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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2008ORo

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 x
  o x
  x o
  Regulation S-K Form 10-K Form 10-K.
  Rule 12b-2
  x o o o
  Rule 12b-2). o x




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L-1
    IDENTITY SOLUTIONS, INC.
    TABLE OF CONTENTS
   
 PagePART IItem 1


Business


1Item 1A


Risk Factors


21Item 1B


Unresolved Staff Comments


32Item 2


Properties


32Item 3


Legal Proceedings


33Item 4


Submission of Matters to a Vote of Security
    Holders


34PART IIItem 5


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


35Item 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


67PART IIIItem 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


67Item 9A


Controls and Procedures


67Item 9B


Other Information


72Item 10


Directors and Executive Officers and Corporate
    Governance


72Item 11


Executive Compensation


72Item 12


Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


72Item 13


Certain Relationships and Related Transactions
    and Director Independence


72Item 14


Principal Accountant Fees and Services


72PART IVItem 15


Exhibits and Financial Statement Schedules


73SIGNATURES


74EXHIBIT INDEX


76EX-21.1: LIST OF SUBSIDIARIESEX-23.1: CONSENT OF DELOITTE & TOUCHE LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   i




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PART I  Item 1.
    Business  In this Annual Report on
    Form 10-K,
    the words L-1, the Company,
    we, our, ours, and
    us refer to L-1 Identity Solutions, Inc. and, except
    as otherwise specified herein, to our subsidiaries. Our fiscal
    year ended on December 31, 2008.
      
    The Identity Solutionssegment includes Secure
    Credentialing, Biometrics, and Enterprise Access solutions
    marketed to federal agencies, state and local government
    agencies, including law enforcement and departments of
    corrections, foreign governments and commercial entities, such
    as financial, casinos and health care institutions. Our Identity
    Solutions revenues include products and related services, which
    comprise hardware, components, consumables and software, as well
    as maintenance, consulting and training services integral to
    sales of hardware and software. Customers, depending on their
    specific needs, may order solutions that include hardware,
    equipment, consumables, software products or services or combine
    hardware products, consumables, equipment, software products and
    services to create an integrated solution.
    The Services segmentprovides enrollment services to
    federal and state government agencies and commercial enterprises
    and financial institutions. We also provide comprehensive
    consulting, program management, information analysis, training,
    security, technology development and information technology
    solutions to the U.S. intelligence community. Depending
    upon customer needs, our services can be bundled with identity
    solutions, product and services offerings to create an
    integrated solution.      
    Secure Credentialing Solutions    
    Biometric Solutions   1




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
    Enterprise Access Solutions    
    Enrollment Services    
    Government Consulting Services      Reportable
    Segments and Geographical Information
    Acquisition
    History
  
    Viisage Technology Inc.
    (Viisage).  In December 2005, L-1
    Investment Partners made a strategic investment in Viisage,
    which is now part of the Secure Credentialing Division of L-1.
    Integrated Biometric Technology
    (IBT).  In December 2005, Viisage
    acquired IBT, adding fingerprint services to enable the
    processing of civilian enrollment and credentialing for
    government-licensed jobs. IBT is now part of the Enrollment
    Services Division of L-1.
    AutoTest division of Openshaw Media Group
    (OMG).  In December 2005, Viisage
    acquired the AutoTest division of Openshaw Media Group
    (OMG), adding automated DMV knowledge testing
    capabilities. AutoTest is now a part of the Secure Credentialing
    Division of L-1.
    SecuriMetrics, Inc.
    (SecuriMetrics).  Acquired in February
    2006, SecuriMetrics develops, customizes and sells
    multi-biometric solutions using its proprietary iris recognition
    technology, typically consisting of multi-biometric capture
    devices bundled with proprietary software. SecuriMetrics is now
    a part of the Biometrics Division of L-1. 2




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
    Iridian Technologies, Inc.
    (Iridian).  In August 2006, we
    acquired Iridian, which owns and licenses an extensive portfolio
    of intellectual property related to iris recognition technology.
    Iridian is now a part of the Biometrics Division of L-1.
    Identix Incorporated (Identix).  In
    August 2006, Viisage merged with Identix, a provider of
    fingerprint, facial and skin biometric technologies, and related
    system components, as well as fingerprinting services which are
    critical to biometric capture and knowledge discovery in large
    scale identification management applications. Identix is now
    part of the Biometrics Division of L-1 with the exception of the
    fingerprint services business that has been integrated into the
    Enrollment Services Division.
    SpecTal, LLC (SpecTal).  In October
    2006, we acquired SpecTal, which provides comprehensive
    consulting and security solutions primarily to the
    U.S. intelligence community. SpecTal is now a part of the
    Government Consulting Services Division of L-1.
    ComnetiX Inc. (ComnetiX).  In
    February 2007, we acquired ComnetiX Inc., a Canadian company
    providing biometric identification and authentication
    technologies and solutions to private and public sector
    customers, particularly within the law enforcement community, as
    well as fingerprinting services in Canada . The ComnetiX
    biometric technologies and solutions business is now part of the
    Biometrics Division of L-1. The services component of the
    business has been integrated with the Enrollment Services
    Division of L-1.
    McClendon LLC, (McClendon).  In
    July 2007, we acquired McClendon, which provides technical,
    network security and professional services to the
    U.S. intelligence community. McClendon is now part of the
    Government Consulting Services Division of L-1.
    Advanced Concepts, Inc. (ACI).  In
    July 2007 we acquired Advanced Concepts, which provides
    information technology solutions to the U.S. intelligence
    community. ACI is now part of the Government Consulting Services
    Division of L-1.
    Bioscrypt Inc. (Bioscrypt).  In
    March 2008, we acquired Bioscrypt Inc., a Canadian company that
    is a leader in the enterprise access control market. Bioscrypt
    is now the Enterprise Access Solutions Division of L-1.
    ID Systems Business of Digimarc Corporation (Old
    Digimarc).  In August 2008, we acquired the
    ID Systems business of Digimarc Corporation, a U.S. based
    business in the secure credentialing market. The business is now
    part of the Secure Credentialing Division of L-1.  Financing
    Activities
       3




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Industry
    Overview
  Biometric
    Markets and Trends
      he/she
      
    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. 4




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
    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.    
    U.S. Visitor and Immigrant Status Indicator Technology
    program (U.S. VISIT), which uses biometric data
    as part of new screening procedures for
    non-U.S. citizens
    entering the United States.
    Department of State (DoS) Western Hemisphere Travel Initiative
    (WHTI) Passport Card and Border Crossing Card
    programs that issue limited use passports in a wallet size
    format for use in crossing U.S. borders. DoS is also
    implementing contactless chips for use in passports which are
    electronic chips that hold the bearers biographic and
    photographic data.
    Transportation Workers Identification Credential
    (TWIC), a credentialing program that may eventually
    cover an estimated 12 million national transportation
    workers.
    Transportation Security Administrations (TSA)
    Hazardous Material Threat Assessment Program
    (HAZMAT), mandating fingerprinting and security
    threat assessment of commercial truck drivers applying for,
    renewing or transferring the hazardous materials endorsement
    (HME) on their state-issued commercial drivers
    licenses (CDL).
    TSAs Registered Traveler Program (RT) under
    which the TSA will conduct a security assessment to determine
    eligibility of an individual for an expedited screening process
    at TSA security checkpoints. RT participants provide both
    fingerprint and iris biometrics, allowing either biometric to be
    used for positive identity verification at the airport.
    Homeland Security Presidential Directive 12
    (HSPD-12), which mandates that a common
    identification card be utilized by all federal government
    employees and contractors. In 2004, the U.S. Federal
    Government issued the Federal Information Processing Standard
    for Personal Identity Verification of Federal Employees and
    Contractors as part of HSPD-12. HSPD-12 includes a requirement
    for document authentication in connection with the issuance of
    secure credentials to federal government employees.
    REAL ID Act, signed into law in May 2005, which mandates
    authentication of a persons identity before they are
    issued a drivers license.       5




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and/or and/or and/or
    
    The global economic slowdown and its impact on government
    funding and procurements related to security,
    Dependence on complex government programs that are experiencing
    elongated procurement, sales and implementation cycles,
    Competition from non-biometric technologies that provide more
    affordable, but less robust, authentication (such as token rings
    and smart cards),
    Privacy and legal challenges relating to biometric identifiers
    by private citizens and advocacy groups, and
    The potential for changes in government policy relating to
    privacy issues by the new executive branch administration.  Government
    Services Markets and Trends
      
    The emphases on irregular warfare, homeland defense, and
    combating the spread of weapons of mass destruction remain
    overarching guiding principles for current and out-year funding
    priorities. We believe intelligence agencies will increase
    demand for data and text mining solutions to enable them to
    extract, analyze, and present data gathered from the massive
    volumes of information available through open sources such as
    the Internet. This increased focus on national security,
    homeland security, and intelligence has also reinforced the need
    for interoperability among the many disparate information
    technology systems throughout the federal government. We believe
    the Department of Defense, Department of Homeland Security and
    the intelligence community will continue to be interested in
    systems that strengthen the coordination within and among
    agencies and departments.
    Although certain agencies within the intelligence community have
    indicated a goal of reducing reliance on contractors, the 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. Given
    the difficulty the federal government has experienced in hiring
    and retaining skilled technology personnel in recent years, we
    believe the federal government will continue to rely on
    technology service providers that have experience with
    government systems, can sustain mission- 6




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critical operations and have the required government security
    clearances to deploy qualified personnel in classified
    environments.  
    In recent years, federal agencies have had increased access to
    alternative choices of contract acquisition vehicles-such as
    indefinite delivery/indefinite quantity (ID/IQ) contracts,
    Government Wide Acquisition Contracts (GWACs), the General
    Services Administration (GSA) schedule and agency specific
    Blanket Purchase Agreements (BPAs). These choices have created a
    market-based environment in government procurement. The
    environment has increased contracting flexibility and provides
    government agencies access to multiple channels to contractor
    services. Contractors successful past performance, as well
    as technical capabilities and management skills, remain critical
    elements of the award process. We believe the increased
    flexibility associated with the multiple channel access, such as
    ID/IQ contracts, GWACs, GSA schedule contracts and BPAs, will
    result in the continued utilization of these contracting
    vehicles in the future, and will facilitate access to service
    providers to meet the demand for, and delivery of, required
    services and solutions.
    An emphasis on addressing cyber-security is expected to drive
    greater demand for a variety of L-1 government services. The
    Comprehensive National Cyber Security Initiative of 2008 has a
    dozen components intended to better protect computer systems and
    networks from cybercrime and improve information technology
    processes and policies within the government. Specific
    improvements aimed at cyber counter intelligence, situational
    awareness, and implementation of information technology will
    have the most impact on L-1.
    We believe that the current strategic environment dictates the
    need for more dependencies in the form of alliances and
    partnerships. Alliances with large and small companies who have
    agency mission knowledge
    and/or
    established credentials related to specific solutions and
    services are critical in winning large contracts.  Our
    Solutions
    U.S.
    Federal Solutions
    
    Homeland Security Presidential Directive 12
    (HSPD-12)  Requires a common identification
    credential with Personal Identity Verification (PIV) for federal
    employees and contractors. L-1 Identity Solutions provides
    complete capabilities for identity proofing as well as modular,
    customizable components and outsourcing services to ensure fast
    and easy compliance. Our offerings are GSA and National
    Institute of Standards and Technology (NIST) certified.
    HAZPRINT  Requires focused background
    checks, including fingerprint-based biometric criminal history
    checks, for all commercial drivers who apply for, renew or
    transfer an endorsement to transport hazardous materials
    (HAZMAT), including explosives.
    U.S. DoD Common Access Card
    (CAC)  The standard identification
    credential for active duty military personnel, selected reserve
    personnel, civilian employees, and eligible contractor personnel. 7




