The net income for the third quarter of 2004 was $US198,000, or $US0.00 on a basic and diluted share basis, compared to a net loss of $US389,000, or $US0.02 per basic and diluted share, for the third quarter of 2003.

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The Company’s third quarter results do not reflect any contribution from the recent acquisition of Imaging Automation (iA); financial results for iA and Viisage will be combined from October 5, 2004, the date the transaction was completed.

On December 30, 2003, Viisage adopted new accounting rule EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” which pertains to revenue recognition for certain long-term contracts, such as Viisage’s state drivers’ licenses, retroactive to January 1, 2003.

“Viisage made important progress, financially and operationally, during the third quarter, as we expanded our product suite for identity solutions and produced a profitable quarter,” said Bernard Bailey, president and CEO of Viisage.

“We have greater traction with existing and prospective customers in a wide range of markets, and feel that we are well positioned to continue our growth. We were pleased with the reception given Viisage by the financial community despite the difficult market environment that existed during our recently completed follow-on offering, and plan to use the proceeds to further build our market leadership in identity solutions.

“With the addition of critical proofing and document authentication capabilities from iA, we are offering customers a comprehensive technology solution that truly addresses their needs.”

Bailey concluded, “The Company’s performance for the third quarter, combined with our accomplishments so far this quarter, give us the confidence to increase both our revenue and EBITDA guidance for 2004.”

Bill Aulet, Viisage’s chief financial officer, added, “Viisage continued to significantly improve its financial performance and strengthen its balance sheet in the past quarter while maintaining the necessary financial flexibility. Our strong revenue performance coupled with careful expense management enabled us to produce our first profitable quarter on a GAAP basis in several years.

At the same time, our focus on growing EBITDA (earnings before interest, taxes, depreciation and amortization) proved successful as it increased to $US3.4 million this past quarter, from $US1.5 million in the same quarter last year. Lastly, we are pleased with the terms of our acquisition of Imaging Automation, since we believe this transaction will be accretive on a net income, EBITDA and EPS basis in 2005, and will help us continue to drive revenue and profit growth not only this year, but for many years to come.”

Highlights for the third quarter of 2004:

    —  Adding experienced Department of Defense executive Kenneth

        Scheflen as senior vice president of Federal Solutions group

    —  Signing cooperation agreement with Siemens AG for 3-D face

        recognition technology development

    —  Unveiling vision for new identity solutions product suite

    —  Launching innovative Viisage PROOF(TM) product

Following the close of the quarter, Viisage announced the receipt of a contract valued at approximately $US534,000 from the Ohio Department of Rehabilitation and Correction for a criminal identification system, as well as a new driver’s license contract for Wisconsin, a contract extension for Maryland and expansion of face recognition solutions into existing driver’s license contracts, all of the above totaling $10.91 million.

Separately, on October 5, 2004, Viisage announced the acquisition of privately-held Imaging Automation (iA), the industry and market leader in automated identity document authentication technologies. iA has more than 2,300 installations in 20 countries around the world.

Financial highlights for the third quarter of 2004:

    —  Record revenues of $US19.91 million

    —  Company’s first profitable quarter in three years, with net

        income of $US198,000

    —  Gross margin down slightly to 28% from 31% in the second

        quarter this year, reflecting product mix, and down from the

        record high 33% recorded in last year’s third quarter

    —  Generated EBITDA of $US3.4 million, compared to $1.5 million in

        same quarter last year and $3.1 million in the second quarter

        of this year

    —  Increased cash position at the end of the quarter from $12.62

        million to $US37.36 million, reflecting successful completion of

        follow-on offering

    —  Further improved the balance sheet by reducing outstanding

        debt from $US29.8 million to $US19.2 million, with an estimated

        annualized decrease in interest expense of approximately 20%

    —  Backlog of $US140 million, compared to $US151 million last


During the quarter, the Company completed the sale of 7.3 million shares of its common stock, along with approximately 425,000 shares of stock sold by certain shareholders, in an underwritten public offering. Net proceeds from the follow-on offering were approximately $US37.9 million for the Company.

Also during the quarter, Viisage proposed a settlement to the State of <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Georgia to resolve the ongoing litigation stalemate over the state’s driver’s license contract, awarded to Viisage in late 2002. The initiative entailed the termination of Viisage’s contract, a payment to Viisage of $US2.5 million and an agreement by the state to put the contract up for rebid later this year. This initiative is currently stalled following legal action taken by one of the Company’s competitors in the state.

Total operating expenses for the third quarter of 2004 totaled $US4.85 million, up slightly from the prior quarter this year, and an increase from the $US3.51 million reported in the comparable quarter last year, reflecting higher expenses following the acquisitions of ZN Vision Technologies and Trans Digital Technologies, legal costs from the litigation in Georgia and an increase in consulting costs related to a Sarbanes-Oxley compliance project.

Sales and marketing expenses were $US1.59 million, research and development totaled $US896,000, and general and administrative expenses were $US2.36 million. Total operating expenses in the same quarter last year included $US1.24 million in sales and marketing costs, $US946,000 in research and development and $1.33 million in general and administrative costs.