ratio was 2.35:1.00.
    As of the end of any fiscal quarter, the ratio of
    L-1
    Operatings Consolidated Funded Indebtedness (as defined in
    the Credit Agreement, which excludes standby letters of credit
    issued in connection with performance bonds) as of such date to
    its Consolidated EBITDA (as defined in the Credit Agreement) for
    the period of four consecutive fiscal quarters ended on or
    immediately prior to such date, may not be more than:
    (i) 3.25:1.00 from the Closing Date (as defined in the
    Credit Agreement) to and including March 31, 2010,
    (ii) 3.00:1.00 from
  March 31, 2010 to March 30, 2011, and
    (iii) 2.75:1.00 at the end of each fiscal quarter
    thereafter. At December 31, 2009 the ratio was 2.97:1.00.  L-1s
  L-1 L-1 L-1 L-1
    L-1
    Identity Solutions 2009 Annual Report | F-27




---



##### Table of Contents



L-1
  Convertible
    Senior Notes
   business-day
    L-1
    Identity Solutions 2009 Annual Report | F-28




---



##### Table of Contents



trading-day
    L-1 L-1
   6.
    EQUITY  Common Stock and
    Warrants
  L-1 L-1 L-1 L-1 L-1 L-1
  L-1 L-1 L-1
      Pre-paid Forward
    Contract
    L-1
    Identity Solutions 2009 Annual Report | F-29




---



##### Table of Contents



Issuance of
    Equity Securities
  L-1 L-1 L-1 L-1 L-1 L-1s
  7. STOCK
    OPTIONS AND RESTRICTED STOCK AWARDS
  Stock Option
    Plans
  L-1
  
    L-1
    Identity Solutions 2009 Annual Report | F-30




---



##### Table of Contents



L-1
     Available


Stockfor


optionsStock Plan

grant


outstanding2008 and 2005
    L-1 Identity
    Solutions Long-Term Incentive Plan


480,200



3,754,346Bioscrypt Stock Plan






121,635Identix Incorporated 2002 Equity Incentive Plan


205,143



2,325,173ZN Employee Share Option Plan






259,5952003 Imaging Automation Plan






8301996 Imaging Automation Plan






7001996 Viisage Directors Stock Option Plan






141,0011996 Viisage Management Stock Option Plan






413,6552000 Identix Incorporated New Employee Stock Incentive Plan






369,446Visionics Corporation 1990 Stock Option Plan






Identix Incorporated Equity Incentive Plan






472,721Visionics Corporation 1998 Stock Option Plan






4,829Identix Incorporated Non Employee Directors Stock option Plan






170,280Visionics Corporation Stock Incentive Plan






57,441685,343



8,091,652   L-1
    Identity Solutions 2009 Annual Report | F-31




---



##### Table of Contents



Stock
    Options
    WeightedAverageRemainingWeighted


Contractual


AggregateStock


Average


Life


IntrinsicOptions


Exercise Price


(Years)


ValueOutstanding at January 1, 2009


7,221,655


$
15.22Granted


1,648,750



7.41Exercised


(46,884
)


1.85Canceled/expired/forfeited


(731,869
)


16.90Outstanding at December 31, 2009


8,091,652


$
13.56



6.52


$
2,540,493Vested or expected to vest at December 31, 2009


6,319,580


$
13.56



6.52


$
1,984,125Exercisable at December 31, 2009


4,791,524


$
14.48



5.20


$
2,266,968       Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedNumber


Remaining


Average


Number


AverageOutstanding


Contractual


Exercise


Exercisable


ExerciseRange of Exercise
    Price

As of 12/31/09


Life (Years)


Price


As of 12/31/09


Price$0.03  $7.15


347,367



3.54


$
0.93



331,367


$
0.657.23  7.23


850,000



9.69



7.23







7.30  7.74


821,384



8.77



7.61



48,634



7.597.80  12.22


878,313



4.34



11.01



866,813



11.0212.40  14.52


827,764



4.95



13.58



612,764



13.4014.55  14.55


1,170,000



6.66



14.55



877,500



14.5514.60  16.43


1,012,195



6.36



15.87



756,087



15.8516.55  18.46


838,747



6.62



17.56



490,896



17.4618.84  20.01


1,038,103



7.06



19.47



546,151



19.4220.04  61.82


307,779



3.36



26.23



261,312



27.25Totals


8,091,652



6.52


$
13.56



4,791,524


$
14.48     L-1
    Identity Solutions 2009 Annual Report | F-32




---



##### Table of Contents



December 31,Years Ended2009


2008


2007Expected annual dividends










Risk free interest rate


3.9
%


4.1
%


4.2
%Expected volatility


59.3
%


51.9
%


61.0Expected life (in years)


6.3



6.3



6.3Fair value of options

$
4.42


$
7.62


$
11.34      Restricted
    Shares
    Employee Stock
    Purchase Plan
  8.
    COMMITMENTS AND
    CONTINGENCIES  Leases
    L-1
    Identity Solutions 2009 Annual Report | F-33




---



##### Table of Contents



OperatingLeasesYear Ending December 31,2010

$
8,6822011


6,6082012


5,8372013


4,1992014


3,884Thereafter


3,211$
32,421   Foreign Currency
    Contracts
    Employment
    Agreements
    9.
    LITIGATION  Old Digimarc
    Litigation
  Rule 10b-5
    L-1
    Identity Solutions 2009 Annual Report | F-34




---



##### Table of Contents



Other
    10.
    RETIREMENT
    BENEFITS  L-1 L-1s L-1
    L-1
    Identity Solutions 2009 Annual Report | F-35




---



##### Table of Contents



11.
    INCOME
    TAXES  For the Years Ended December 31,2009


2008


2007Pretax loss comprises the following (in thousands):United States

$
(9,717
)