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
    Western Hemisphere Travel Initiative
    (WHTI)  Requires all citizens of the U.S.,
    Canada, British Overseas Territory of Bermuda and Mexico to have
    a passport or other accepted secure document to enter or
    re-enter the U.S.
    Registered Traveler Program (RT)  A
    nationwide private sector program designed to accelerate the
    screening process at participating airports for passengers who
    voluntarily choose to enroll by providing biometric fingerprint
    and/or iris
    data.
    US-VISIT Program (U.S. Visitor and Immigrant Status
    Indicator Technology)  An automated
    entry/exit tracking program requiring foreign visitors to submit
    biometric information upon arrival and departure to and from the
    U.S.
    Transportation Workers Identification Card
    (TWIC)  A program mandating a standardized
    secure credential containing biometric data for all
    transportation workers in order to enter into any secure area of
    a port.    
    Department of Defense (DoD) / Intelligence
    Agencies  We help the DoD and Intelligence
    communities in the fight against terrorism across the globe by
    providing technology for insurgent registration, combatant
    identification, watchlist ID, credentialing and high security
    access control. Our solutions help agencies process background
    checks of military personnel faster in order to provide them
    with secure credentials and verify their identity for the
    purposes of issuing benefits or accessing secure facilities and
    networks.
    Department of State (DoS) / Department of Homeland
    Security (DHS)  We supply and integrate the
    technologies, software, hardware, consumables and services that
    help with the identity enrollment, de-duplication and production
    of safer and more secure travel documents. These include
    passports, U.S. Passport Cards, Border Crossing Cards and
    Visas.  Border
    Management Solutions
    
    Frequent Traveler Solutionsspeed processing times and
    ensure high quality biometric capture every time for maximum
    verification accuracy and convenience for travelers.
    Watchlist Screening Solutionsseamlessly integrate into
    the immigration process, providing more accurate, real-time
    notification of possible matches against watchlists.
    Document Authentication Solutionsautomate the reading
    and authentication of
    e-passport
    documents with contactless smart chips, as well as existing
    passports, drivers licenses and other ID cards.
    Mobile ID Solutionsallow for highly accurate and fast
    identification of individuals seeking passage through borders at
    remote sites, land and sea crossings.  Law
    Enforcement Solutions
   8




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
    Booking Systemshelp quickly identify known criminals at
    the booking process by capturing high quality biometric data,
    checking watchlists and building online photo
    lineups  even when a picture or composite sketch is
    the only information that is available.
    Mobile ID Solutionsoffer immediate and accurate identity
    information on suspects to officers in the field. Our mobile ID
    systems support multiple biometrics, providing officers in the
    field with accurate identity information in minutes while saving
    time, enhancing officer safety and minimizing false arrests.
    Investigation Systemsanalyze finger, palm and facial
    information, as well as latent and partial prints found at crime
    scenes. With expert forensic examiners estimating that nearly
    1/3
    of all latent prints from crime scenes coming from parts of the
    hand other than the fingertips, and legislation requiring the
    capture of offenders hand or palm prints in addition to
    fingerprints, L-1 solutions are leading to faster
    identifications, regardless of the quality of latents or
    surveillance tapes.
    Next Generation Multi-Biometric ABIS (Automated Biometric
    Identification System)incorporates finger, face and iris
    recognition in a single platform to improve the speed and
    accuracy of criminal identification. Our solution is designed
    for maximum flexibility in the workflow for lower risk and
    greater return on investment.
    Omni Jail Management Systemuses iris-based biometric
    recognition and innovative workflow processes to offer sheriffs
    and wardens a more accurate way to identify inmates during
    critical stages of incarceration. This includes initial subject
    identification, intake, custody and eventual release.  Civil
    Solutions
    
    Enrollment Systemshelp ensure the integrity of the ID
    with high quality biometric data capture, document
    authentication, and demographic data capture for integration
    with identity databases and human resources management software.
    Our offerings ensure superior downstream performance and create
    enrollment efficiencies.
    Multi-Biometric ABIS (Automated Biometric Identification
    System) uses finger, face and iris to help prevent fraud in
    the issuance of secure documents, aids in the speedy
    identification of criminals and deters terrorists from obtaining
    ID documents or crossing borders.
    Card Production and Document Authentication Systemsproduce long-lasting, tamper-proof credentials.
    Verification Solutionsconfirm identities before
    credentials are issued and received.
    Drivers License Solutionsoffer processes for
    verifying an applicants claimed identity by integrating
    client and back-end software, services, document reader
    hardware, biometric technology, and internal 9




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and external database queries. We also partner with
    U.S. states to address the requirements of the REAL ID Act.  
    Voter, National and Other Government-Issued IDsproduced
    by L-1 help deter counterfeiting, enhance traffic safety and
    national security, combat identity theft and fraud, and
    facilitate the effectiveness of voter ID programs. L-1 provides
    identification solutions in more than 20 countries today.  Commercial
    Solutions
    
    Financial Services  We help maintain the
    integrity of client records for new accounts, manage the
    background check process for prospective employees, and control
    access to secure facilities and online accounts.
    Healthcare Organizations  We preserve
    patient privacy and confidentiality of records using biometrics
    to ensure that only authorized individuals have access to
    sensitive patient information. Our information security software
    also helps enterprises with Health Insurance Portability and
    Accountability Act (HIPAA) compliance.
    Casino and Gaming  We provide fast and
    accurate background checks on prospective employees and offer
    biometric-based surveillance to identify known card counters and
    cheaters. We also offer superior access control systems to the
    worlds largest casinos.
    Corporate  We help companies quickly and
    easily identify terminated employees and those that obtain
    unauthorized access to certain facilities or network areas
    without hindering the overall productivity of their workforce
    employees. As a result, our customers experience enhanced
    privacy, increased security and reduced fraud that helps ensure
    that internal losses are minimized.  Enterprise
    Access Solutions
    
    HSDP-12 / PIV  We offer FIPS
    approved finger readers for the HSPD-12 / PIV market.
    Physical access applications  Our finger
    and 3D face readers are used for a wide range of physical access
    applications.
    Advanced software  Advanced software for
    enrollment and device management is used with our finger and 3D
    face readers. 10




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Enrollment
    Services
    
    Live Scan Fingerprintingenables applicants to call and
    schedule an appointment at a convenient location. Upon arrival,
    fingerprints are captured and submitted electronically the same
    day. Results are typically returned within 2-3 days.
    Card Scan Fingerprintingallows applicants to capture
    fingerprints with ink and mail the cards to us. We convert the
    ink cards to an electronic format and submit the fingerprint
    records to the appropriate channeling agency within one business
    day. Results are typically returned within 2-3 days.
    Onsite Fingerprintingbrings our live scan systems
    directly to the customers location, helping fulfill
    short-term fingerprinting needs due to a large fingerprinting
    backlog, hiring surge or opening of new locations. We handle
    jobs all over the world, ranging from one day to many months.  Government
    Consulting Services
    
    Intelligence Community  Our Government
    and Security Consultants are engaged across the intelligence
    community and overseas. They assist in the development of
    intelligence reporting programs, train and mentor the next
    generation of reports officers. Our established program develops
    well-rounded report officers to assist with tasks where staffing
    shortages are critical, and provide training and mentoring
    without adding to the demands of government officers. They help
    develop and support large scale and complex IT infrastructures
    for highly sophisticated mission critical applications and
    systems. In concert with their understanding of IT systems, they
    assist in the development and monitoring of critical networks
    for the intelligence agencies.
    Geospatial Community  In addition to
    various human intelligence services capabilities, we offer
    highly complementary geospatial services. This includes imagery
    intelligence, all source intelligence analysis, systems
    engineering and acquisition capabilities. 11




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
    Federal, State and Local Government
    Agencies  Our professionals offer expert
    consulting based on extensive operational experience. We provide
    a wide range of analytical, linguistic, technical, and other
    support to intelligence, defense, and law enforcement agencies,
    including the DHS and FBI, and our cleared personnel can
    seamlessly augment
    and/or
    provide specialized training to current staff.
    Private Sector  We can conduct an
    eye of the attacker evaluation, identifying security
    vulnerabilities from an adversarial perspective, a distinctive
    and proven approach to measuring and mitigating risk from
    internal and external threats.  Customers
        
    Many federal agencies and branches of the U.S. military,
    More than 29 international governments,
    Majority of Department of Motor Vehicles across the U.S.,
    Numerous local law enforcement agencies and
    Commercial enterprises including those in gaming, finance,
    healthcare and more.  Business
    Development, Sales, Marketing, Bids and Proposals
       12




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and/or time-and-materials,
      Research
    and Product Development
      and/or
     13




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Intellectual
    Property
        Backlog
    Competition
    
    A customer-focused solution set approach that enables us to
    package our products and services together to solve the unique
    identity-challenges of markets such as federal, civil, state and
    local, criminal, border management and commercial.
    Strong and tenured relationships with customers. Today L-1
    customers include most federal agencies and branches of the
    U.S. military, more than 29 international governments and
    the majority of U.S. state DMVs and local law enforcement
    agencies. The pervasiveness of our relationships makes L-1 a
    trusted choice for others seeking relationships with proven
    vendors.
    State-of-the-art technologies and solutions, including every
    major biometric modality. Furthermore, L-1 remains at the
    forefront of innovation through our strong organic and strategic
    acquisitive growth.
    The flexibility of our products and services that can be used
    together to form a complete solution or as modular components
    within an existing end-to-end identity management solution.
    The ability to offer multi modal identity solutions
    incorporating finger, face, palm/.hand and iris technologies
    together with search and matching software to work with large
    databases. 14




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
    The comprehensive nature of our solutions and services that
    encompass the full spectrum of identity management needs
    including:  
    Delivering the best means of uniquely identifying individuals
    through advanced multi-modal biometric recognition technologies
    Producing the most secure credentials possible that serve as
    proof of identity
    Providing biometrically-enabled access control for more secure
    buildings and restricted areas
    Offering enrollment service centers for fast, accurate
    electronic civilian fingerprinting and background checks
    necessary for licensed employment positions
    Delivering government consulting services that address the most
    important areas of security in the U.S. today including IT,
    engineering and analytics, and intelligence        
    Biometrics.  A significant number of
    established and startup companies are developing and marketing
    solutions and related software and hardware for fingerprint,
    face, iris and other biometric security applications that could
    compete directly with our offerings. Some are developing
    alternative algorithms for biometric matching, some are
    developing alternative capture technology such as ultrasound,
    semiconductor or alternative types of optically and non
    optically based contact and contactless fingerprint image
    capture devices and others are developing and marketing other
    methods of biometric identification such as retinal blood
    vessel, signature recognition, hand geometry and voice and DNA.
    If one or more of these approaches were widely adopted, it would
    significantly reduce the potential market for our products. Our
    competitors include traditional AFIS vendors such as Sagem,
    Cogent and NEC and manufacturers and technology companies such
    as Cross Match Technologies, Inc., Cognitech Inc., Asia
    Software, CryptoMetrics, Inc., Precise Biometrics, BIO-key
    International, Inc., and Greenbit, among others. From time to
    time, we also face competition from divisions of large
    multinational companies such as Lockheed Martin Corporation. In
    some markets, we may also partner with some of these competitors.
    Secure Credentialing.  We believe that we are
    considered one of the most significant players in the state
    drivers license market with nearly every U/S state using
    L-1 solutions for secure drivers license production as
    well as in the federal and international credentialing market.
    However, U.S. mandates such as REAL ID, WHITI and Enhanced
    Drivers License that call for more secure credentialing is
    also creating opportunities for competitors to enter or expand
    their presence in the market. Greater demand for increased
    security content on the credential is attracting more security
    printing companies and card manufacturers. Credentialing
    issuance systems are becoming increasingly data intensive. This
    provides an opportunity for systems integrators and technology
    blue-chip companies that bring expertise in the complexities of
    information technology content to enter the market. These same
    issues and advantages hold true for international opportunities,
    with the extensive global experience and 15




