Quarterly Report

L-1 IDENTITY SOLUTIONS, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)
(Unaudited)

			Common Stock						Additional Paid-in Capital						Accumulated Deficit						Pre-paid Forward Contract To Purchase Common Stock						Treasury Stock						Accumulated Other Comprehensive Income						Total
Balance, January 1, 2007				$	73					$	1,153,791					$	(87,464	)				$	—					$	—					$	685					$	1,067,085
Exercise of employee stock options					1						10,037						—						—						—						—						10,038
Adjustment to fair value of stock options assumed in merger with Identix					—						8,520						—						—						—						—						8,520
Common stock issued for acquisition of McClendon					2						32,998						—						—						—						—						33,000
Common stock issued for directors’ fees					—						545						—						—						—						—						545
Common stock issued under employee stock purchase plan					—						2,315						—						—						—						—						2,315
Tax benefit of stock options exercised					—						130						—						—						—						—						130
Retirement plan contributions paid in common stock					—						261						—						—						—						—						261
Pre-paid forward contract					—						—						—						(69,808	)					—						—						(69,808	)
Stock-based compensation expense					—						9,243						—						—						—						—						9,243
Foreign currency translation gain					—						—						—						—						—						5,722						5,722
Net income					—						—						17,666						—						—						—						17,666
Balance, December 31, 2007					76						1,217,840						(69,798	)					(69,808	)					—						6,407						1,084,717
Exercise of employee stock options					—						216						—						—						—						—						216
Common stock and stock options issued for acquisition of Bioscrypt					2						35,748						—						—						—						—						35,750
Common stock issued for directors’ fees					—						582						—						—						—						—						582
Common stock issued under employee stock purchase plan					—						794						—						—						—						—						794
Stock options issued for officers’ bonus					—						125						—						—						—						—						125
Repurchase of common stock					—						—						—						—						(6,161	)					—						(6,161	)
Stock-based compensation expense					—						2,667						—						—						—						—						2,667
Foreign currency translation gain					—						—						—						—						—						1,293						1,293
Net loss					—						—						(1,885	)					—						—						—						(1,885	)
Balance, March 31, 2008				$	78					$	1,257,972					$	(71,683	)				$	(69,808	)				$	(6,161	)				$	7,700					$	1,118,098

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

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L-1 IDENTITY SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

			Three Months Ended
			March 31, 2008						March 31, 2007
Cash Flows from Operating Activities:
Net loss				$	(1,885	)				$	(8,831	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization					9,672						9,060
Stock-based compensation expense					2,894						2,579
Gain from disposal of equipment					(15	)					—
(Benefit) provision for non-cash income taxes					(1,463	)					1,041
Retirement plan contributions paid in common stock					167						148
Amortization of deferred financing costs					447						134
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable					5,923						10,244
Inventory					(5,533	)					(1,800	)
Other assets					(1,380	)					(172	)
Accounts payable, accrued expenses and other liabilities					(9,542	)					(10,174	)
Deferred revenue					2,753						(836	)
Net cash provided by operating activities					2,038						1,393
Cash Flows from Investing Activities:
Increase in restricted cash					(28	)					—
Acquisitions, net of cash acquired					(1,072	)					(20,441	)
Capital expenditures					(3,030	)					(1,817	)
Additions to intangible assets					(2,138	)					—
Other assets					—						(65	)
Net cash used in investing activities					(6,268	)					(22,323	)
Cash Flows from Financing Activities:
Net borrowings under revolving credit agreement					10,097						18,000
Financing costs					(2	)					(106	)
Principal payments of other debt					(139	)					(59	)
Repurchase of common stock					(6,161	)					—
Proceeds from issuance of common stock					878						2,105
Net cash provided by financing activities					4,673						19,940
Effect of exchange rate changes on cash and cash equivalents					(131	)					74
Net increase (decrease) in cash and cash equivalents					312						(916	)
Cash and cash equivalents, beginning of period					8,203						4,993
Cash and cash equivalents, end of period				$	8,515					$	4,077
Supplemental Cash Flow Information:
Cash paid for interest				$	1,251					$	1,511
Cash paid for income taxes				$	334					$	790
Non-Cash Transactions:
Common stock issued and options assumed in connection with Bioscrypt acquisition				$	35,750					$	—