$
(524,828
)

$
(9,990
)Foreign


3,256



(16,806
)


613$
(6,461
)

$
(541,634
)

$
(9,377
)     For the Years Ended December 31,2009


2008


2007CurrentFederal

$
138


$
890


$
2,877State


(128
)


889



654Foreign


296



635



306



2,414



3,531DeferredFederal


(2,541
)


(37,870
)


(5,718
)State


(686
)


(4,609
)


(1,406
)Foreign


1,208



1,993



258(2,019
)


(40,486
)


(6,866
)Change in valuation allowance


(745
)


48,032



(21,849
)$
(2,458
)

$
9,960


$
(25,184
)       2009


2008


2007Federal benefit statutory rate


(34.0
)%


(34.0
)%


(34.0
)%Goodwill impairment






27.0



State and local taxes, net of federal benefit


(6.6
)


(0.7
)


(5.2
)Valuation allowance


(11.5
)


9.0



(233.0
)Permanent and other items


14.1



0.5



3.6Effective tax rate


(38.0
)%


1.8
%


(268.6
)   L-1
    Identity Solutions 2009 Annual Report | F-36




---



##### Table of Contents



2009


2008Deferred tax assets (liabilities):Net operating loss carryforwards

$
187,363


$
171,765Property and equipment


(6,635
)


(12,712
)Intangible assets


(13,842
)


(14,831
)Accruals and other reserves


12,927



12,204Stock-based compensation expense


12,415



9,880Tax deductible goodwill amortization


(18,842
)


(13,647
)Convertible notes


(5,200
)


(7,259
)Tax credits


6,391



5,978Net deferred tax asset before valuation allowance


174,577



151,378Valuation allowance


(136,330
)


(116,668
)Net deferred tax asset

$
38,247


$
34,710Deferred tax asset:Current

$
11,514


$
11,101Long-term


26,733



23,609$
38,247


$
34,710    
   12. SEGMENT
    AND GEOGRAPHICAL INFORMATION
    L-1
    Identity Solutions 2009 Annual Report | F-37




---



##### Table of Contents



and/or
        2009


2008


2007Solutions:Revenues

$
322,512


$
280,045


$
211,029Operating Income (Loss)


20,240



(527,958
)


(836
)Depreciation and Amortization Expense


29,348



40,928



32,996Services:Revenues


328,425



282,827



178,478Operating Income


14,894



14,190



5,874Depreciation and Amortization Expense


7,781



8,484



6,241Consolidated:Revenues


650,937



562,872



389,507Operating Income (Loss)


35,134



(513,768
)


5,038Depreciation and Amortization Expense


37,129



49,412



39,237       2009


2008Solutions

$
896,208


$
877,129Services


370,909



362,181Corporate


56,708



70,511Total Assets

$
1,323,825


$
1,309,821       2009


2008


2007State and Local

$
238,272


$
174,912


$
109,462Federal


385,648



362,481



269,685Commercial/Emerging Markets


27,017



25,479



10,360Total Revenues

$
650,937


$
562,872


$
389,507   L-1
    Identity Solutions 2009 Annual Report | F-38




---



##### Table of Contents



2009


2008


2007Revenues:United States

$
594,974


$
515,182


$
360,551Rest of World


55,963



47,690



28,956Totals

$
650,937


$
562,872


$
389,507Total Assets:United States


1,296,870


$
1,284,235


$
1,377,975Rest of World


26,955



25,586



57,620Totals


1,323,825


$
1,309,821


$
1,435,595       13.
    ACQUISITIONS    2008
    Acquisitions
  Digimarc
  L-1 L-1s L-1 L-1 L-1 L-1.
  L-1
    L-1
    Identity Solutions 2009 Annual Report | F-39




---



##### Table of Contents



Cash acquired

$
50Other current assets


21,187Property, plant and equipment


52,437Other assets


695Current liabilities


(17,582
)Deferred revenue


(6,544
)Other non-current liabilities


1,169Intangible assets


38,606Goodwill


225,588$
315,606     Bioscrypt
  Cash acquired

$
1,710Other current assets


5,013Other assets


811Current liabilities


(11,203
)Deferred revenue


(1,084
)Other non-current liabilities


(130
)Intangible assets


2,197Goodwill


40,085$
37,399     2007
    Acquisitions
  McClendon
    L-1
    Identity Solutions 2009 Annual Report | F-40




---



##### Table of Contents



Cash acquired

$
607Other current assets


7,399Other assets


421Current liabilities


(4,045
)Long-term liabilities


(67
)Deferred tax liability


(8,222
)Intangible assets


17,900Goodwill


55,542$
69,535     ACI
      Cash

$
2,259Other current assets


9,488Other assets


137Current liabilities


(6,631
)Long-term liabilities


(143
)Intangible assets


18,000Goodwill


50,136$
73,246
   ComnetiX
  L-1s
      Current assets

$
4,536Other assets


491Current liabilities


(5,808
)Note payable  long-term


(50
)Intangible assets


4,724Goodwill


15,046$
18,939
    L-1
    Identity Solutions 2009 Annual Report | F-41




---



##### Table of Contents



14.
    ASSET IMPAIRMENTS
    AND MERGER  RELATED EXPENSES    2008


2007Total


Cash


Total


CashCharges


Payments


Charges


PaymentsAsset impairments

$
528,577


$



$
5,000


$
Separation costs


1,106



1,106







Total

$
529,683


$
1,106


$
5,000


$
         Goodwill and Intangible Assets,
  Accounting for the Impairment or Disposal of
    Long-Lived Assets,
    L-1
    Identity Solutions 2009 Annual Report | F-42