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footprint of larger entities providing significant competitive
    advantage. Our competitors in this area include Marquee ID,
    Canadian Banknote, Bundesdruckerei, G&D, Trub, DeLaRue,
    Gemalto, and Oberthur, among others. We also see competition
    sometimes from major system integrators. As in the case in our
    other divisions on some opportunities, we compete and on others
    we team up with the same company.  
    Enterprise Access.  L-1 access solutions are
    marketed through an indirect sales channel using a network of
    more than 400 partners globally; the ability to successfully
    partner is essential to generating new opportunities as a
    front-end access control device and to access vertical markets
    traditionally outside L-1s core markets, such as
    commercial enterprises. Changing specifications and requirements
    for integration, functionality, and interoperability of access
    control systems is being driven by a variety of government
    mandates, such as secure credentialing requirements for
    U.S. Federal employees and contractors via Personal
    Identity Verification PIV and Transportation Worker
    Identification Credential TWIC. These mandates, as
    well as others internationally, place significant constraints on
    the product manufacturing process, requiring the ability to
    rapidly and efficiently modify products to adhere to each
    program specification and integrate successfully into the total
    solution. In the commercial market, L-1 is facing competitive
    pressure from commodity manufacturers that are developing access
    control terminals for commercial applications that are not
    required to meet more stringent government specifications. On
    the other hand, L-1 has an inherent advantage in coupling access
    control solutions with the expertise resident within other L-1
    divisions for large scale enrollment hardware, software and
    services; a combination not readily available from most
    competitors today. Finally, successfully teaming with other
    system integrators and hosting systems, and the ability to
    integrate seamlessly with these systems, is essential to gaining
    strength and market as a back-end to large integrated identity
    programs and systems. Our principal competitors are Sagem,
    Cogent, RGC and Suprema, among others.
    Enrollment Services.  L-1 is a significant
    player in the fingerprinting services market, printing more than
    six million individuals to date. Competition is diverse and
    includes AFIS vendors, other live scan manufacturers, and
    others. Large federal programs recently introduced such as those
    noted in the Secure Credentialing competition section, as well
    as other programs, have provided opportunities for large system
    integrators, some of whom are our partners today, to compete
    against us. The division also competes with Cogent and a large
    number of small local / regional fingerprinting
    services companies. However, L-1 is well positioned in the
    enrollment services market due to the size of its network (more
    than 650 centers located in 46 states and Canadian
    provinces) and because of its ability to provide a total
    enrollment solution, from biometric capture to processing. Ease
    of use and convenience is also a major competitive benefit to
    L-1 due to the wide range of locations and the ability to
    register online.
    Government Consulting Services.  We operate in
    a competitive industry that includes many firms, some of which
    are larger in size and have greater financial resources that we
    do. Also, the demand for qualified intellectual capital to staff
    government consulting projects is growing exponentially, while
    there remains a relatively small group of resources available.
    This issue poses significant pressure on all companies in the
    market, including L-1, and our ability to quickly retain
    individuals who have the appropriate skill sets and clearance
    levels is critical to our success. We obtain much of our
    business on the basis of proposals submitted in response to
    requests from potential and current customers, who generally
    also receive proposals from competitors such as BAE Systems,
    Computer Sciences Corporation, General Dynamics, Boeing
    Corporation, Lockheed Martin Corporation, Raytheon Corporation,
    Northrop Grumman Corporation, Science Applications International
    Corporation as well as a large number of US government
    contractors with specialized capabilities such as CACI
    International, Inc., Booz, Allen and Hamilton, SRA International
    and Mantech International Corporation. Additionally, we face
    indirect competition from certain government agencies that
    perform services for themselves similar to those we provide. Our
    competitors include divisions of large defense contractors as
    well as a large number of smaller U.S. government
    contractors with specialized capabilities. Because of the
    diverse requirements of U.S. government customers, shortage 16




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##### Table of Contents



of quality personnel and the highly competitive nature of large
    procurements, we frequently team with others to pursue contract
    opportunities. Competitors will, at times, team with us or
    subcontract to us in the pursuit of new business. We believe
    that the major competitive factors in our market are technical
    competencies, the ability to hire qualified personnel,
    successful past contract performance, intelligence and military
    work experience, price of services, reputation for quality and
    the experience and clearance level of our employees.  Manufacturing
          Seasonality
    Financial
    Information about Foreign and Domestic Operations and Export
    Sales
   17




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##### Table of Contents



Capital
    Requirements
    Item 7-Managements
     18




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Environmental
    Protection Regulations
    Employees
    Officers
       19




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L-1s
    Internet Website
  Form 10-K. Form 10-K,
 20




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##### Table of Contents



Form 10-Q Form 8-K, 1-800-SEC-0330 www.sec.gov
  Item 1A.
    Risk
    Factors  Form 10-K
  Risks
    Related to Our Business
  We have a history of operating losses.
    We derive
    over 90% of our revenue 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.
    
    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; and
    be subject to cancellation or reduction if government funding
    becomes unavailable or is cut back.   21




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##### Table of Contents



Our
    government contracts are subject to continued appropriations by
    Congress and availability of funding for state and local
    programs. Reduced funding could result in terminated or delayed
    contracts and adversely affect our ability to meet our sales and
    earnings goals.
      We may
    not realize the full amount of revenues reflected in our
    backlog, which could harm our operations and significantly
    reduce our future revenues.
  and/or
 22




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##### Table of Contents



Our
    quarterly results are difficult to predict, and if we miss
    quarterly financial expectations, our stock price could
    decline.
    
    The size and timing of customer orders, which may be received
    unevenly throughout a fiscal year;
    The mix of revenues between solutions and services;
    The application of new accounting standard or interpretations;
    Cancellation or modification of contracts or changes in contract
    revenue estimates; and
    Contract performance delays.  We have a
    long sales cycle, which can result in significant revenue
    fluctuations between periods.
    Purchasing
    decisions for our solutions and services may be subject to delay
    due to many factors that are outside of our control, such
    as:
  
    Appropriation of funds by governments;
    Political and economic uncertainties;
    Time required for a prospective customer to recognize the need
    for our solutions;
    Customers requirements for customized features and
    functionalities;
    Turnover of key personnel at existing and prospective customers;
    Customer internal budgeting process; and
    Customer internal procedures for the approval of large contracts.  We may be
    unable to obtain additional capital required to finance our
    growth and our acquisition strategy may be adversely affected by
    the current volatile market conditions.
   23




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##### Table of Contents



We are
    subject to government regulation, and our failure to comply with
    applicable regulations could subject us to penalties that may
    restrict our ability to conduct our
    business .
    
    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, which requires certification and
    disclosure of all cost and pricing data in connection with
    contract negotiations;
    Foreign Corrupt Practices Act; and
    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.    Biometric
    technologies have not yet achieved widespread commercial
    acceptance and our strategy of expanding our biometric business
    could adversely affect our business operations and financial
    condition.
    
    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 our competitors;
    customers perception of the perceived benefit of biometric
    solutions and services and their satisfaction with the 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); 24




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##### Table of Contents




    privacy and legal challenges relating to biometric identifiers
    driven by private citizens and advocacy groups; and
    the potential for changes in government policy regarding privacy
    issues with a new executive branch administration.    We face
    intense competition, which could result in lower revenues and
    higher research and development expenditures and could adversely
    affect our results of operations.
    Unless we
    keep pace with changing technologies, we could lose existing
    customers and fail to win new customers.
    Security
    breaches in systems that we sell or maintain could result in the
    disclosure of sensitive government information or private
    personal information that could result in the loss of customers
    and negative publicity.
   25




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##### Table of Contents



Our
    reliance on external suppliers and contract manufacturers may
    result in delays and loss of sales or customers.
      The
    market for our solutions is still developing and if the
    biometrics industry adopts standards or a platform different
    from our platform, then our competitive position would be
    negatively affected.
    Our plan
    to pursue sales in international markets may be limited by risks
    related to conditions in such markets.
   26




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##### Table of Contents




    regional economic or political conditions;
    delays in or absolute prohibitions on exporting products
    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 and the U.S. dollar;
    loss of revenue, property (including intellectual property) and
    equipment from expropriation, nationalization, war,
    insurrection, terrorism, criminal acts and other political and
    social risks;
    liabilities resulting from any unauthorized actions of our local
    partners, resellers or agents under the Foreign Corrupt
    Practices Act or local anti-corruption statutes;
    risks of increases in taxes and other government fees; and
    involuntary renegotiations of contracts with foreign governments.    If we do
    not successfully expand our direct sales and services
    organizations and partnering arrangements, we may not be able to
    increase our sales or support our customers.
    We rely
    in part upon system integrators original equipment
    manufacturers, or OEM, and distribution partners to sell some of
    our solutions, technologies and services, and we may be
    adversely affected if those parties do not actively promote
    their products or pursue installations that do not use our
    solutions, technologies and services.
     27




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If our
    solutions systems and products are not timely delivered or do
    not perform as promised, we could experience increased costs,
    lower margins, liquidated damage payment obligations and
    reputational harm.
  and/or
  back-up
  Failure
    to maintain the proprietary nature of our technology,
    intellectual property and manufacturing processes could have a
    material adverse effect on our business and our ability to
    compete effectively.
       28




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##### Table of Contents



Legal
    claims regarding infringement by us or our suppliers of third
    party intellectual property rights could result in substantial
    costs, diversion of managerial resources and harm to our
    reputation.
    
    liability for damages and litigation costs, including
    attorneys fees;
    lawsuits that prevent us from further use of the intellectual
    property;
    having to license the intellectual property from a third party,
    which could include significant licensing fees;
    having to develop a non-infringing alternative, which could be
    costly and delay projects;
    having to indemnify clients with respect to losses they incurred
    as a result of the alleged infringement; and
    having to establish alternative sources for products supplied to
    us by third parties.    We are
    dependent on a small number of individuals, and if we lose key
    personnel upon whom we are dependent, our business will be
    adversely affected.
    If we
    fail to recruit and retain skilled employees or employees with
    the necessary security clearances, we might not be able to
    perform under our government services contracts or win new
    business.
    Certain
    of our shareholders have significant relationships with us,
    which could result in it taking actions that are not supported
    by unaffiliated shareholders.
   29




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##### Table of Contents




    Mr. Robert V. LaPenta, the founder and Chief Executive
    Officer of L-1 Investments Partners LLC, is Chairman of our
    board of directors and Chief Executive Officer and President;
    Mr. James DePalma, Mr. Joseph Paresi and Ms. Doni
    Fordyce who are affiliates of L-1 Investment Partners LLC and
    Aston, serve as the Executive Vice President and Chief Financial
    Officer, Executive Vice President and Chief Marketing and Sales
    Officer, and Executive Vice President and of Corporate
    Communications, respectively;
    We have entered into certain transactions with Aston, L-1
    Investment Partners and Mr. LaPenta, including a sublease
    of office space from L-1 Investment Partners, an agreement in
    principle to purchase a portfolio company of Aston at fair
    market value, and a private placement issuance of securities to
    Mr. LaPenta in connection with his participation in our
    $120 million private placement to fund in part our
    acquisition of ID Systems business of Digimarc. See Note 4
    to our Consolidated Financial Statements, Related Party
    Transactions for a more detailed description of these
    transactions.    Risks
    Related to Our Acquisition Strategy
  Integration
    of recently acquired businesses may be difficult to achieve and
    will consume significant financial and managerial resources,
    which may adversely affect operations.
    