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

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L-1 IDENTITY SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.    DESCRIPTION OF BUSINESS

L-1 Identity Solutions, Inc. and its subsidiaries (‘‘L-1’’ or the ‘‘Company’’) provide identity solutions and services that enable governments, law enforcement agencies and businesses to enhance security, reduce identity theft and protect personal privacy. L-1’s identity solutions are specifically designed for the identification of people and include secure credentialing, biometrics capture and access devices, automated document authentication, automated biometric identification systems, and biometrically-enabled background checks, as well as systems design, development, integration and support services. These identity solutions enable L-1’s customers to manage the entire life cycle of an individual’s identity for a variety of applications including civil identification, criminal identification, commercial, border management, military, antiterrorism and national security. L-1 also provides comprehensive consulting, training, security, technology development, and information technology solutions to the U.S. intelligence community.

The Company’s identity solutions combine products and related services, consisting of hardware, components, consumables and software, as well as maintenance, consulting and training services integral to sales of hardware and software. The Company also provides fingerprinting enrollment services and government consulting, training, security, technology development and information technology services. A customer, depending on its 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 a multiple element arrangement.

The Company operates in two reportable segments: the Identity Solutions segment and the Services segment. The Identity Solutions segment provides biometric and identity solutions to federal, state and local government agencies, foreign governments and commercial entities. The Services segment provides fingerprinting enrollment services to federal and state governments and commercial enterprises, as well as comprehensive consulting, training, security, technology development and information technology services to the U.S. intelligence community.

Reorganization

On May 16, 2007, the Company adopted a new holding company organizational structure in accordance with Section 251(g) of the Delaware General Corporation Law (the ‘‘DGCL’’) in order to facilitate its convertible senior notes (the ‘‘Convertible Notes’’ or ‘‘Notes’’) offering and the structuring of acquisitions. Pursuant to the reorganization, L-1 Identity Solutions, Inc. became the sole shareholder of its predecessor, L-1 Identity Solutions Operating Company (‘‘L-1 Operating Company’’, previously known as L-1 Identity Solutions, Inc.). The reorganization has been accounted for as a reorganization of entities under common control and the historical consolidated financial statements of the predecessor entity represent the consolidated financial statements of the Company. The reorganization did not impact the historical carrying amounts of the assets and liabilities of the Company or its historical results of operations and cash flows.

The Company has no operations other than those carried through its investment in L-1 Operating Company, other than the financing operations related to the issuance of the Convertible Notes, and its assets consist of its investment in L-1 Operating Company of $1,290.5 million and deferred financing costs of $5.1 million. Its liabilities consist of Convertible Notes of $175.0 million and accrued interest of $2.5 million.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that in the opinion of management are necessary for a

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fair presentation of the financial statements for the interim periods. The unaudited condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (‘‘SEC’’) for interim financial statements, and in accordance with SEC rules, omit or condense certain information and footnote disclosures. Results for the interim periods are not necessarily indicative of results to be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The accompanying condensed consolidated financial statements include the accounts of L-1 and its subsidiaries, all of which are wholly owned. All material intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the allocation of the purchase price of the acquired businesses, assessing the impairment of goodwill, other intangible assets and property and equipment, revenue recognition, income taxes, litigation and valuation of and accounting for financial instruments, including convertible notes, warrants and stock options. Actual results could differ materially from those estimates.

Revenue Recognition

The Company derives its revenue from solutions that include products and services, as well as sales of stand alone services, hardware, components, consumables and software. Solutions revenue includes revenues from maintenance, consulting and training services related to sales of hardware and software solutions. Services revenue includes fingerprinting enrollment services and government consulting, security and information technologies services. A customer, depending on its needs, may order hardware, equipment, consumables, software products or services or combine hardware products, consumables, equipment, software products and services to create a multiple element arrangement. The Company’s revenue recognition policies are described in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Stock-Based Compensation

On January 1, 2006, L-1 adopted Statement of Financial Accounting Standards (‘‘SFAS’’) No. 123(R ), Share-Based Payment , which requires share-based payment transactions to be accounted for using a fair value-based method and the recognition of the related expense in the results of operations. L-1 uses the Black-Scholes valuation method to estimate the fair value of option awards. The compensation expense related to share-based payments is recognized over the vesting period for awards granted after January 1, 2006 and over the remaining service period for the unvested portion of awards granted prior to January 1, 2006.