    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 our ongoing business;
    potential conflicts in distribution, marketing or other
    important relationships;
    potential constraints of management resources;
    failure to maximize our financial and strategic position by the
    successful incorporation of acquired technology;
    failure to realize the potential of acquired technologies,
    complete product development, or properly obtain or secure
    appropriate protection of intellectual property rights; and
    loss of key employees
    and/or the
    diversion of managements attention from other ongoing
    business concerns.   30




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##### Table of Contents



Our
    acquisitions could result in future impairment and other charges
    which could adversely affect our results of
    operations.
    
    technological development capabilities and intellectual capital;
    expected significant growth in revenues and profits from the
    expanding market in identity solutions; and
    expected synergies resulting from providing multi modal product
    offerings to existing customer base and to new customers of the
    combined company.      If we do
    not achieve the expected benefits of the acquisitions we have
    made, the price of our common stock could decline.
   31




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments   Item 2.  Properties      Square Feet


ExpireStamford, Connecticut


17,000



March 2010Jersey City, New Jersey


18,000



July 2017Arlington, Virginia


20,000



December 2012Billerica, Massachusetts


90,000



April 2016
(1)Burlington, Massachusetts


60,000



October 2010
(1)Fort Wayne, Indiana


48,000



January 2010Springfield, Illinois


15,000



June 2010Bloomington, Minnesota


59,000



October 2014Martinez, California


26,000



February 2011Reston, Virginia


16,000



May 2012Markham, Canada


15,000



November 2010Oakville, Canada


8,000



January 2010El Segundo, California


8,000



January 2011Lacey, Washington


8,000



June 2010Columbia, Maryland


7,000



December 2012Nashville, Tennessee


7,000



July 2009Chantilly, Virginia


24,000



May 2010Carrollton, Georgia


5,000



December 2009   (1)
    
    Facilities to be consolidated in 2009.     32




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##### Table of Contents



Item 3.
    Legal
    Proceedings  Old
    Digimarc Litigation
        Rule 10b-5
 33




---



##### Table of Contents



Form 10-K.
  Other
  Accounting for
    Contingencies
  LG
    Settlement
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   34




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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 Our Common Stock
      2008


2007Quarter

High


Low


High


LowFirst Quarter

$
18.54


$
10.66


$
17.12


$
14.15Second Quarter

$
16.02


$
12.77


$
21.87


$
16.31Third Quarter

$
17.22


$
11.66


$
20.95


$
13.75Fourth Quarter

$
15.28


$
4.33


$
19.54


$
16.50   Dividend
    Policy
    Recent
    Sales of Unregistered Securities
    Repurchases
    of Common Stock
   35




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##### Table of Contents



Stock
    Performance Chart
  The following performance chart assumes an investment of $100
    on December 31, 2003 and compares the change through
    December 31, 2008 in the market price for our common stock
    with the Russell 2000 Index, the NASDAQ Composite Index, and a
    peer group identified by the Company (the Selected Peer
    Group Index). The Selected Peer Group Index was selected
    to include publicly-traded companies engaging in one or more of
    the Companys lines of business.
        Stock
    Performance Chart
  
  Item 6.
    Selected
    Financial Data  Form 10-K.
  36




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##### Table of Contents



Years Ended December 31,2008(1)(3)


2007(1)(2)(3)


2006(1)(3)


2005(3)


2004(3)(in thousands, except per share data)Statement of Operations Data:Revenues

$
562,872


$
389,507


$
164,386


$
66,224


$
67,466Cost of revenues


394,869



268,431



113,529



47,568



48,804Gross profit


168,003



121,076



50,857



18,656



18,662Operating expenses:Sales and marketing


37,055



27,719



14,430



7,832



6,925Research and development


25,244



18,482



11,589



4,618



3,837General and administrative


86,721



62,279



29,953



12,068



9,779Asset impairments and merger related expenses(2)


529,683



5,000



22,767







2,000Amortization of acquired intangible assets


2,996



2,519



401



681



153Total operating expenses


681,699



115,999



79,140



25,199



22,694Operating income (loss)


(513,696
)


5,077



(28,283
)


(6,543
)


(4,032
)Interest income


288



407



1,770



362



162Interest expense


(23,346
)


(11,311
)


(1,598
)


(159
)


(1,933
)Other (expense) income, net


(260
)


(508
)


(122
)


369



(235
)Loss before income taxes


(537,014
)


(6,335
)


(28,233
)


(5,971
)


(6,038
)Benefit (provision) for income taxes


(11,690
)


24,001



(2,804
)


(1,382
)


(959
)Net income (loss)

$
(548,704
)

$
17,666


$
(31,037
)

$
(7,353
)

$
(6,997
)Net income (loss) per share:Basic

$
(7.08
)

$
0.25


$
(0.71
)

$
(0.37
)

$
(0.45
)Diluted

$
(7.08
)

$
0.24


$
(0.71
)

$
(0.37
)

$
(0.45
)Weighted average common shares outstanding:Basic


77,518



71,663



43,823



19,630



15,466Diluted


77,518



72,385



43,823



19,630



15,466Balance Sheet Data:Current assets, net of current liabilities

$
24,371


$
40,869


$
11,658


$
77,482


$
15,233Total assets


1,317,902



1,445,645



1,227,225



294,108



175,629Long-term debt, including current maturities


467,714



259,000



80,000



215



149Shareholders equity


697,338



1,084,717



1,067,085



274,660



154,790     (1)
    
    The results reflect the adoption of SFAS No. 123(R) on
    January 1, 2006.(2)
    
    See Note 14 to the consolidated financial statements.(3)
    
    The results have been materially impacted by acquisitions. See
    Note 13 to the consolidated financial statements. 37




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Introduction
  Form 10-K.
  Business
    Overview
        interest-net,
    Sources
    of Revenues
   38




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##### Table of Contents



Acquisitions
    
    Our August 2008 acquisition of Old Digimarc, which provides
    secure credentialing systems to state and local government
    agencies; 39




---



##### Table of Contents




    Our March 2008 acquisition of Bioscrypt, which provides
    enterprise access products and solutions to government agencies
    and commercial entities;
    Our July 2007 acquisitions of McClendon and ACI, which provide
    technical, network security and professional services to the
    U.S. intelligence and military communities;
    Our February 2007 acquisition of ComnetiX, which creates an
    important presence for financial planning services in the
    Canadian market, by adding a complementary base of customers to
    our portfolio, particularly within the law enforcement community;    
    Expected synergies resulting from providing a comprehensive
    product line to current and future customers.
    Expected future 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.  Reportable
    segments and geographic information
    Year Ended December 31,2008


2007


2006Identity Solutions:Revenues

$
280,045


$
211,029


$
117,418Operating Loss


(527,886
)


(797
)


(29,210
)Depreciation and Amortization Expense


40,928



32,996



21,115Services:Revenues


282,827



178,478



46,968Operating Income


14,190



5,874



927Depreciation and Amortization Expense


8,484



6,241



2,245Consolidated:Revenues


562,872



389,507



164,386Operating Income (Loss)


(513,696
)


5,077



(28,283
)Depreciation and Amortization Expense


49,412



39,237



23,360    40




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##### Table of Contents



2008


2006


2005State and Local

$
174,912


$
109,462


$
69,532Federal


362,481



269,685



89,640Commercial/Emerging Markets


25,479



10,360



5,214$
562,872


$
389,507


$
164,386     2008


2007


2006RevenueUnited States

$
515,182


$
360,551


$
149,792Rest of World


47,690



28,956



14,594$
562,872


$
389,507


$
164,386   Adjusted
    EBITDA
  interest-net, interest-net
   41




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##### Table of Contents



Years Ended December 31,2008


2007


2006Net Income (Loss)

$
(548,704
)

$
17,666


$
(31,037
)Reconciling Items:(Benefit) Provision for Income Taxes


11,690



(24,001
)


2,804Interest  net


23,058



10,903



(172
)Stock-Based Compensation Costs


18,064



11,291



8,068Depreciation and Amortization


49,412



39,237



23,360Long-lived Asset Impairments and In-process Research and
    Development Charges


528,577



5,000



17,395Adjusted EBITDA

$
82,097


$
60,096


$
20,418   Dependence
    on Significant Customers
    Consolidated
    Results of Operations
      2008


2007


2006Goodwill impairment

$
(430.0
)

$



$
Impairment of long-lived assets


(61.3
)


(3.0
)


(14.6
)(Addition) reduction of valuation allowance


(48.0
)


21.8



(12.1
)Merger related costs


(0.7
)






(8.1
)$
(540.0
)

$
18.8


$
(34.8
)     Comparison
    of 2008 to 2007
  Revenues
  Year Ended December 31,2008


2007Revenues (in thousands):Services

$
282,161


$
177,974Solutions


280,711



211,533$
562,872


$
389,507  42




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##### Table of Contents



2008


2007U.S. Federal government services

$
204,738


$
116,973Hardware and consumables


137,590



126,537State and local government services


145,146



92,324Software, licensing fees and other


46,126



29,093Maintenance


29,272



24,580Total revenues

$
562,872


$
389,507           Cost
    of revenues and gross margins (in thousands)
  Year Ended December 31,2008


2007Cost of revenues

$
370,182


$
241,336Amortization of acquired intangible assets


24,687



27,095Total

$
394,869


$
268,431Gross profit

$
168,003


$
121,076As a percentage of revenues


30
%


31
%    43




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##### Table of Contents



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


2007Sales and marketing expenses

$
37,055


$
27,719As a percentage of revenues


7
%


7
%     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
%     General
    and Administrative Expenses (in thousands)
  Year Ended December 31,2008


2007General and administrative expenses

$
86,721


$
62,279As percentage of revenues


15
%


16
%    44




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##### Table of Contents



Asset
    Impairments and Merger Related Expenses (in
    thousands)
  Year Ended December 31,2008


2007Asset impairments and merger related expenses

$
529,683


$
5,000     Amortization
    of Acquired Intangible Assets (Operating Expenses) (in
    thousands)
  Year Ended December 31,2008


2007Amortization of acquired intangible assets

$
2,996


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


2007Interest income

$
288


$
407Interest (expense)


(23,346
)


(11,311
)Interest (expense), net

$
(23,058
)

$
(10,904
)   expense-net
  Other
    Expense, Net (in thousands)
  Year Ended December 31,2008


2007Other expense, net

$
(260
)

$
(508
)    45




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##### Table of Contents



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


2007Benefit (provision) for income taxes

$
(11,690
)

$
24,001       Comprehensive
    income (loss) (in thousands)
  Year Ended December 31,2008


2007Comprehensive income (loss)

$
(556,368
)

$
23,388     Comparison
    of 2007 to 2006
  Revenues
  Year Ended December 31,2007


2006Revenues (in thousands):Services

$
177,974


$
46,968Solutions


211,533



117,418$
389,507


$
164,386  46




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##### Table of Contents



2007


2006U.S. Federal government services

$
116,973


$
13,101Hardware and consumables


126,537



56,079State and local government services


92,324



65,787Software, licensing fees and other


29,093



20,115Maintenance


24,580



9,304Total revenues

$
389,507


$
164,386           Cost
    of Revenues and Gross Margins (in thousands)
  Year Ended December 31,2007


2006Cost of revenues

$
240,533


$
99,115Amortization of acquired intangible assets


27,095



13,861Stock-based compensation


803



553Total

$
268,431


$
113,529Gross profit

$
121,076


$
50,857As a percentage of revenues


31
%


31
%    47




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##### Table of Contents



Sales
    and Marketing Expense (in thousands)
  Year Ended December 31,2007


2006Sales and marketing expenses

$
25,913


$
13,678Stock-based compensation


1,806



752Total

$
27,719


$
14,430As a percentage of revenues


7
%


9
%     Research
    and Development Expenses (in thousands)
  Year Ended December 31,2007


2006Research and development expenses

$
17,315


$
10,823Stock-based compensation


1,167



766Total

$
18,482


$
11,589As a percentage of revenues


5
%


7
%     General
    and Administrative Expenses (in thousands)
  Year Ended December 31,2007


2006General and administrative expenses

$
55,025


$
27,469Stock-based compensation


7,254



2,484Total

$
62,279


$
29,953As percentage of revenues


16
%


18
%    48




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##### Table of Contents



Asset
    Impairments and Merger Related Expenses (in
    thousands)
  Year Ended December 31,2007


2006Asset impairments and merger related expenses

$
5,000


$
22,767     Amortization
    of Acquired Intangible Assets (Operating Expenses) (in
    thousands)
  Year Ended December 31,2007


2006Amortization of acquired intangible assets

$
2,519


$
401     Interest
  Interest
    Income and Expense (in thousands)
  Year Ended December 31,2007