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Determining the appropriate valuation method and related assumptions requires judgment, including estimating common stock price volatility, forfeiture rates and expected terms. The following weighted average assumptions were utilized in the valuation of stock options in 2008 (excluding the Bioscrypt assumed stock options) and 2007:

			Three Months Ended
			March 31, 2008						March 31, 2007
Expected common stock price volatility					52.2	%					91.3	%
Risk free interest rate					4.3	%					4.3	%
Expected life of options			5.3 Years						6.3 Years
Expected annual dividends					—						—

The expected volatility rate is based on the historical volatility of the Company’s common stock. In the second quarter of 2007, the Company reviewed the historical volatility of its common stock and began using a weighted average method that more accurately reflects volatility. The expected life of options are calculated pursuant to the guidance from Staff Accounting Bulletin No. 107. The Company estimated forfeitures when recognizing compensation expense based on historical rates. The risk free interest rate is based on the applicable treasury security whose term approximates the expected life of the options. The Company updates these assumptions on at least an annual basis and on an interim basis if significant changes to the assumptions are warranted.

Stock-based compensation expense was $3.1 million and $2.7 million for the three months ended March 31, 2008 and 2007, respectively, and includes $0.1 million related to restricted stock for both periods, and for the first quarter 2008 and 2007 period, approximately $0.2 million and $0.1 million, respectively, of retirement contributions paid in common stock. The Company recognized the full cost impact of the awards issued under its equity incentive plans in the condensed consolidated statements of operations for the three months ended March 31, 2008 and 2007 and did not capitalize any such costs. The following tables presents stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

			Three Months Ended
			March 31, 2008						March 31, 2007
Cost of revenues				$	266					$	143
Research and development					463						225
Sales and marketing					466						405
General and administrative					1,866						1,954
				$	3,061					$	2,727

Computation of Net Income (Loss) per Share

The Company computes basic and diluted net income (loss) per share in accordance with SFAS No. 128, ‘‘Earnings per Share.’’ Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is based upon the weighted average number of dilutive common and common equivalent shares outstanding during the period.

The basic and diluted net loss per share calculation is computed based on the weighted average number of shares of common stock outstanding during the period. The impact of approximately 4.2 million common equivalent shares for the three months period ended March 31, 2008 and the impact of approximately 4.6 million for the three months period ended March 31, 2007, were not reflected in the net loss per share calculations as their effect would be anti-dilutive.

The Company calculates the effect of the Convertible Notes for the three month period ended March 31, 2008 on diluted earnings per share utilizing the ‘‘if converted’’ method. For the three month period ended March 31, 2008, the effect was antidilutive. Accordingly, approximately 5.5 million shares

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of weighted average common stock issuable at conversion have been excluded from the determination of weighted average diluted shares outstanding.

In connection with the issuance of the Convertible Notes, the Company entered into a pre-paid forward contract with Bear Stearns for a payment of $69.8 million to purchase 3,490,400 shares of the Company’s common stock at a price of $20.00 per share. Pursuant to SFAS No. 150, the number of shares to be delivered under the contract is used to reduce weighted average basic and diluted shares outstanding for earnings (loss) per share purposes.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No.157 , Fair Value Measurements . SFAS No. 157, as amended, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. With respect to financial assets and liabilities, SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB determined that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until 2009. Accordingly, the Company’s adoption of this standard on January 1, 2008, is limited to financial assets and liabilities and did not have a material effect on the Company’s financial condition or results of operations. The Company’s still in the process of evaluating the impact of this standard with respect to its effect on nonfinancial assets and liabilities and has not yet determined the impact that it will have on the consolidated financial statements upon full adoption.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 is effective for years beginning after November 15, 2007. The Company has not adopted the fair value option method permitted by SFAS No. 159.