2006Interest income

$
407


$
1,770Interest (expense)


(11,311
)


(1,598
)Interest (expense) income, net

$
(10,904
)

$
172   expense-net
  Other
    Expense, Net (in thousands)
  Year Ended December 31,2007


2006Other expense, net

$
(508
)

$
(122
)  49




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##### Table of Contents



Income
    Taxes (in thousands)
  Year Ended December 31,2007


2006Benefit (provision) for income taxes

$
24,001


$
(2,804
)       Comprehensive
    income (loss) (in thousands)
  Year Ended December 31,2007


2006Comprehensive income (loss)

$
23,388


$
(27,954
)     Liquidity
    and capital resources
  Capital
    Requirements
    Liquidity
   50




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##### Table of Contents



Credit
    Agreement
        
    Consolidated Debt Service Leverage Ratio  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; and at December 31, 2008 the ratio was
    3.19:1.00.
    Consolidated Borrower Leverage Ratio  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 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 30, 2008, the ratio was 2.86:1.00. 51




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Accounting for
    Derivatives and Hedging Activities,
  Convertible
    Senior Notes
   52




---



##### Table of Contents



business-day trading-day
    Equity
    Securities
   53




---



##### Table of Contents



Consolidated
    Cash Flows
  For The Years Ended December 31,2008


2007


2006Operating activities

$
52,768


$
40,958


$
12,561Investing activities


(350,919
)


(151,919
)


(162,428
)Financing activities


310,820



114,055



82,301Effect of exchange rates on cash and cash equivalents


(423
)


116



174Net increase (decrease) in cash and cash equivalents

$
12,246


$
3,210


$
(67,392
)   Comparison
    of 2008 to 2007
         54




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##### Table of Contents



Comparison
    of 2007 to 2006
          Working
    Capital
  December 31,
    2008
         55




---



##### Table of Contents



December 31,
    2007
          Contractual
    obligations
    Less than








More thanTotal


1 Year


2-3 Years


3-5 Years


5 YearsOperating lease obligations

$
21,378



6,566



8,026



4,031



2,755Debt and capital lease obligations

$
571,058



48,219



148,523



374,316



         Contingent
    obligations
   56




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##### Table of Contents



Off
    Balance Sheet Arrangements
    Inflation
    Critical
    accounting policies and significant estimates
    Valuation
    of goodwill and other long-lived assets
         57




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##### Table of Contents



Goodwill and Other Intangible
    Assets
    
    Significant underperformance relative to expected operating
    results;
    Significant changes in the manner of use of assets or the
    strategy for our overall business;
    Underutilization of our tangible assets;
    Discontinuance of product lines by ourselves or our customers;
    Significant negative industry or economic trends:
    Significant decline in our stock price for a sustained
    period; and
    Significant decline in our market capitalization relative to net
    book value.      Purchase
    price allocations of acquired businesses
    
    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; 58




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##### Table of Contents




    Assumptions about the period of time over which we will continue
    to use the acquired brand and intangible assets; and
    Discount rates.    Revenue
    Recognition
  No. 97-2 (SOP 97-2), Software Revenue Recognition Revenue Recognition No. 81-1 (SOP 81-1), Accounting for Performance of Construction-Type and Certain
    Production Type Contracts Government
    Contracts SOP 81-1
  
    Persuasive evidence of an arrangement exists  We
    require 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 our standard payment
    terms. Typical payment terms are net 30 days.
    Collection is probable  We evaluate all customers
    with significant transactions to determine whether a collection
    is probable.  SOP 81-1,
  
    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 including and software developer kits and
    related maintenance and services;
    Services and software to scan, collect and transmit fingerprints
    for identity and background verification; 59




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##### Table of Contents




    Sale of document authentication products and services, which
    typically include sales of hardware, software, maintenance and
    support; and
    Information technology and security services and provided to the
    U.S. intelligence community.  EITF 00-21, Accounting for Revenue Arrangements with Multiple
    Deliverables SOP 97-2 SOP 81-1, SOP 97-2,
      SOP 97-2, No. 98-9, Modification of
    SOP 97-2,
    Software Revenue,
 60




---



##### Table of Contents



With Respect to Certain Transactions
  No. 03-05 ,
    Applicability of the AICPA Statement of Position
    97-2 to
    Non-Software Deliverables in an Arrangement Containing
    More-Than-Incidental Software EITF 00-21 SOP 97-2.
  SOP 97-2 SOP 97-2 SOP 81-1. SOP 81-1. SOP 81-1
  SOP 81-1,
  
    Contracts or elements of contracts for the production of
    drivers 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.  SOP 81-1.
  SOP No. 97-2, SOP No. 81-1
    
    Design and integration complexities;
    Nature and number of workstations and sites installed;
    Projected number of credentials to be produced; 61




---



##### Table of Contents




    Size of databases;
    Cost of consumable materials expected to be used;
    Level of post-installation involvement; and
    Competitive considerations.    Income
    Taxes
         62




---



##### Table of Contents



,
    Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Stock-Based
    Compensation
  Share-Based Payment
    Year Ended December 31,2008


2007Expected common stock price volatility


51.9%



61%Risk free interest rate


4.1%



4.2%Expected life of options


6.3 Years



6.3 YearsExpected annual dividends






     Contingencies
    and Litigation
  Accounting for
    Contingencies,
 63




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##### Table of Contents



Recent
    Accounting Pronouncements
  Fair Value Measurements,
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Noncontrolling Interests in Consolidated Financial
    Statements-on Amendment of ARB No. 51
  Business Combinations,
  Disclosures about Derivative Instruments and Hedging
    Activities. Derivatives Implementation
 64




---



##### Table of Contents



14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1).
  The
    Hierarchy of Generally Accepted Accounting Principles.
  Quarterly
    Financial Data (Unaudited)
    First Quarter


Second Quarter


Third Quarter


Fourth QuarterFor 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)


(1,885
)


3,182



(1,186
)


(548,815
)Basic net income (loss) per share

$
(0.03
)

$
0.04


$
(0.01
)

$
(6.55
)Diluted net income (loss) per share

$
(0.03
)

$
0.04


$
(0.01
)

$
(6.55
)For the Year Ended December 31, 2007Revenues

$
70,007


$
90,099


$
115,539


$
113,862Gross profit


17,356



27,751



37,612



37,540Net income (loss)


(8,831
)


(1,197
)


1,470



26,224Basic net income (loss) per share

$
(0.12
)

$
(0.02
)

$
0.02


$
0.37Diluted net income (loss) per share

$
(0.12
)

$
(0.02
)

$
0.02


$
0.35    65




---



##### Table of Contents



Item 7A 
    Quantitative
    and Qualitative Disclosure About Market Risk  Interest
    Rate Risk
      
    If during any five consecutive trading day period the trading
    day period the trading price is less than 98% of the product of
    the last reported sales price multiplied by the applicable
    conversion rate.
    After December 31, 2008, if the sale price of our common
    stock for twenty or more trading days exceeds 130% of the
    initial conversion price.
    If the Company calls the Convertible Notes for redemption or
    upon certain specified transactions.      Foreign
    Currency Exposures
       66




---



##### Table of Contents



Prepaid
    forward contract
    Forward-Looking
    Statements
  Form 10-K
  Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of disclosure controls and
    procedures.
  Form 10-K,
 67




---



##### Table of Contents



Rule 13a-15(e)
  Managements annual report on internal control
    over financial reporting
  Rule 13a-15(f) 15d-15(f)
    rules 13a-15(c) 15d-15(c)
    Changes in internal
    controls rules 13a-15(d) 15d-15(d)
 68




---



##### Table of Contents



Rule 13a-14(a) Form 10-K.
 69




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework Managements Annual Report on Internal Control over
    Financial Reporting Managements Annual Report on Internal
    Control over Financial Reporting
        Internal Control  Integrated Framework
 70




---



##### Table of Contents



71




---



##### Table of Contents



PART III  Item 9B.
    Other
    Information    Item 10.
    Directors
    and Executive Officers of the Registrant    NYSE Annual Certification. Form 10-K.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   72




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements and Schedules
  page F-1.
    Exhibits
   73




---



##### Table of Contents



SIGNATURES      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)B.G.
    Beck

DirectorDenis
    K. Berube

DirectorMilton
    E. Cooper

Director/s/ Robert S. GelbardRobert
    S. Gelbard

Director/s/ Malcolm J. GudisMalcolm
    J. Gudis

DirectorJohn
    E. Lawler

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

Director/s/ Peter NessenPeter
    Nessen

Director 74




---



##### Table of Contents



Signature

TitleHarriet
    Mouchly-Weiss

Director/s/ B. Boykin RoseB.
    Boykin Rose

Director  75




---



##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description2.1

Agreement and Plan of Merger, dated as of November 15,
    2005, by and among Viisage Technology, Inc., Integrated
    Biometric Technology, Inc., Integrated Biometric Technology LLC,
    and the stockholders named therein (filed as Exhibit 2.1 to
    our Current Report on
    Form 8-K
    filed on November 18, 2005).*2.2

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 our Current Report on
    Form 8-K
    filed on January 13, 2006).*2.3

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 our
    Current Report on
    Form 8-K
    filed on February 6, 2006).*2.4

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 our Current Report on
    Form 8-K
    filed on July 18, 2006).*2.5

Arrangement Agreement, dated as of November 15, 2006 (the
    Arrangement Agreement), among L-I Identity
    Solutions, Inc., 6653375 Canada Inc. and ComnetiX Inc. (filed as
    Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on November 16, 2006).*2.5(a)

Amendment No. 1 to the Arrangement Agreement, dated
    January 9, 2007 (filed as Exhibit 2.1 to our Current
    Report on
    Form 8-K
    filed on January 11, 2007).*2.5(b)

Amendment No. 2 to the Arrangement Agreement, dated
    January 25, 2007 (filed as Exhibit 2.1 to our Current
    Report on
    Form 8-K
    filed on January 29, 2007).*2.5(c)

Amendment No. 3 to the Arrangement Agreement, dated
    February 7, 2007 (filed as Exhibit 2.1 to our Current
    Report on
    Form 8-K
    filed on February 13, 2007).*2.6

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 our Current Report on
    Form 8-K
    filed on May 16, 2007).*2.7

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 our Current Report on
    Form 8-K
    filed on June 20, 2007).*2.8

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 our Current Report on
    Form 8-K
    filed on January 10, 2008).*2.9

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 our Current Report on
    Form 8-K
    filed on July 3, 2008).*2.9(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 our 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 our Current Report on
    Form 8-K
    filed on May 16, 2007).*3.2

Amended and Restated By-Laws (filed as Exhibit 3.2 to our
    Current Report on
    Form 8-K
    filed on November 5, 2007).*4.1

Specimen Certificates for Common Stock (filed as
    Exhibit 4.1 to our 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% Convertible Senior Notes due 2027) (filed as
    Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on May 23, 2007).* 76




---



##### Table of Contents



ExhibitNumber

Description4.3

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).*4.4

Warrant
    No. L-1,
    dated December 16, 2005, issued by Viisage Technology, Inc.
    to Aston Capital Partners, L.P. (filed as Exhibit 10.2 to
    the Schedule 13D filed by Aston Capital Partners, L.P. on
    December 23, 2005).*4.5

Warrant
    No. L-2,
    dated December 16, 2005, issued by Viisage Technology, Inc.
    to Aston Capital Partners, L.P. (filed as Exhibit 10.3 to
    the Schedule 13D filed by Aston Capital Partners, L.P. on
    December 23, 2005).*4.6

Warrant
    No. L-3,
    dated December 16, 2005, issued by Viisage Technology, Inc.
    to L-1 Investment Partners LLC (filed as Exhibit 10.4 to
    the Schedule 13D filed by Aston Capital Partners, L.P. on
    December 23, 1005).*4.7

Certificate of Designations for L-1 Identity Solutions, Inc.
    Series A Convertible Preferred Stock (filed as
    Exhibit 4.11 to our Registration Statement on
    Form S-3ASR
    filed on August 5, 2008).*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 our Registration Statement on
    Form S-1
    filed on October 9, 1996) (SEC File
    No. 333-10649).*10.2

Viisage Technology, Inc. Second Amended and Restated 1996
    Management Stock Option Plan (included as Appendix B to our
    Schedule 14A filed on April 16, 2004).*10.2(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 our Registration Statement on
    Form S-1
    (SEC File
    No. 333-10649)
    filed on October 9, 1996).*10.3

Viisage Technology, Inc. Amended and Restated 1996 Director
    Stock Option Plan (included as Appendix C to our
    Schedule 14A filed on April 16, 2004).*10.3(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 our Registration
    Statement on
    Form S-1
    filed on October 9, 1996) (SEC File
    No. 333-10649).*10.4

Amended and Restated Viisage Technology, Inc. 2001 Stock in Lieu
    of Cash Compensation for Directors Plan (filed as
    Exhibit 10.42 to our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2001) (SEC File
    No. 000-21559).*10.5

Asset Purchase Agreement, dated as of January 10, 2002, by
    and between Viisage Technology, Inc. and Lau Acquisition
    Corporation d/b/a Lau Technologies (filed as Exhibit 10.1
    to our Current Report on
    Form 8-K
    filed on January 25, 2002) (SEC File
    No. 000-21559).*10.6

Consulting Agreement, dated January 10, 2002, between
    Viisage Technology, Inc. and Denis K. Berube (filed as
    Exhibit 10.2 to our Current Report on
    Form 8-K
    filed on January 25, 2002) (SEC File
    No. 000-21559).*10.7

Consulting Agreement, dated January 10, 2002, between
    Viisage Technology, Inc. and Joanna Lau (filed as
    Exhibit 10.3 to our Current Report on
    Form 8-K
    filed on January 25, 2002) (SEC File
    No. 000-21559).*10.8

L-1 Identity Solutions, Inc. 2005 Long Term Incentive Plan
    (included as Appendix B to our Schedule 14A filed on
    September 7, 2005).*10.8(a)

Form of Grant Agreement under the L-1 Identity Solutions, Inc.
    2005 Long Term Incentive Plan.(filed as Exhibit 10.12(a) to
    our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2008, filed on
    February 28, 2008).*10.9

L-1 Identity Solutions, Inc. 2008 Long-Term Incentive Plan
    (included as Appendix A to our Schedule 14A filed on
    March 14, 2008).*10.9(a)

Form of L-1 Identity Solutions, Inc. 2008 Long-Term Incentive
    Plan Option Award Grant Agreement (filed as Exhibit 99.2 to
    our Registration Statement on
    Form S-8
    filed on May 30, 2008).* 77




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##### Table of Contents



ExhibitNumber

Description10.10

Bioscrypt Inc. Primary Stock Option Plan (filed as
    Exhibit 99.1 to out Registration Statement on
    Form S-8
    filed on March 5, 2008).*10.11

Bioscrypt Inc. A4Vision Plan (filed as Exhibit 99.2 to out
    Registration Statement on
    Form S-8
    filed on March 5, 2008).*10.12

Investment Agreement, dated as of October 5, 2005, between
    Viisage Technology, Inc. and L-1 Investment Partners, LLC (filed
    as Exhibit 10.1 to our Current Report on
    Form 8-K
    filed on October 11, 2005).*10.13

Membership Interest Purchase Agreement, dated as of
    November 4, 2005, by and among L-I Investment Partners,
    LLC, Integrated Biometric Technology, Inc., Integrated Biometric
    Technology LLC, and the stockholders named therein (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    filed on November 18, 2005).*10.14

Assignment and Assumption Agreement, dated as of
    November 15, 2005, by and between Viisage Technology, Inc.
    and Aston Capital Partners, L.P. (filed as Exhibit 10.2 to
    our Current Report on
    Form 8-K
    filed on November 18, 2005).*10.15

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).*10.16

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 our Current Report on
    Form 8-K
    filed on February 24, 2006).*10.17

Identix Incorporated 2002 Equity Incentive Plan (filed as
    Exhibit 99.3 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.17(a)

Form of Grant Agreement under the Identix Incorporated 2002
    Equity Incentive Plan (filed as Exhibit 10.22(a) to our
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed on
    February 28, 2008).*10.18

Identix Incorporated New Employee Stock Incentive Plan (filed as
    Exhibit 99.4 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.19

Identix Incorporated Non-employee Directors Stock Option Plan
    (filed as Exhibit 99.5 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.20

Identix Incorporated Equity Incentive Plan (filed as
    Exhibit 99.6 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.21

Visionics Corporation 1990 Stock Option Plan (filed as
    Exhibit 99.7 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.22

Visionics Corporation 1998 Stock Option Plan (filed as
    Exhibit 99.8 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.23

Visionics Corporation Stock Incentive Plan (filed as
    Exhibit 99.9 to our Registration Statement on
    Form S-8
    filed on August 30, 2006).*10.24

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Robert V. LaPenta (filed as
    Exhibit 10.01 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.25

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and James DePalma (filed as
    Exhibit 10.02 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.26

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Joseph Paresi (filed as
    Exhibit 10.03 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.27

Employment Agreement, dated August 29, 2006, between
    Viisage Technology, Inc. and Mark S. Molina (filed as
    Exhibit 10.04 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.28

Employment Agreement, dated Sept 21, 2006, between L-1 Identity
    Solutions, Inc. and Vincent DAngelo.(filed as
    Exhibit 10.33 to our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed on
    February 28, 2008).* 78




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##### Table of Contents



ExhibitNumber

Description10.29

Employment Agreement, dated December 19, 2006, between L-1
    Identity Solutions, Inc. and Dr. Joseph J. Atick (filed as
    Exhibit 10.01 to our Current Report on
    Form 8-K
    filed on December 22, 2006).*10.30

Employment Agreement, dated January 31, 2007, between L-1
    identity Solutions, Inc. and Doni Fordyce (filed as
    Exhibit 10.01 to our Current Report on
    Form 8-K
    filed on January 9, 2007).*10.31

Consulting Agreement, dated August 29, 2006, between L-1
    Investment Partners LLC and Viisage Technology, Inc. (filed as
    Exhibit 10.07 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.32

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 our Current Report
    on
    Form 8-K
    filed on September 6, 2006).*10.33

Sublease Agreement, dated August 29, 2006, between L-1
    Investment Partners LLC and Viisage Technology, Inc. (filed as
    Exhibit 10.09 to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.34

Form of Indemnification Agreement (filed as Exhibit 10.10
    to our Current Report on
    Form 8-K
    filed on September 6, 2006).*10.35

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 our Current Report
    on
    Form 8-K
    filed on September 14, 2006).*10.35(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 our Current Report on
    Form 8-K
    filed on October 25, 2006).*10.36

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 our Current Report on
    Form 8-K
    filed on August 8, 2008)*10.37

Employment Agreement, dated January 31, 2007, between L-1
    identity Solutions, Inc. and Doni Fordyce (filed as
    Exhibit 10.01 to our Current Report on
    Form 8-K
    filed on January 9, 2007).*10.38

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 our Current Report on
    Form 8-K
    filed on May 2, 2007).*10.39

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 our Current Report on
    Form 8-K
    filed on May 23, 2007).*10.40

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 our Current
    Report on
    Form 8-K
    filed on May 23, 2007).*10.41

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).*10.42

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 our Current Report on
    Form 8-K
    filed on May 23, 2007).*10.43

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 our Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).* 79




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##### Table of Contents



ExhibitNumber

Description10.44

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 our Quarterly
    Report on
    Form 10-Q
    filed on August 4, 2008).*10.45

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 our Quarterly Report on
    Form 10-Q
    filed on August 4, 2008).*10.46

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
    our Registration Statement on
    Form S-3
    filed on August 5, 2008).*10.47

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).*10.48

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 our Quarterly
    Report on
    Form 10-Q
    filed on August 4, 2008).*10.49

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 our Registration Statement on
    Form S-3
    filed on August 5, 2008).*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.**
    
    Confidential treatment has been requested and granted for
    certain portions of this agreement.
    
    Exhibit is a management contract or compensatory plan or
    arrangement. 80




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##### 



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


F-2Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Changes in
    Shareholders Equity and Comprehensive Income (Loss) for
    the years ended December 31, 2008, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7   F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          .
  Internal Control  Integrated Framework
     F-2




---



##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
  Consolidated
    Balance Sheets
 (In
    thousands, except numbers of shares)
  December 31,2008


2007AssetsCurrent assets:Cash and cash equivalents

$
20,449


$
8,203Accounts receivable, net


105,606



90,210Inventory


34,509



21,534Deferred tax asset, net


11,101



13,253Other current assets


9,628



3,890Total current assets


181,293



137,090Property and equipment, net


81,268



23,451Goodwill


890,977



1,054,270Intangible assets, net


108,282



184,237Deferred tax asset, net


30,868



37,293Other assets, net


25,214



9,304Total assets

$
1,317,902


$
1,445,645Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expenses

$
118,109


$
81,549Current portion of deferred revenue


16,998



12,279Current portion of long-term debt


19,256



Other current liabilities


2,559



2,393Total current liabilities


156,922



96,221Deferred revenue, net of current portion


13,323



4,671Long-term debt, net of current portion


448,458



259,000Other long-term liabilities


1,861



1,036Total liabilities


620,564



360,928Commitments and contingenciesShareholders equity:Common stock, $0.001 par value; 125,000,000 shares
    authorized; 86,615,859 and 75,146,940 shares issued at
    December 31, 2008 and 2007, respectively


87



76Series A preferred convertible stock, $0.01 par value,
    15,107 shares issued and outstanding at December 31,
    2008


15,107



Additional paid-in capital


1,377,872



1,217,840Accumulated deficit


(618,502
)


(69,798
)Pre-paid forward contract


(69,808
)


(69,808
)Treasury stock, 366,815 shares of common stock, at cost


(6,161
)


Accumulated other comprehensive (loss) income


(1,257
)


6,407Total shareholders equity


697,338



1,084,717Total liabilities and shareholders equity

$
1,317,902


$
1,445,645    F-3




---



##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
  Consolidated
    Statements of Operations
 (In
    thousands, except per share data)
  For the Years Ended December 31,2008


2007


2006Revenues:Services

$
282,161


$
177,974


$
46,968Solutions


280,711



211,533



117,418Total revenues


562,872



389,507



164,386Cost of revenues:Services


206,998



130,516



36,433Solutions


163,184



110,820



63,235Amortization of acquired intangible assets


24,687



27,095



13,861Total cost of revenues


394,869



268,431



113,529Gross profit


168,003



121,076



50,857Operating expenses:Sales and marketing


37,055



27,719



14,430Research and development


25,244



18,482



11,589General and administrative


86,721



62,279



29,953Asset impairments and merger related expenses


529,683



5,000



22,767Amortization of acquired intangible assets


2,996



2,519



401Total operating expenses


681,699



115,999



79,140Operating income (loss)


(513,696
)


5,077



(28,283
)Interest income


288



407



1,770Interest expense:Interest on debt


(19,168
)


(10,015
)


(1,481
)Amortization of deferred financing costs and debt discount


(4,178
)


(1,296
)


(117
)Other expense, net


(260
)


(508
)


(122
)Loss before income taxes


(537,014
)


(6,335
)


(28,233
)Benefit (provision) for income taxes


(11,690
)


24,001



(2,804
)Net income (loss)

$
(548,704
)

$
17,666


$
(31,037
)Net income (loss) per share:Basic

$
(7.08
)

$
0.25


$
(0.71
)Diluted

$
(7.08
)

$
0.24


$
(0.71
)Weighted average common shares outstanding:Basic


77,518



71,663



43,823Diluted


77,518



72,385



43,823    F-4




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##### Table of Contents



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








Contract To





AccumulatedConvertible


Additional





Purchase





OtherCommon


Preferred


Paid-in


Accumulated


Common


Treasury


Comprehensive





ComprehensiveStock


Stock


Capital


Deficit


Stock


Stock


Income (Loss)