The FASB has proposed a FASB Staff Position (‘‘FSP’’) that would significantly impact the accounting for the Company’s Convertible Notes. The proposed FSP, if adopted in its current form, would require cash settled convertible debt to be separated into debt and equity components at issuance. The value assigned to the Convertible Notes would be the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the Convertible Notes cash proceeds and its assigned value would be recorded as a debt discount and amortized to interest expense over the life of the Convertible Notes. Although the proposed FSP would have no impact on the actual past or future cash flows from the Convertible Notes, it would result in recording a significant amount of non-cash interest expense as the debt discount is amortized. The FSP, if adopted, would require retrospective application.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-on Amendment of ARB No. 51 . SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim statements within those fiscal years. Among other things, SFAS No. 160 requires noncontrolling interest to be included as a component of shareholders’ equity. The Company does not currently have any material noncontrolling interests.

In December 2007, the FASB issued SFAS No. 141(R ), Business Combinations . SFAS No. 141(R) establishes standards for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for information to disclose. Among other things, SFAS No. 141(R) requires that securities issued to be valued as of the acquisition date, transaction costs incurred in connection with an acquisition be expensed, except acquiree costs that meet the criteria of SFAS No. 146, contingent consideration be recognized at fair value as of the date of acquisition with subsequent changes reflected in income, and in process research and development be capitalized as an

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intangible asset. The provisions of SFAS No. 141(R) are applicable to business combinations consummated on or after December 15, 2008. Early application is prohibited. The provision of SFAS No. 141(R) will have a significant impact in the accounting for future business combinations.

On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 provides guidance about the location and amounts of derivative instruments disclosed in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133, Derivatives Implementation ; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No.161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued after November 15, 2008. The Company is evaluating the impact of this standard on its consolidated financial statements.

3.    STOCK OPTIONS

Stock Options

The following table summarizes the stock option activity from January 1, 2008 through March 31, 2008:

			Stock Options						Weighted Average Exercise Price						Weighted Average Remaining Life (Years)						Aggregate Intrinsic Value
Outstanding at January 1, 2008					7,528,106					$	15.02
Granted					149,955						12.98
Assumed Stock Options – Bioscrypt					256,228						31.25
Exercised					(60,437	)					7.86
Canceled/expired/forfeited					(149,049	)					19.14
Outstanding at March 31, 2008					7,724,803					$	15.47						6.94					$	9,968,805
Vested or expected to vest at March 31, 2008 (1)					5,839,951					$	15.47						6.94					$	7,536,417
Exercisable at March 31, 2008					3,982,521					$	13.90						5.21					$	9,691,467

(1)	Options expected to vest are determined by applying the pre-vesting forfeiture rate assumptions to total outstanding options.

The aggregate unearned compensation cost of unvested options outstanding as of March 31, 2008 was $29.9 million and will be amortized over a weighted average period of 2.8 years. The total intrinsic value of options exercised during the three ended March 31, 2008 was $0.2 million. The intrinsic value is calculated as the difference between the market value of the Company’s common stock and the exercise price of options.

On May 7, 2008, the Company’s shareholders approved the L-1 Identity Solutions, Inc. 2008 Long-Term Incentive Plan, under which 2 million shares will be available for awards to employees, consultants and directors. Shares remaining available for issuance under the Company’s 2005 Long-Term Incentive Plan will be carried over to, and available for future awards under, the Company’s 2008 Long-Term Incentive Plan.

4.    INCOME TAXES

The provision for income taxes for 2008 is based on the consolidated annual estimated effective tax rate for 2008 of 43.7%. The income tax provision for the three months ended March 31, 2007 includes approximately $1.1 million which represent the aggregate increase in the deferred tax asset

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resulting from losses incurred for income tax purposes and a full valuation allowance against such deferred tax asset. Pursuant to SFAS No. 109, such provision was recorded for the amortization of tax deductible goodwill, for which the period of reversal of the related temporary difference is indefinite; the related deferred tax liability cannot be used to offset the deferred tax asset in determining the valuation allowance. The remaining income tax provision in 2007 comprises foreign and state income tax expense.

5.    RELATED PARTY TRANSACTIONS

Aston Capital Partners, L.P. (‘‘Aston’’), an affiliate of L-1 Investment Partners LLC and Lau Technologies (‘‘Lau’’), an affiliate of Mr. Denis K. Berube, a member of the board of directors of the Company, own approximately 9.8%, and 2.7%, respectively, of L-1’s outstanding common stock. Mr. Robert LaPenta, Mr. James DePalma, Mr. Joseph Paresi and Ms. Doni Fordyce, each executive officers of the Company, directly and indirectly hold all the beneficial ownership in L-1 Investment Partners LLC and Aston Capital Partners GP LLC, the investment manager and general partner of Aston. Mr. LaPenta is also the Chairman of the Board of Directors and Chief Executive Officer and President of the Company. Mr. DePalma is also the Chief Financial Officer and Treasurer of the Company.