Total


Income (Loss)Balance, January 1, 2006

$
29


$



$
333,456


$
(56,427
)

$



$



$
(2,398
)

$
274,660Exercise of employee stock options


1







7,180



















7,181Common stock issued for directors fees










288



















288Common stock issued under employee stock purchase plan










53



















53Common stock issued for acquisition of Identix, net of issuing
    costs


43







769,931



















769,974Fair value of stock options and warrants assumed in merger with
    Identix










35,103



















35,103Retirement plan contributions paid in common stock










288



















288Stock-based compensation expense










7,492



















7,492Foreign currency translation gain


























3,083



3,083


$
3,083Net loss














(31,037
)














(31,037
)


(31,037
)Comprehensive loss

































$
(27,954
)Balance, December 31, 2006


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



















9,243Foreign currency translation gain


























5,722



5,722


$
5,722Net income














17,666















17,666



17,666Comprehensive income

































$
23,388Balance, December 31, 2007


76







1,217,840



(69,798
)


(69,808
)






6,407



1,084,717Exercise 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
)Fair value of interest rate protection agreement, net of tax


























(1,082
)


(1,082
)


(1,082
)Net loss














(548,704
)














(548,704
)


(548,704
)Comprehensive loss

































$
(556,368
)Balance, December 31, 2008

$
87


$
15,107


$
1,377,872


$
(618,502
)

$
(69,808
)

$
(6,161
)

$
(1,257
)

$
697,338    F-5




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
  Consolidated
    Statements of Cash Flows
 (In
    thousands)
  For the Years Ended December 31,2008


2007


2006Cash Flow from Operating Activities:Net income (loss)

$
(548,704
)

$
17,666


$
(31,037
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization


49,412



39,237



23,360Stock-based compensation costs


18,064



11,291



8,068Asset impairments and in process research and development charge


528,577



5,000



17,395(Benefit) provision for non-cash income taxes


9,278



(24,689
)


2,430Tax effect of stock option exercises


(651
)


(2,676
)


Amortization of deferred financing costs and debt discount


4,178



1,296



117Other


349



119



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


179



(9,331
)


(20,837
)Inventory


(7,872
)


(9,548
)


(393
)Other assets


(6,490
)


616



(1,720
)Accounts payable, accrued expenses and other liabilities


4,762



11,574



14,466Deferred revenue


1,686



403



712Net cash provided by operating activities


52,768



40,958



12,561Cash Flow from Investing Activities:Acquisitions, net of cash acquired


(320,480
)


(132,839
)


(154,683
)Capital expenditures


(22,523
)


(12,995
)


(6,823
)Additions to intangible assets


(7,963
)


(6,304
)


(1,280
)Decrease in restricted cash


47



219



358Net cash used in investing activities


(350,919
)


(151,919
)


(162,428
)Cash Flow from Financing Activities:Net (repayments) borrowings under revolving credit agreement


(84,000
)


4,000



80,000Proceeds from senior convertible notes






175,000



Proceeds from term loan


295,000







Debt issuance costs


(14,033
)


(6,393
)


(2,612
)Principal payments of term loan


(3,750
)






Principal payments of other debt


(1,062
)


(766
)


(309
)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


2,669



1,838



53Proceeds from exercise of stock options by employees


2,860



10,038



7,181Cost of issuance of common stock for Identix acquisition










(2,012
)Repurchase of common stock


(6,161
)






Payment for pre-paid forward contract






(69,808
)


Other


325



146



Net cash provided by financing activities


310,820



114,055



82,301Effect of exchange rate changes on cash and cash equivalents


(423
)


116



174Net increase (decrease) in cash and cash equivalents


12,246



3,210



(67,392
)Cash and cash equivalents, beginning of year


8,203



4,993



72,385Cash and cash equivalents, end of year

$
20,449


$
8,203


$
4,993Supplemental Cash Flow Information:Cash paid for interest

$
15,599


$
8,934


$
1,294Cash paid for income taxes

$
1,163


$
465


$
507Non-cash Transactions:Common stock issued and options assumed in connection with
    acquisitions

$
36,570


$
41,520


$
805,077Warrants issued for patents

$
1,305







    F-6




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##### Table of Contents



L-1
    IDENTITY SOLUTIONS, INC.
  Notes
    To Consolidated Financial Statements
  1.
    DESCRIPTION
    OF BUSINESS        Reorganization
      2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles
    of Consolidation
    Use of
    Estimates
   F-7




---



##### Table of Contents



Computation
    of Net Income (Loss) per Share
  Earnings per
    Share
      Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and Equity
    2008


2007


2006Net income (loss)

$
(548,704
)

$
17,666


$
(31,037
)Average common shares outstanding:Basic


77,518



71,663



43,823Effect of dilutive stock options and warrants






722



Diluted


77,518



72,385



43,823Net income (loss) per share:Basic

$
(7.08
)

$
0.25


$
(0.71
)Diluted

$
(7.08
)

$
0.24


$
(0.71
)   Revenue
    Recognition
    No. 97-2, Software Revenue Recognition Revenue Recognition Government
    Contracts No. 81-1, Accounting for Construction-
 F-8




---



##### Table of Contents



Type and Certain Production-Type Contracts SOP 81-1,
    
    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; and
    Information technology and security services provided to
    U.S. intelligence community.  No. 00-21, Revenue Arrangements with Multiple Elements SOP No. 97-2, SOP No. 97-2,
   F-9




---



##### Table of Contents



SOP No. 97-2,
  EITF 03-05, Applicability of AICPA Statement of Position
    No. 97-2
    to Non-Software Deliverables in an Arrangement Containing
    More Than-Incidental Software EITF 00-21 SOP No. 97-2.
  SOP No. 97-2 SOP No. 97-2 SOP No. 81-1. SOP No. 81-1. SOP No. 81-1
  SOP 81-1,
  
    Contracts or elements of contracts for the production of
    drivers licenses and other identification credentials that
    require delivery and installation of customized software, and;
    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.  SOP No. 81-1.
  SOP No. 97-2,
 F-10




---



##### Table of Contents



Cash and
    Cash Equivalents
    Financial
    Instruments
    Assets (Liabilities)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



116,327Other Current Liabilities


(2,559
)


(2,559
)Revolving Credit Facility






Term Loan


(291,778
)


(256,256
)Convertible Notes


(175,000
)


(83,895
)Foreign Currency Forward Contracts


435



435Interest Rate Protection Agreement


(1,782
)


(1,782
)   F-11




---



##### Table of Contents



Recorded amount at


Fair Value atDecember 31,


December 31,2007


2007Accounts Receivable

$
90,210


$
90,210Accounts Payable and Accrued Expenses


(81,549
)


(81,549
)Other Current Liabilities


(2,393
)


(2,393
)Revolving Credit Facility


(84,000
)


(84,000
)Convertible Notes


(175,000
)


(178,458
)   Concentrations
    of Credit Risk
        Inventory
    and Suppliers
  first-in,
  Property
    and Equipment
     F-12




---



##### Table of Contents



Intangible
    Assets
    Goodwill
  Goodwill and Other
    Intangible Assets
  Long-Lived
    Assets
  Accounting for the Impairment or
    Disposal of Long-Lived Assets
  Research
    and Development Costs
  Research and Development
    Arrangements
  SOP 81-1
  Deferred
    Financing Costs
    Software
    Costs
   F-13




---



##### Table of Contents



SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use
  Warranty
    Income
    Taxes
  Accounting for Income Taxes
        ,
    Accounting for Uncertainty in Income Taxes-an interpretation of
    FASB Statement No. 109
 F-14




---



##### Table of Contents



Foreign
    Currency Translation and Transactions
      Stock-Based
    Compensation
  Share-Based Payment
     F-15




---



##### Table of Contents



Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Cost of revenues

$
6,048


$
803


$
553Research and development


1,814



1,167



766Sales and marketing


1,818



1,806



752General and administrative


8,384



7,515



2,772Merger related expenses










3,225Stock-based compensation

$
18,064


$
11,291


$
8,068   Advertising
    Costs
    Recent
    Accounting Pronouncements
  Fair Value Measurements,
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Noncontrolling Interests in Consolidated Financial
    Statements-on Amendment of ARB No. 51
  Business Combination,
 F-16




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##### Table of Contents



Disclosures about Derivative Instruments and Hedging
    Activities. Derivatives Implementation
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1).
  The
    Hierarchy of Generally Accepted Accounting Principles
 F-17




---



##### Table of Contents



3.
    ADDITIONAL
    FINANCIAL INFORMATION  Property
    and equipment
    December 31,


Weighted Average2008


2007


Useful LifeSystem assets

$
85,089


$
52,101



3-7 yearsComputer and office equipment


7,046



9,213



3-5 yearsMachinery and equipment


18,043



2,467



2 yearsConstruction in progress


20,261



Leasehold improvements


1,217



1,693



5 yearsOther- including tooling and demo equipment


1,880



3,991



2-5 years133,536



69,465Less, accumulated depreciation


52,268



46,014$
81,268


$
23,451       Inventory
    December 31,2008


2007Purchased parts and materials

$
27,218


$
12,772Work in progress


1,171



386Finished goods


6,120



8,376$
34,509


$
21,534    F-18




---



##### Table of Contents



Goodwill
    IdentitySolutions


Services


TotalBalance, January 1, 2006

$
93,853


$
58,371


$
152,224Identix merger


659,550







659,550Iridian acquisition


28,126







28,126SecuriMetrics acquisition


29,294







29,294SpecTal acquisition






78,994



78,994Other


2,612



643



3,255Balance, December 31, 2006


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


$
890,977       Intangible
    assets
    December 31, 2008


December 31, 2007Accumulated





AccumulatedCost


Amortization


Cost


AmortizationAcquisition related intangibles:Completed technology

$
14,606


$
(2,187
)

$
121,207


$
(27,210
)Core technology


340



(11
)


5,600



(2,015
)Trade names and trademarks


7,168



(1,463
)


28,514



(2,456
)Customer contracts and relationships


103,852



(22,509
)


65,583



(15,808
)125,966



(26,170
)


220,904



(47,489
)Non-acquisition related intangibles


16,029



(7,543
)


14,166



(3,344
)$
141,995


$
(33,713
)

$
235,070


$
(50,833
)      F-19




---



##### Table of Contents



Accounts
    payable and accrued expenses
    December 31,2008


2007Accounts payable

$
48,601


$
38,396Accrued compensation


16,123



13,380Accrued vacation


7,874



6,798Accrued subcontractor costs


7,668



3,091Accrued professional services


7,196



5,905Accrued retirement plan contributions


5,701



3,887Other


24,946



10,092$
118,109


$
81,549   Warranty
    reserves
    December 31,Balance, January 1, 2006

$
34Acquisitions


1,445Provisions


787Charges


(606
)Balance, December 31, 2006


1,660Provisions


619Charges


(1,634
)Balance, December 31, 2007


645Provisions


132Charges


(30
)Balance, December 31, 2008

$
747  F-20




---



##### Table of Contents



Accounts
    receivable reserves
    Balance, January 1, 2006

$
1Additions


682Balance, December 31, 2006


683Additions


571Write-offs


(40
)Balance, December 31, 2007


1,214Additions


825Write-offs


(261
)Balance, December 31, 2008

$
1,778   Products
    and Services Revenues
    2008


2007


2006U.S. Federal government services

$
204,738


$
116,973


$
13,101Hardware and consumables


137,590



126,537



56,079State and local government services


145,146



92,324



65,787Software, licensing fees and other


46,126



29,093



20,115Maintenance


29,272



24,580



9,304Total revenues

$
562,872


$
389,507


$
164,386   4.
    RELATED
    PARTY TRANSACTIONS         F-21




---



##### Table of Contents



and/or
         F-22




---



##### Table of Contents



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


December 31,2008


2007$175.0 million aggregate principal amount
    3.75% Convertible Senior Notes due May 15, 2020