The Company has consulting agreements with Mr. Berube and his spouse, Ms. Joanna Lau, under which each receives annual compensation of $0.1 million. Each agreement terminates on the earlier of January 10, 2012 or commencement of full time employment elsewhere. During the three months ended March 31, 2008 and 2007, $0.1 million and $0.1million, respectively, was paid in the aggregate to Mr. Berube and Ms. Lau in connection with the agreements.

Under the terms of a 2002 acquisition agreement of Lau Security Systems, the Company is obligated to pay Lau a royalty of 3.1% on certain of its face recognition revenues through June 30, 2014, up to a maximum of $27.5 million. Royalty expense included in cost of revenues was approximately $34,000 and $12,000 for the three months ended March 31, 2008 and 2007 respectively.

In connection with the merger with Identix, Aston and L-1 agreed in principle that the Company may, subject to approval of the Company’s board of directors, purchase AFIX Technologies, Inc., a portfolio company of Aston, which provides fingerprint and palmprint identification software to local law enforcement agencies, at fair market value to be determined by an independent appraiser retained by the Company’s board of directors.

In connection with the relocation of the corporate headquarters of the Company in the third quarter of 2006 to the offices of L-1 Investment Partners LLC in Stamford, Connecticut, the Company entered into a sublease with L-1 Investment Partners LLC under which the Company will reimburse L-1 Investment Partners LLC for the rent and other costs payable by the Company, which is estimated at $0.7 million annually. For the three months ended March 31, 2008 and 2007, the Company incurred costs of $0.2 million and $0.2 million, respectively.

In connection with the merger with Identix, the Company entered into an agreement with Bear Stearns Companies, Inc. (‘‘Bear Stearns’’) pursuant to which Bear Stearns provided financial advisory services related to the merger. The spouse of Ms. Fordyce, Executive Vice President, Corporate Communications is an executive and senior investment banker at Bear Stearns involved with the engagement and an employee of Bear Stearns has a personal investment in Aston. Pursuant to the letter agreement, Bear Stearns received $2.5 million upon the closing of the merger, plus expense reimbursement, as well as exclusive rights to act as underwriter, placement agent and/or financial advisor to the Company with respect to certain financings and other corporate transactions until August 2008. The Company waived any claims it may have against Bear Stearns with respect to any actual or potential conflicts of interest that may arise with respect to these relationships in the context of the Bear Stearns engagement.

Bear Stearns is party to the revolving credit agreement under which it was paid $0.3 million and $0.4 million in interest for the three months ended March 31, 2008 and 2007, respectively. Bear Stearns share of borrowings outstanding at March 31, 2008 approximated $21.9 million. In

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addition, Bear Stearns was an initial purchaser of the Convertible Notes issued on May 17, 2007 for which it received an aggregate discount of $4.8 million. Also on May 17, 2007, the Company entered in a pre-paid forward contract with Bear Stearns to purchase approximately 3.5 million shares of the Company’s common stock for $69.8 million to be delivered in May 2012. Bear Stearns acted as the broker for the purchase of 362,000 shares of the Company’s stock in January 2008 and received a commission of 2 cents per share.

The Company has employment and non-competition agreements with all of its executive officers. Such agreements provide for employment and related compensation and restrict the individuals from competing with the Company. The agreements also provide for the grant of stock options under the Company’s stock option plans and for severance upon termination under circumstances defined in such agreements.

As a condition to the closing of the Identix merger, the Company and L-1 Investment Partners LLC entered into a Termination and Noncompete Agreement which, among other things, (1) terminated all arrangements whereby L-1 Investment Partners LLC and its affiliates provided financial, advisory, administrative or other services to the Company or its affiliates, and (2) prohibits L-1 Investment Partners LLC and its affiliates from engaging or assisting any person that competes directly or indirectly with the Company in the business of biometric, credentialing and ID management business anywhere in the United States or anywhere else in the world where the Company does business, or plans to do business or is actively evaluating doing business during the restricted period; provided however that the foregoing does not restrict L-1 Investment Partners LLC and its affiliates from retaining its investment in and advising AFIX Technologies, Inc. The restricted period runs co-terminously with the term of Mr. LaPenta’s employment agreement with the Company, dated as of August 29, 2006, and for a twelve month period following the expiration of the term of Mr. LaPenta’s employment agreement. On April 23, 2007, the Company entered into an employee arrangement with Mr. Robert LaPenta, Jr., the son of the Company’s Chief Executive Officer, to serve as Vice President, M&A/Corporate Development.

In connection with the acquisition of Integrated Biometric Technology, Inc. (‘‘IBT’’) in December 2005, the Company issued warrants to purchase 440,000 shares of common stock with an exercise price of $13.75 per share to L-1 Investment Partners LLC, of which 280,000 are currently exercisable and 160,000 will become exercisable upon IBT meeting a specified level of operating performance.

In December 2005, Aston, completed a $100 million investment in and became the beneficial owner of more than 5% of L-1’s outstanding common stock. In accordance with the terms of the investment agreement, L-1 issued to Aston warrants to purchase an aggregate of 1,600,000 shares of L-1’s common stock at an exercise price of $13.75 per share, which are fully exercisable and expire in December 2008.

6.	SEGMENT REPORTING, GEOGRAPHICAL INFORMATION AND CONCENTRATIONS OF RISK

SFAS No. 131 , Disclosures about Segments of a Business Enterprise and Related Information , establishes standards for reporting information regarding reportable and operating segments. Operating segments are defined as components of a company which the chief operating decision maker evaluates regularly in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company operates in two reportable segments, the Identity Solutions segment and the Services segment. The Identity Solutions segment provides solutions that enable governments, law enforcement agencies, and businesses to enhance security, reduce identity theft, and protect personal privacy utilizing secure credential provisioning and authentication systems, biometric technology and the creation, enhancement and/or utilization of identity databases. The Services segment provides enrollment services to government, civil, and commercial customers, as well as comprehensive government consulting, training, network security, technology development, and information technology solutions to the U.S. intelligence community.

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The Company measures segment performance primarily based on revenues and operating income (loss) and Adjusted EBITDA. The segment information for 2007 has been reclassified to reflect the integration of ComnetiX’s products business into the Identity Solutions segment and its fingerprinting services business into the Services segment. Operating results by segment, including allocation of corporate expenses, for the three months ended March 31, 2008 and 2007 were as follows (in thousands):

			Three months ended
			March 31, 2008						March 31, 2007
Identity Solutions:
Revenues				$	48,061					$	37,344
Gross profit					14,290						9,971
Operating income (loss)					(3,313	)					(7,343	)
Depreciation and amortization expense					7,503						8,008
Services:
Revenues					67,935						32,663
Gross profit					17,064						7,385
Operating income (loss)					4,234						1,329
Depreciation and amortization expense					2,169						1,052
Consolidated:
Revenues					115,996						70,007
Gross profit					31,354						17,356
Operating income (loss)					921						(6,014	)
Depreciation and amortization expense					9,672						9,060

			As of March 31, 2008
			Total Assets						Goodwill
Identity Solutions				$	1,060,887					$	822,949
Services					368,447						261,922
Corporate					64,812						—
				$	1,494,146					$	1,084,871

Corporate assets consist mainly of cash and cash equivalents and deferred financing costs. Revenues by market are as follows for the three months ended March 31, 2008 and 2007 (in thousands):

			Three months ended
			March 31, 2008						March 31, 2007
State and local				$	30,754					$	28,557
Federal					81,937						40,305
Commercial					3,305						1,145
				$	115,996					$	70,007

14

The Company’s operations outside the United States include wholly-owned subsidiaries in Bochum, Germany, Oakville, Canada and Markham, Canada. Revenues are attributed to each region based on the location of the customer. The following is a summary of revenues and total assets by geographic region (in thousands):

			Three months ended												Total assets as of
			March 31, 2008						March 31, 2007						March 31, 2008						March 31, 2007
United States				$	107,953					$	61,476					$	1,445,285					$	1,189,273
Rest of the World					8,043						8,531						48,861						52,351
				$	115,996					$	70,007					$	1,494,146					$	1,241,624