$
175,000


$
175,000Borrowings under revolving credit agreements






84,000Borrowings under term loan


296,250



Capital leases


936



472,186



259,000Less: Unamortized original issue discount on term loan


4,472



Current portion of long-term debt


19,256



$
448,458


$
259,000     Credit
    Agreement
     F-23




---



##### Table of Contents




    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; and at December 31,
    2008 the ratio was 3.19:1.00.
    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 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, 2008 the ratio was 2.86:1.00.      Accounting for
    Derivatives and Hedging Activities,
 F-24




---



##### Table of Contents



Convertible
    Senior Notes
  EITF 90-19 EITF 01-06,
    business-day 25 trading-day
     F-25




---



##### Table of Contents



6.
    SHAREHOLDERS
    EQUITY  Common
    Stock and Warrants
  L-1 Investment L-1 common EITF 00-19,
        Pre-paid
    Forward Contract
   F-26




---



##### Table of Contents



Issuance
    of Equity Securities
  L-1
  L-1 common L-1 will L-1 common
  7.
    STOCK
    OPTIONS  Stock
    Option Plans
     F-27




---



##### Table of Contents



Available


Stockfor


optionsStock Plan

grant


outstanding2008 L-1 Identity Solutions Long-Term Incentive Plan


3,499,824



2,383,321Bioscrypt Stock Plan






178,596Identix Incorporated 2002 Equity Incentive Plan


112,483



2,417,833ZN Employee Share Option Plan






267,6252003 Imaging Automation Plan






8301996 Imaging Automation Plan






7071996 Viisage Directors Plan






145,0021996 Viisage Management Plan






518,9422000 Identix Incorporated New Employee Plan






419,774Visionics Corporation 1990 Stock Option Plan






5,508Identix Incorporated Equity Incentive Plan






605,799Visionics Corporation 1998 Stock Option Plan






26,0492005 Identix Director Stock Plan






170,280Visionics Corporation Stock Incentive Plan






81,3893,612,307



7,221,655  F-28




---



##### Table of Contents



Stock
    Options
    WeightedAverageRemainingWeighted


ContractualStock


Average


Life


AggregateOptions


Exercise Price


(in years)


Intrinsic ValueOutstanding at January 1, 2008


7,528,106


$
15.02Granted


662,834



13.43Assumed stock options- Bioscrypt


256,228



31.25Exercised


(427,456
)


7.25Canceled/expired/forfeited


(798,057
)


21.37Outstanding at December 31, 2008


7,221,655


$
15.22



6.54


$
2,255,544Vested or expected to vest at December 31,
    2008(1)


5,387,355


$
15.22



6.54


$
1,682,636Exercisable at December 31, 2008


4,290,839


$
14.18



5.34


$
2,255,524     (1)
    
    Options expected to vest are determined by applying the
    pre-vesting forfeiture rate assumptions to total outstanding
    options.    Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedNumber


Remaining


Average


Number


AverageOutstanding


Contractual


Exercise


Exercisable


ExerciseRange of Exercise Price

As of 12/31/08


Life (years)


Price


As of 12/31/08


Price$0.03   $10.02


788,846



4.20


$
4.99



724,028


$
4.8510.04  12.22


749,181



4.97



11.60



708,561



11.6112.40  14.52


865,844



6.04



13.57



539,094



13.3114.55  14.55


1,170,000



7.66



14.55



585,000



14.5514.60  16.43


1,096,983



6.97



15.89



651,525



15.8116.55  18.00


854,055



7.20



17.44



390,139



17.3418.04  19.31


926,272



7.93



19.11



292,746



19.0819.50  30.63


744,479



6.37



22.50



374,173



24.7930.67  98.48


24,758



1.52



55.91



24,336



56.3498.52  98.52


1,237



0.30



98.52



1,237



98.52Totals


7,221,655



6.54


$
15.22



4,290,839


$
14.18        F-29




---



##### Table of Contents



December 31,Years Ended2008


2007


2006Expected annual
    dividends(1)



%



%



%Risk free interest
    rate(2)


4.1
%


4.2
%


4.4
%Expected
    volatility(3)


51.9
%


61
%


94
%Expected life (in
    years)(4)


6.3



6.3



6.3Fair value of options

$
7.62


$
11.34


$
12.66       (1)
    
    The Company currently has no history or expectation of paying
    cash dividends on its common stock.(2)
    
    The risk free interest rate is based on the United States
    Treasury yield for a term consistent with the expected life of
    the awards in effect at the time of grant.(3)
    
    The Company estimates the volatility of its common stock at the
    date of grant based on historical volatility.(4)
    
    The expected life of stock options granted under the plans is
    based on an average life of 6.3 years.  Restricted
    Shares
    Employee
    Stock Purchase Plan
    8.
    COMMITMENTS
    AND CONTINGENCIES  Leases
     F-30




---



##### Table of Contents



OperatingLeasesYear Ending December 31, 2009

$
6,5662010


4,9252011


3,1012012


2,6452013


1,386Thereafter


2,755$
21,378   Foreign
    Currency Contracts
    Employment
    Agreements
    9.
    LITIGATION  Old
    Digimarc Litigation
       F-31




---



##### Table of Contents



Rule 10b-5
   F-32




---



##### Table of Contents



Rule 10b-5
   F-33




---



##### Table of Contents



Other
  Accounting for
    Contingencies
  LG
    Settlement
    10.
    RETIREMENT
    BENEFITS    11.
    INCOME
    TAXES  For the Years Ended December 31,2008


2007


2006Pretax income (loss) comprises the following (in thousands):United States

$
(520,208
)

$
(6,948
)

$
(20,708
)Foreign


(16,806
)


613



(7,525
)$
(537,014
)

$
(6,335
)

$
(28,233
)  F-34




---



##### Table of Contents



For the Years Ended December 31,2008


2007


2006CurrentFederal

$
890


$
2,877


$
State


889



654



354Foreign


635







2,414



3,531



354DeferredFederal


(36,253
)


(4,653
)


(6,276
)State


(4,496
)


(1,288
)


(1,500
)Foreign


1,993



258



(1,909
)(38,756
)


(5,683
)


(9,685
)Change in valuation allowance


48,032



(21,849
)


12,135(Benefit) provision for income taxes

$
11,690


$
(24,001
)

$
2,804         2008


2007


2006Federal benefit statutory rate


(34.0
)%


(34.0
)%


(34.0
)%Goodwill impairment


27.2







State and local taxes, net of federal benefit


(0.7
)


(6.6
)


(2.7
)Permanent and other items


0.7



6.5



3.6Valuation allowance


9.0



(344.7
)


43.0Effective tax rate


2.2
%


(378.8
)%


9.9
%  F-35




---



##### Table of Contents



2008


2007Deferred tax assets (liabilities):Net operating loss carryforwards

$
171,765


$
122,106Property and equipment


(12,712
)


(1,599
)Intangible assets


(14,831
)


(44,860
)Accruals and other reserves


12,204



8,153Stock-based compensation expense


9,880



5,632Tax deductible goodwill amortization


(13,647
)


(8,945
)Tax credits


5,978



3,365Net deferred tax asset before valuation allowance


158,637



83,852Valuation allowance


(116,668
)


(33,306
)Net deferred tax asset

$
41,969


$
50,546Deferred tax asset:Current

$
11,101


$
13,253Long-term


30,868



37,293$
41,969


$
50,546         12.
    SEGMENT
    REPORTING AND GEOGRAPHICAL INFORMATION  Disclosures about
    Segments of a Business Enterprise and Related Information and/or
 F-36




---



##### Table of Contents



2008


2007


2006Identity Solutions:Revenues

$
280,045


$
211,029


$
117,418Operating (Loss)


(527,886
)


(797
)


(29,210
)Depreciation and Amortization Expense


40,928



32,996



21,115Services:Revenues


282,827



178,478



46,968Operating Income


14,190



5,874



927Depreciation and Amortization Expense


8,484



6,241



2,245Consolidated:Revenues


562,872



389,507



164,386Operating Income (Loss)


(513,696
)


5,077



(28,283
)Depreciation and Amortization Expense


49,412



39,237



23,360       2008


2007Segment:Identity Solutions

$
877,129


$
1,018,554Services


362,181



365,191Corporate


78,592



61,900Totals

$
1,317,902


$
1,445,645       2008


2007


2006State and Local

$
174,912


$
109,462


$
69,532Federal


362,481



269,685



89,640Commercial/Emerging Markets


25,479



10,360



5,214Totals

$
562,872


$
389,507


$
164,386  F-37




---



##### Table of Contents



2008


2007


2006Revenues:United States

$
515,182


$
360,551


$
149,792Rest of World


47,690



28,956



14,594Totals

$
562,872


$
389,507


$
164,386Total Assets:United States

$
1,249,831


$
1,388,025


$
1,211,386Rest of World


68,071



57,620



15,839Totals

$
1,317,902


$
1,445,645


$
1,227,225     13.
    ACQUISITIONS    2008
    Acquisitions
  Digimarc
     F-38




---



##### Table of Contents



Cash acquired

$
50Other current assets


21,502Property, plant and equipment


52,286Other assets


695Current liabilities


(19,303
)Deferred revenue


(6,817
)Other non-current liabilities


(624
)Intangible assets


38,606Goodwill


228,967$
315,362     Bioscrypt
      Cash acquired

$
1,710Other current assets


5,013Other assets


811Current liabilities


(10,565
)Deferred revenue


(1,084
)Other non-current liabilities


(130
)Intangible assets


2,197Goodwill


39,440$
37,392    F-39




---



##### Table of Contents



2007
    Acquisitions
  McClendon
      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


55,527$
69,520     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    F-40




---



##### Table of Contents



ComnetiX
        Current assets

$
4,536Other assets


491Current liabilities


(5,808
)Note payable  long-term


(50
)Intangible assets


4,724Goodwill


15,046$
18,939     Pro Forma
    Information (Unaudited)
    Years Ended December 31,2008


2007Revenues

$
625,591


$
552,890Net loss


(565,250
)


(12,912
)Basic and diluted net loss per share

$
(6.77
)

$
(0.15
)       2006
    Acquisitions
  SpecTal,
    LLC
   F-41




---



##### Table of Contents



Cash paid

$
100,000Direct acquisition costs


2,680Total purchase price

$
102,680     Current assets

$
12,769Other assets


181Current liabilities


(7,464
)Intangible assets


18,200Goodwill


78,994$
102,680     Identix
    Incorporated
    L-1 shareholders
   F-42




---



##### Table of Contents



Shares issued

$
771,986Stock options and warrants assumed


35,103Direct acquisition costs


7,650Total purchase price

$
814,739     Cash acquired

$
29,946Current assets


19,724Property and equipment


4,253Deposits


801Liabilities assumed


(33,035
)Intangible assets


130,800In-process research and development


2,700Goodwill


659,550$
814,739     Iridian
    Technologies, Inc.
      Cash paid

$
34,521Direct acquisition costs


874Total purchase price

$
35,395     Current assets

$
857Liabilities assumed


(4,588
)Intangible assets


11,000Goodwill


28,126$
35,395  F-43




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##### Table of Contents



SecuriMetrics,
    Inc.
        Cash paid

$
36,580Direct acquisition costs


842Total purchase price

$
37,422     Current assets

$
4,325Property and equipment


658Liabilities assumed


(3,055
)Intangible assets


6,200Goodwill


29,294$
37,422     14.
    ASSET
    IMPAIRMENTS AND MERGER  RELATED EXPENSES    Total


CashCharges


PaymentsAsset impairments

$
528,577


$
Separation costs


1,106



1,106Total

$
529,683


$
1,106     Goodwill and Intangible
    Assets,
 F-44




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##### Table of Contents



Accounting for the Impairment or
    Disposal of Long-Lived Assets,
        Total


CashCharges


PaymentsIn-process research and development

$
2,700


$
Asset impairments


14,641



Separation costs


3,167



1,852Change in control costs


1,403



349Other stock-based compensation related to Identix merger


856



Total

$
22,767


$
2,201    F-45